Is a Lump Sum Relocation Allowance Really the Right Way to Go?

Lump sum relocation allowances are exactly what they sound like: an employer cuts a check to their employee for a single sum of money instead of providing funds to specific aspects of the relocation, like exploration trips, flight tickets and moving expenses. In these situations, employees are free to use (and responsible for using) the money however they see fit, to cover the costs of moving and settling in.

More and more, companies are opting to offer lump sum relocation allowances for their transferees. A likely reason is because relocations, especially relocations for lower-level employees, who are less experienced with moving for work, are more common than ever before. The idea of offering a lump sum may be attractive to businesses because of its seeming simplicity, but before electing to take the lump-sum strategy, it’s important to weigh the pros and cons.

Pros of issuing a lump sum relocation allowance

  • Less negotiating. Typically, with a lump sum relocation allowance, employers offer a set amount, and there isn’t much opportunity for employees to negotiate. When the employee uses up the amount, that’s it. This avoids the possibility of employees coming to your company to ask for more money, should expenses turn out to be higher then planned for any aspect of the move.
  • Less work for HR. HR departments don’t need to spend a lot of time researching, assessing and choosing services for the relocation. It typically falls on the employee’s shoulders to plan and execute every aspect of the move. All that’s really involved for HR is the quick task of deciding on an amount, alerting payroll, and having a check handed over to the employee.
  • Flexibility is simple. Many companies who choose lump sum relocation allowances create a simple tier system, allotting newer and less experienced employees a lower lump sum than top executives and CEOs. This way, it’s easier to understand what each employee should receive, simply by their rank in the company.
  • Employee may enjoy the flexibility, too, though a different kind of flexibility. Instead of being tied to the moving companies, property selling strategies, flights, etc. that their employers choose for them, employees have the freedom to choose the companies and strategies they think are best for them and their families, and they can spend the money how they want.
  • Avoids financial risks. Relocating an employee, for some companies, could mean taking on extra financial risks. For instance, some companies offer to buy an employee’s current home, and sell it themselves, in order to save the employee the burden of the task, and cut a lot of time out of the relocation. But if your company is buying a house and then trying to sell it in a weak market, the result is a potentially steep financial loss, when and if the house sells.

Cons of issuing a lump sum relocation allowance

  • More risk of employees declining the relocation.  The prospect of being handed a relatively large sum of money all at once may seem attractive to transferees…at first. But when they start to do the math, and see that the amount they have been offered does not cover all the steep costs of an international relocation, they may grow discouraged, and choose not to take the offer. This could leave your company scrambling to find another employee for the job.
  • Added stress for employees. While some employees might appreciate the opportunity to control the details of their moves, many, especially those who have never experienced a relocation before, are not prepared for all the planning, managing and physical work involved with the move. All the extra work could put strain and stress on your employees, which could lead to discouragement and extra work for everyone involved.
  • The relocation process can drag out. If you’re offering a lump sum relocation allowance, that means your employee is in charge of selling his/her own home, a process which could take many months, and slow down the relocation.
  • Pressure to spend, spend, spend. What if you end up allowing your transferee more money than he or she actually needs? Most companies who offer lump sum relocation allowances take back any money that hasn’t been spent. This strategy could encourage your employees to spend the money, even if they don’t need to. Bottom line, wasteful spending is just not good for business.

If your organization is looking into relocating staff members to Canada, ARIANNE offers a wide range of services, from comprehensive, easy-to-use Online Relocation Guides that your more autonomous transferees can use to direct their own relocation, to full-service, in-person concierge services for the busy executives who just want everything taken care of and arranged, so that they can make a seamless transition without interrupting their work. ARIANNE has been relocating families and professional for more than 20 years and we are here to help. No relocation is too big or too small, so visit our website for more details of contact us directly with your specific questions and concerns.

2018-06-26T19:44:49+00:00By |HR Solutions|

About the Author:

Fred Hornaday took a road trip from California to Wisconsin for his first birthday party. Since then, his itch to travel has led him on numerous cross country and transcontinental adventures throughout North America and Europe. He met his wife in Germany, got married in Denmark, and honeymooned in Colombia. He knows a thing or two about international travel and relocation.

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