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Payback Agreement Best Practices

Lately, we’ve been getting a lot of questions about payback agreements. We have chatted in the past here about whether or not payback agreements work, but we haven’t really discussed best practices in depth. We do recommend payback agreements for employers as a means to protect them against major financial losses should a transferee resign before the contracted period is up. But, from an industry perspective, we were curious about what others do. We tapped the Worldwide Employee Relocation Council’s knowledge center and here’s some of the relevant info that we found.

  • Just over 80% of employers have instituted the use of payback agreements for all of their newly hired employees.  Of these, 46% require payback for all relocation-related expenses, while 49% require a payback of Payback Agreement Best Practicesonly a prorated portion of all relocation expenses.
  • A recent pulse survey found that 94% of employers confirmed that their payback agreements require the employee to repay all relocation related expenses incurred by the company.
  • The most common term of a repayment agreement is two (2) years in length and those employers who had two (2) year payback agreements included prorating.

Popular 2 Year Repayment Schedules:

  • 100% up to 12 months, 50% months 13-24
  • Decreases 1/24 each month up to 24 months
  • 100% up to 12 months, 75% months 13-24
  • 100% up to 12 months, decreases 1/12 each month thereafter
  • 100% up to 6 months; 75% months 7-12, 50% months 13-18; 25% months 19-24

Now, some best practices:

  1. Payback agreements should always include detailed information about which expenses you plan to reclaim for the employee. Will you be reclaiming expenses paid to the employee, such as lump sums? Or, will you be reclaiming expenses paid on behalf of the employee, such as temporary living? Will you be reclaiming both types of payments? As you can see, the language here makes a huge difference so you have to be crystal clear.  If the intent is to collect expenditures for a compliant company-sponsored home sale assistance program (BVO, GBO, etc.), the agreement should not indicate “paid on behalf of the employee”.  The real estate commission and closing costs are business expenses and are not paid “on behalf” but “paid by the company”.
  1. Payback agreements should clearly define the length of time the employee will carry a repayment obligation and the starting point upon which the term is defined and repayment is calculated (i.e. transfer date).
  1. Payback agreements should also include language about the methodology you will use to reclaim payments. For example, how should the employee make the payments? Who should they be working with to settle up? How long do they have to pay back the monies owed?
  1. Finally, we recommend that you engage your legal department so that they can review your payback agreement to ensure it is enforceable.

Source: http://www.worldwideerc.org/Resources/Research/Members/Documents/Surveys/

Do you have payback agreements? Please share your best practices below.

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MIKE CANNING
VP, Client Services

RICK CALANNI
VP of Business Development Northeast Region

 

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