Why Companies are Turning to Managed Lump Sum Relocation Packages

October 29, 2019

When it comes to determining the right approach to relocation benefits, lump sums have remained a popular choice for several years. They can be simple, flexible and cost-efficient when done right. Typically, lump sums are less work for the organization because employees handle all the details associated with their move. Despite these benefits, they still pose some risks to companies – namely in that they leave employees to fend for themselves. 

However, there is an alternative to a lump sum approach that still offers notable benefits, while also protecting both the transferee and employer from potential issues – a managed lump sum program. 

What’s a managed lump sum program?

Think of a managed lump sum as an à la carte menu of relocation options to offer employees. With a managed lump sum program, companies define specific benefits and services that are covered. Every employee has different move needs, and managed lump sums provide a flexible benefit while allowing companies to track spending and reduce employee stress.

Benefits of a managed lump sum

Managed lump sums reduce stress for the employee.

For many who are outsourcing moving support for the first time, selecting a relocation company requires research, outreach and scheduling multiple estimates. Managed lump sum programs bypass this process by already vetting and identifying different service providers that employees may need. 

Managed lump sums prevent employees from exhausting funds mid-move.

When an employee is given a lump sum with total autonomy to coordinate their move, there is a risk they may run out of money before the move is complete. Managed lump sum programs include an initial step where transferees review and select the services they need within the provided budget to ensure they receive the assistance they require. 

Managed lump sums provide consistent service to employees relocating.

Because companies vet service providers ahead of time, both the employee and employer know what to expect ahead of the move. Additionally, it helps provide a consistent level of service and support among all of your transferees, reducing the chance of them experiencing radically different relocations. 

Managed lump sums allow companies to monitor spending – and potentially save money.

While there is a risk that employees may run out of money with a lump sum, they also might not need the maximum possible benefit. Tweaking your managed lump sum policy to include language stating employees may receive “up to” a certain amount can help reduce situations where your company is paying more than is needed. For example, if you offer up to $10,000 for household goods shipments, but your employee’s estimate is $8,000, you aren’t obligated the pay the remaining $2,000 under your company’s cap. 

What should companies think through? 

From anticipating costs for movers, travel and other fees, there’s a lot that goes into creating a managed lump sum relocation program. The first priority is to ensure employees receive proper care. Here are a few things to think through:

Cover all elements of the move process.
When considering what to include as part of your managed lump sum program, be sure that you are accounting for all of your employees’ potential needs. This includes traditional services like moving and storage, as well as other offerings such as spousal support, destination services, etc.  

Do the research to find the right partners. 

Not all relocation service providers are the same. Take time to shop around, connect with sales representatives and find the right providers that align with your company’s culture and goals.  

Provide adequate funding and benefits.

 According to a recent annual corporate relocation survey, nearly half of companies (47%) offer lump sum payments of $10,000 or more. Make sure you research what’s considered standard for your industry to both give your employees the support they’ll need, as well as remain competitive among others in your industry as potential employees may be evaluating multiple job offers. 

Tips for maintaining a successful managed lump sum relocation program

Whether you’re develop a managed lump sum program for the first time or are looking to revise your existing one, here are several considerations you should make to ensure your program is effective. 

Assess employees’ needs. 

While managed lump sums provide a variety of services for transferees, there isn’t much leeway beyond the services identified by the employer. Be sure to re-evaluate and assess your employees’ needs – at least on an annual basis. This should include analyzing which services are being utilized most, which are being overlooked and what needs are not being met. Work with relocation partners to update packages and services offered to be sure your company’s managed lump sum program serves the employees for whom it’s designed. 

Review service providers’ performance. 

Similar to assessing employees’ needs, assess your partners’ performance. Set expectations and create KPIs to hold everyone accountable. When defining KPIs with your mover, for example, consider setting goals around delivering employees’ belongings on time or staying within the move estimates that are provided. Remember to be realistic and realize that sometimes life happens, so leave room for error.

Identify where the tax burden should lie.

Especially following the 2018 tax reform, which severely limited what relocation expenses are tax-deductible, it’s critical to understand where the tax burden associated with your offered benefits will lie – with your organization or the employee? If the latter, recognize you may need to offer a gross-up to ensure the stated benefit amount isn’t cut into by taxes. For example, if the employee will need to pay $2,000 in taxes on a $10,000 modified lump sum, consider offering them $12,000 so they have the full $10,000 to spend on their move without having to be concerned with the tax burden.

See how a managed lump sum aligns with your company’s culture and goals.

Whatever relocation benefit structure you offer, it should align with your company’s culture. If you value consistency, then a traditional relocation package or a managed lump sum should be considered. For those that see flexibility as a top consideration, then a traditional lump sum or core-flex plans can be an effective way to go. 

When does it make sense to outsource this management?

The answer to this question is directly informed by your department’s bandwidth. The success of a managed lump sum program hinges on the ability to meet with transferees and develop a collection of relocation benefits that best meets their needs and budget. When your HR or mobility department doesn’t have the time to do this, you should consider outsourcing the management of your program. 

The best way to determine if a managed lump sum program and outsourcing the management is right for you is to talk to experts who offer these types of services. Whether your company decides to hire a third party or handle things internally, remember what’s most important – providing the best experience possible for your relocating employees. Learn more about how GoRelo can make your employees’ relocation experience as seamless as possible. 

Have any questions about relocation? Contact us and let us help give you answers.

 

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