The difference between lump sum, allowance and core flex employee relocation policies
Employee relocation policies form a valuable benefit that organizations can offer to new and existing employees. These policies take on many shapes and sizes, but three general categories include lump sum, allowance and core flex plans.
Lump sum employee relocation plans
A lump sum plan works pretty much the way it sounds: Employees are given a fixed amount of money to use in any way they like. Sometimes, employees may choose to keep portions of the lump sum they don’t end up spending on relocation. Keeping the leftover amounts of a lump sum can work for employees if they make a true assessment of all their costs, but employee relocation doesn’t only include the cost of movers. Employees may keep their funds and spend them somewhere else, only to realize they’ve forgotten some key pieces of the total cost of moving. They may end up spending their own money on domestic or global relocation services.
A downside of lump sum distributions: they’re taxable. Some employers may alleviate the employee tax burden by offering an additional amount intended to cover the taxes on the actual, spendable amount of the benefit. Direct billing arrangements between employers and providers—like movers, global relocation services, and others—can also relieve the employee’s tax burden.
Allowance employee relocation plans
Different than lump sum employee relocation plans, allowance plans set a maximum amount that employees can use for relocation. Employees typically don’t get to keep the money they don’t use. Employers can save money by offering allowance plans, but employees sometimes find them less desirable. These plans can result in overspending that leaves employees responsible for part of the costs.
Core flex employee relocation plans
Core flex plans combine "core" benefits like shipment of household goods, employee relocation and policy counseling, and travel, with optional benefits a company or individual can choose, like home finding trips, mortgage assistance or various global relocation services. Domestically, the Worldwide Employee Relocation Council® (ERC) says core flex plans comprise 25% of all relocations. The benefit of core flex arrangements is the flexibility to customize plans based on a variety of factors. The downside is that this same flexibility can make the plans confusing and difficult to administer.
Relocation policies are valuable employee benefits. Helping employees understand them maximizes the value of these plans as attraction and retention tools. Most importantly, the right plan can match the right person with the right job, in a location that works for everyone.
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