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The Rise of the Hybrid Lump Sum Relocation Policy

Lump sums are all the rage. And, they will continue to be a hot ticket item. Yep, we said it. While we are not the lump sum’s greatest fan, we wholly accept that many employers will be working to combine as many relocation services as possible into a lump sum component.  Predictability is, understandably, very important for managing budgets. But, on the other hand, predictability does not automatically translate into cost savings.  In fact, it could do just the opposite.

As the economy comes back, we are beginning to see increased relocation program activity.  However, employers Lump Sum Relocation Policiesremain cautious about increasing the number of administrators to manage the process.  Certainly, relocation companies are willing and able to take on additional processing to support HR but, now that HR has become comfortable with lump sum programs, they may not see a reason to go back to defined benefits. Further, as the housing market continues to improve, transferees will raise less objections to the sum total, some even feeling confident they might be able to pocket leftover funds at the end of the relocation.

So, for at least the time being, while internal company resources have not yet been restored to manage the ever increasing volume of responsibilities, we expect to see resurgence in lump sum and limited lump sum programs.

In a positive shift, many employers are now have been taking a hybrid approach to the old lump sum relocation policy; combining some specifically defined benefits, such as home sale, home purchase and shipment of household goods, with a lump sum payment designed to cover other necessities, such as home finding trips, temporary living, final move, and other miscellaneous items.  What we like about this approach is that it gives a framework for coverage for the major areas of concern, while still supporting other items that can vary in importance by transferee and to the relocation process in general.

Further, lump sum administration is far easier than spending hours poring through random Cracker Barrel and Residence Inn receipts (as a sidebar, your relocation provider should be doing this for you).

But, this still doesn’t mean that you don’t have to do calculations. How are you determining the lump sum? Is it the same for each transferee?  Does it vary by job, or location?  Will you give more to transferees with a family, or those who own homes?  Another point to consider is the lack of understanding exactly how much was necessary of the lump sum to truly get the job done.  You will always hear from the transferee where funds ran short of needs.  However, we have never heard of a transferee returning a portion of the allowance because it was too much.

To this end, one of the biggest challenges with lump sum programs is that they are often used for entry-level hires who may not understand what they will need to successfully relocate. As such, they will require some guidance on how to allocate their resources effectively.  Further, college graduates are usually so excited to hear that they will be receiving several thousand dollars to move that the level of enthusiasm is akin to a kid in an arcade with a pocket full of quarters.  In both instances, the money never goes as far, nor lasts as long, as they think it will. Consequently, their positive attitude quickly changes when they realize the cost of moving, temporary living, leasing fees, travel and other “miscellaneous charges.”  In no time, the inefficiently spent funds are gone, leaving the transferee to plead his or her case to a manager. More often than not, managers will extend additional monies, which may or may not be captured as a relocation expense. This makes budget tracking all the more difficult when evaluating your relocation program.

Here, adding structure will help transferees and relocation managers use available resources more effectively.  If your limit is $2,000, consider direct billing a self-haul rental truck and then extending an allowance of $1,000.  If your limit is higher, pay for the cost in actual administered benefits wherever possible and allocate a smaller amount for truly miscellaneous expenses.  For example, if you have a target of $10,000, you can break down the cost over specific anticipated cost items, such as household goods movement, temporary living, home finding and final move, while leaving a smaller portion of the benefit to a miscellaneous “catch all” allowance. At the very least, provide your transferee with a menu of relocation services that they will need, including their cost, so that they have some reference to help allocate funds.

Another method being used is a program called “Core Flex,” which was developed specifically to address these concerns. This program starts with a given set of covered items for the “Core.” These items are specifically defined benefit options, which make most sense for the individual transferee and their family.  Unlike a straight lump sum, the benefits have to be used, as defined to be covered or reimbursed.  While not perfect, this program gives flexibility to the transferee, while also offering cost containment to the company.  The downside is that this program is a bit of a return to a primary reason the company moved to lump sum in the first place.  Under this program, companies will still need to audit receipts and coverage challenges and, in some cases, may have to ask for reimbursement.

However you administer lump sum benefits, you should be able to rely on your relocation partner to provide administration support. With the help of a third party relocation company, you can offer hybrid packages without increasing the headache to your staff. It’s worth considering, especially if you feel your transferees are not using funds wisely or if you want to save on tax gross ups down the line.

When was the last time you reviewed your lump sum program?


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VP, Client Services

VP of Business Development Northeast Region


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