Corporate Relocations – Lump Sum Relocation Packages
Moving employees can be a complex and expensive exercise. Today more and more New Zealand companies are reviewing their relocation policies and deciding what type of relocation package they should offer. Many are moving from the provision of a full-service relocation programme to a lump sum version, or a combination of both.
Lump sum relocation programs are nothing new. Most commonly lump sum reimbursements are provided by employers for domestic one-way moves and permanent or long-term international relocations. A lump sum is defined as a cash payment made to a relocating employee. The intention is to cover all or a portion of relocation costs that would otherwise be managed directly by the employer.
How Are Lump Sum Payments Distributed?
A lump sum allowance is usually paid to the employee through payroll or on a preloaded company debit card (a great option for new hires not yet on payroll). Some companies may also choose to reimburse an employee for moving expenses, paying agreed costs after the fact.
NZ Van Lines advise any company considering a shift to lump sum payments to firstly discuss the tax implications with their finance team. In general terms an unencumbered lump sum payment is subject to PAYE, these are often grossed up by the employer. Expenses that are on the IRD list of eligible relocation expenses can be reimbursed tax free. The payment must reflect the actual cost. Costs must be incurred before the end of the tax year after the employee relocates.
Why Choose a Lump Sum Approach?
In a competitive labour / recruitment market, lump sum relocation payments can be presented by the employer as a positive differentiator for attracting new hires and retaining existing staff. Transferees will often view their payment as a financial windfall or bonus. They will have a high level of autonomy and freedom as to how the money is spent.
In general terms lump sum relocation programmes are an uncomplicated way for companies to administer relocation expenses and manage their budgeting process. It puts far fewer demands on Human Resources, Mobility, Procurement, and Accounting teams. There is no need for a business to document individual expenses or deal with service providers.
Lump sum allowances and reimbursements offer cost controls that companies cannot achieve with a policy led approach. A flat or fixed financial payment makes it easier for employers to manage budgets and takes the guesswork out of determining the final cost of a relocation. Once a lump sum amount is calculated and paid, there is generally a reduction in the number of exception requests received.
Challenges Of a Lump Sum Approach
A stand-alone ‘no frills’ lump sum package may not be the most attractive option if other companies are offering more focused and personalised relocation plans. In assessing the merits of their current and / or future employers the younger generation are placing high importance on company culture. A lump sum relocation offer, subject to PAYE may not communicate they are highly valued by the employer.
It’s well known that moving home is one of life’s most significant stressors. Employees offered a lump sum relocation are unlikely to be fully aware of the actual costs. There is a lot to consider including PAYE, removals, storage, insurance, real estate costs, travel, transit accommodation, pets, vehicles, cleaning, bonds etc. Many will either scrimp on costs or face a monetary shortfall. In the event of cost blow-outs there is the possibility of a corresponding negative impact on the employment relationship.
When employees are busy trying to organise and manage their relocation it leaves little time to concentrate on doing their job, or preparing for a new position. Without guidance and access to company pricing they will not have the same benefits or level of priority their employer can achieve through a managed programme. This can result in higher costs, lost productivity, and additional sick or leave days being taken to ‘self- manage’ their move.
NZ Van Lines Recommendation
NZ Van Lines recommend that employers favouring a lump sum model adopt a company supported version, rather than a 100% ‘self-service’ model. While the employee is still provided with a lump sum, their employer provides additional support and direction on how to maximise their spend. The payment can be structured to cover specific services and activities, using service providers from an approved list of preferred suppliers. This allows employers to retain an element of control over the quality and competitiveness of the supply chain.
At NZ Van Lines we are well versed in the provision of ‘lump sum’ removal and storage services to the employees of our government and corporate partners. All transferees directed to NZ Van Lines will have access to the same level of priority and pricing as their employer. If cost over runs occur, we are happy to reduce stress levels and potential conflict by facilitating split invoices and billing both the company and employee, for their share of the cost.
If you are a corporate or company relocation manager looking for assistance with your moving needs NZ Van Lines will be delighted to assist. Please contact our Corporate Services Manager Paula Garrett by email: firstname.lastname@example.org