DEVELOPING A RELOCATION POLICY A GUIDE TO GETTING STARTED

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1 CAPRELO PRESENTS DEVELOPING A RELOCATION POLICY A GUIDE TO GETTING STARTED

2 Inside Setting and Revising Relocation Policies 2 Understanding Status and Tiers 2 What is Status? What is a Tier? Types of Relocation Policies 3 What's Best for Your Company? Lump Sum Policies Direct Reimbursement Policies Managed Relocation Policies Core-Flex Policies Tiers for Real Estate Sales 6 Executive Level Home Sale Assistance Buyer Value Option (BVO) Program Home Sale Bonus Incentive Will it Save You Money? 7 Final Thoughts 8 Contact Us 1

3 Setting and Revising Relocation Policies WHAT S THE POINT? Many executives simply don t realize how critical having an up-to-date policy is for the success of the organization. Best practices and tactics are always improving, therefore it is critical to make certain your relocation policies are keeping pace. Not only will updating your relocation policies save the company money directly, it will help you retain valuable employees. Just as you would consider using the latest tax-saving tools at tax return time, the same should be said for having the most current and relevant company relocation policies. Corporate relocation policies should be reviewed regularly to integrate with your corporate culture and industry best practices. Also, be certain to find out what s most important to your employees. You ll likely discover similar items at the top of the list for many of them. These typically include: Home Sale Spousal/Partner Support Good Neighborhood Fair Price Relocation policies are broken into a few main categories based on how much involvement the employer has, and how much of the burden of managing relocation is placed on the employee. Any type of program may use tiers to determine either how much money the relocating employee will receive (in the case of lump sum reimbursement policies) or what expenses are covered in a direct reimbursement or managed package. Understanding Status and Tiers If you are restructuring or introducing a corporate relocation policy for the first time, one of the questions you may consider is how to differentiate employees in a tiered policy. WHAT IS STATUS? An employee s status refers not to their status within the company, but rather, their moving status. In other words, it addresses the services an employee may need when he or she moves. For example: Homeowner or Renter? Single or Married? New Hire or Current Employee? 2

4 Additionally, an employee s status may address individiualized needs. Does the employee have: Kids in school? Pets to relocate? Elderly parents that require care? Understanding an employee s status is critical to ensuring a smooth relocation and can help ease the stress he or she may be feeling in regards to impact outside of the workplace. WHAT IS A TIER? An employee's tier is related to their standing within the company. Employee tiers may be determined based on salary, title (job level), seniority or a combination of all three. Be consistent in determining employee tiers to set your business relocation policy and stick with it to avoid resentment from employees if exceptions are made for certain relocating individuals and, similarly, to avoid lawsuits if one employee believes another is receiving special treatment to encourage the move. Types of Relocation Policies WHAT'S BEST FOR YOUR COMPANY? There are several types of relocation policies that could work for your company. Let's look at the pros and cons of lump sum, direct reimbursement, managed relocation and core-flex policies. THE LUMP SUM POLICY In a lump sum policy, employees are given a pre-determined amount to manage their relocation. There are several different lump sum programs available for your company. All Inclusive Lump Sum Payment In this policy, the employer issues a single check to cover the employee's moving expenses. The burden is on the employee to manage their own relocation, including selling and finding real estate, moving household goods, helping a spouse find a job and even organizing their own house hunting trips. The employer has no say as to how the lump sum package is spent. The benefit for employers is that this type of domestic relocation policy is easy to administer. A drawback is that the entire payment is considered income to the employee and may be grossed up so the employee does not incur a tax liability. 3

5 Managed Lump Sum With this policy, the employer allocates a lump sum amount to the employee but requires the professional assistance of a full-service relocation company. Managed lump sums may be an appropriate hybrid that provides flexibility, cost control and professional guidance, resources and quality control. When creating an efficient and cost-effective lump sum program, it's helpful to remember that all relocation expenses paid on behalf of the employee are considered taxable income with the exception of household goods move, 30 days of storage and final move costs. THE DIRECT REIMBURSEMENT POLICY In a direct reimbursement policy, employees are reimbursed for each item that is part of their move. In many cases, the employer or a relocation firm acting on behalf of the employer will offer assistance with lining up service providers, including real estate agents and household goods movers. The employee will pay expenses out of pocket, but will submit receipts and be reimbursed. Expenses may be grossed up to reduce the employee's tax liability resulting from taxable expenses being added to income. This type of policy can work well, especially if the employer has a hand in lining up service providers. Employees don't feel a burden to stretch their dollars and can be assured good service to sell their house quickly and move with less stress. THE MANAGED RELOCATION POLICY In this type of relocation policy, the employer or a corporate relocation firm handles every aspect of the move for the employee. The employer can work with a relocation firm to assure relocation service providers offer the best service available, resulting in an employee who can get back to work faster, with less stress. Managed and direct reimbursement relocation policies provide full service, flexible, professional guidance to a relocating employee or new hire. Both policies may help you save money and ultimately keep your key talent more productive. 4

6 CORE-FLEX POLICIES In a core-flex relocation, policies take a sort of "pick and choose" approach to building packages that can appeal to a broad range of employees who may have radically different needs. For example, if you're offering a corporate relocation to a recent college grad who doesn't yet own their own home, you won't need to provide them with home sale or purchase assistance. On the other hand, more tenured employees and high-level executives with established community roots and families will greatly benefit from all the assistance they can get in those areas. Consider the core components: COMPONENT ONE COMPONENT TWO The first is a core package that all relocating employees will require, regardless of job level or homeowner status. This includes basic considerations such as the transportation of household goods, temporary housing and travel costs. Second are services that may vary depending on the individual, but still provide flexibility to cater to the dynamic needs in your workforce. This commonly includes spousal support, home scouting trips, child care, pet services, elderly caregiver services and the aforementioned home sale and purchase assistance. ADVANTAGES AND DISADVANTAGES Flexibility and cost savings. If it s your aim to recruit and retain the best in your industry, offering flexible relocation terms will enable you to cater a package better aligned to the needs of the individual making the offer far more attractive. Core-flex policies can also provide significant costs savings through the elimination of unnecessary benefits. Core-Flex Policies The primary disadvantage of this type of policy is that they take more work to manage than a onesize-fits-all program. Extra manpower and time will be needed to keep service offerings up-to-date to ensure cost effectiveness. In addition, the workload for recruitment and retention will likely increase as relocation benefits will need to be negotiated for each individual. 5

7 Tiers for Real Estate Sales In addition to tiers for relocation policies, there are also tiers for real estate sales. Here are a few ways you can structure a tiered employee relocation package to address real estate concerns and encourage quick home sales. EXECUTIVE LEVEL HOME SALE ASSISTANCE An executive level employee relocation package might include a Guaranteed Buyout Option (GBO) along with a formalized Marketing Assistance Program (MAP). A GBO may be a cost-effective solution that promotes bottom-line productivity, reduces stress on the employee/family and mitigates taxation of real estate and closing costs as imputed income as in a Direct Reimbursement program. BUYER VALUE OPTION (BVO) PRORGRAM Lower or middle management might receive a Buyer Value Option (BVO), ensuring the satisfaction of the employee through participation in the sales process and the tax advantages afforded a compliant program as in a GBO. HOME SALE BONUS INCENTIVE An additional option to a Home Sale Assistance (HSA) program is a Home Sale Bonus. This can become part of any tiered relocation package for employees of any level. You simply need to change the amount of the bonus employees receive when they sell their home within a specified time period, using approved real estate providers. 6

8 Will it Save You Money? USING TIERED POLICIES TO CONTROL COSTS Are you thinking of establishing a tiered business relocation policy to better meet the needs of your relocating employees and save your company money? Remember, that even a tiered business relocation policy may have hidden costs that need to be considered. Establish the answers to these questions as you set your new relocation policy: Will you offer exceptions in a business relocation package? Under what circumstances? How many tiers will cover your different levels of employees? What factors will you take into consideration when determining the tiers? (i.e., homeowner or renter? Will the employee be relocating with a spouse, kids or elderly parents?) Do you know what other companies in your industry are offering in their relocation packages? Tiered relocation packages provide good flexibility for an employee's needs without having to renegotiate the business relocation package every time you are relocating an employee. In addition, your tiered packages should provide enough flexibility to keep employees happy, which will aid your recruiting and retention efforts. They should also be competitive with the relocation policies of other companies in your industry and address today's primary relocation concerns, especially the challenges involved in selling real estate in today's market. Finally, it's important to understand the tax implications to employees for the relocation benefits you offer. The only expenses not considered taxable to a relocating employee are the shipment of household goods and personal effects, the first 30 days of storage and family final move expenses (with the exception of meals and mileage over the IRS rate). All other expenses, whether reimbursed to the employee or paid to a vendor, are considered taxable supplemental income to the employee and subject to withholding. Most companies choose to provide tax assistance (gross up) to help with the tax burden rather than withholding and reducing the benefit amount paid to or on behalf of the employee. Additionally, eligible costs associated with qualifying home sale programs may be excluded from income unlike direct reimbursement to the employee for home sale costs, which is fully taxable. 7

9 Final Thoughts Contact Us Now CapRelo Quicksilver Dr. Sterling, Virginia What needs to be updated with your relocation policy depends on a variety of criteria. Maybe your policy is effective and well executed, needing only a few minor changes to optimize. It's also possible that your relocation policy is in desperate need of a complete overhaul to better reflect your company's business objectives. Or, maybe you don't even have relocation policies at your organization. Whatever you use now to administer a corporate relocation, taking a close look can only improve the results of your future relocations. CapRelo Canada: CapRelo EMEA: +44 (0) info@caprelo.com Connect With Us /company/caprelo /caprelo 8