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How to Project Relocation Costs More Efficiently

Relocation BudgetWith relocation busy season around the corner, relocation managers are probably dusting off their policies and taking a good look at relocation budgets. But, how realistic are those budgets? One of the biggest challenges that human resources and procurement managers face is the difficulty of designing a proper relocation budget and then sticking to it when the rubber hits the road. That’s why clear cost projections are the linchpins that connect cost containment with adequate relocation benefit delivery. In order to ensure clear projections, its critical to get the most accurate view of anticipated costs right out the gate, preferably before an offer has been extended to the potential transferee. 

If possible, the best way to get a true picture is to have a pre-relocation interview with the move candidate(s) to discuss any specific needs and the overall feasibility of the relocation given the employee’s particular situation. This interview should cover housing concerns, family needs, financial issues and any other facet of the employee’s life that will be impacted by a relocation.

Those HR departments that are uncomfortable with such interviews, or that have specific rules preventing probing in these areas, can still execute a reasonable assessment. In these instances, the employer might provide their candidates with a comprehensive prep tool that gives an overview of the company’s move objectives.  It should also give the transferee insight into the complexities of relocating, what to expect, how to assess financial viability and how to determine if additional services will be needed.  After completing the pre-move tool, the candidate will be more informed about the relocation’s impact when discussing the potential move with their hiring manager.  In turn, the hiring manager will be able to gather valuable information about the employee’s needs and the total costs anticipated.

Once specific needs are accounted for and relocation benefits are understood, the cost of each component can be investigated using a variety of resources, from vendor information to the internet. For future adjustment flexibility, pricing should be broken down into the lowest divisible unit.  It’s important to remember that, with each component, you must also consider the tax cost to the transferee.  If your intent is to limit the tax implications to the transferee, than not only will the taxes be taken into consideration, but also the tax on those taxes being covered.  This additional consideration is referred to as a “gross up,” which, after home sale and the household goods shipment, is the most expensive line item for a typical homeowner relocation.  With each cost and tax treatment projected, adjustments can be made to either reduce or increase the total anticipated cost based on the transferee’s specific needs. As the relocation progresses, the projection should be updated to give you more accurate information as it comes in.  You can expect factors such as the actual home selling price, the size of the household goods shipment and new home purchase price to fluctuate. A good technology platform will adjust the bottom line in real-time so that you can see how things are proceeding. Keeping current on anticipated expenses provides for better real time budgeting.

Once you have better real-time budgeting, you will be able to identify trends and even cost saving opportunities more efficiently. This will not only help manage your budget this year, but it will also give you a framework for next year’s budgets.

This blog post is an excerpt from our latest relocation whitepaper, How to Effectively Customize Your Relocation Program.

How do you project relocation costs? Do you offer your employees a pre-decision assessment?

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RICK CALANNI
VP of Business Development Northeast Region

 

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