The pros and cons of providing relocating employees an up-front, pre-determined sum of money to cover moving-related expenses – the lump sum – have long been debated in the mobility industry. But like all financial and strategic business decisions, it’s well worth periodically evaluating their effectiveness through several lenses. Given the current pace of economic, social and workplace change, now is a good time to do just that.
One important note: the following exploration focuses on U.S. domestic transfers, as companies offering a lump sum as part of a cross-border move typically limit them to cover very specific components, such as temporary living or travel allowances to round out more robust types of assistance. Given their complexity and compliance risks, global moves by nature require much more comprehensive, hands-on support than a simple lump sum alone can provide.
Let’s start with some important stats. Worldwide ERC® research found that in 2022, the average cost for U.S. domestic permanent transfers reached an all-time high of $85,466 for homeowners and $33,532 for renters. The average household goods shipment expense was $16,465.
The report also predicted that this record-breaking trend was on track to continue this year, projecting an approximately 9% increase in costs to $93,823 for homeowners and $36,486 for renters. That forecast was made last summer, even before the Fed’s inflation-fighting interest rate hikes brought the current level to the highest it has been in over two decades. With that in mind, those projections could prove to be too conservative.
Meanwhile, many companies are still offering lump sum amounts that just aren’t keeping pace with these rising costs, resulting in less-than-stellar experiences at best or outright declines to move at worst. While totals will vary by what they are intended to cover and such other determining factors as job level or type of employee, family size, homeowner or renter status and distance of move, lump sums tend to range between $5,000 and $25,000.
In addition to the household good shipment figure noted above, averages for other important types of moving support also came in well over $10,000 – such as cost of living assistance at $11,798 and temporary living at $11,339, driven in large part by the lack of available housing inventory in many key markets.
Even at the more generous levels, the actual worth of the lump sum can be quickly eroded by such additional expenses as lease cancellation fees, security deposits, insurance and transportation to the new location. Those expenses quickly chip away at what the employee has left to spend on moving their belongings, often one of – if not THE – largest component of the total. This leads to a financial deficit they need to figure out how to solve. Opting for a cheaper, less reputable mover runs the risk of delays, higher claims, or even unscrupulous demands for more money before releasing the shipment. Lump sums are considered taxable income to the employee and unreimbursed moving expenses are not currently deductible (something the industry is collectively working to try to change when the current rules expire in 2025). The average federal tax liability noted in the ERC research was $14,289. If companies don’t gross-up to tax assist, it’s another example of how the true value of the lump sum to the relocating employee is significantly diminished.
It’s easy to see that the math just isn’t adding up if the goal is to provide meaningful support to get the right talent in the right place.
Effectiveness check: The considerable pressures business leaders are putting on their HR, talent recruitment and global mobility teams to contain costs are real. But the current conditions are prompting employees to more carefully consider whether a relocation – and what types of support they are offered – will be financially feasible for them, too.
Companies competing for talent at all levels need to be mindful of the landscape and adjust their game plans accordingly. If lump sums are still to be a valuable tool in the toolbox, they should be regularly reviewed and adjusted to meet current market conditions, fully covering the costs of shipping household goods and transport to the new location at a minimum.
At first glance, the lump sum approach seems to have low levels of administrative burden to the company while giving employees greater control over and choices about their moves. A win-win, right?
Maybe not so fast. Without any sort of additional support, the onus of managing the details of the move rests entirely on the employee (and/or any accompanying family members). At a minimum, this is likely to result in a period of lost focus while they research vendors to work with, compare costs and arrange all the details. Those logistics are significant, even if big-ticket items like home sale and purchase are removed from the equation. Details like:
That’s a lot to ask a current employee or new hire the company is hoping to bring up to speed and into a new role and location quickly and efficiently. The time and energy they are spending on managing their own move could be directed into onboarding and acclimation into the nuances of the job they are moving to perform.
Distraction and lost focus are bad enough, but if something goes wrong along the way, employees will inevitably ask for help, more money, or both – and might even consider walking away entirely or leaving the company shortly after the move. What seemed an easy and cost-effective solution at first can quickly drive up both the price tag and the proverbial “noise factor,” requiring teams to step in an re-evaluate, provide additional aid or approve exceptions to total spend.
“Managers and up should never get a lump-sum-only package.-Mobility Leader, Large Multimedia Company
How do you expect your employees to be productive and hit the ground running when they have to do everything themselves?”
Effectiveness check: The true costs of a lump sum approach should be determined holistically. It’s important to evaluate whether a lump sum model is really delivering the level of administrative freedom and employee flexibility intended, or if it is driving higher costs in lost productivity, significant delays or exceptions. If it is contributing to the risk of losing valuable talent altogether, it could take 6 to 9 months of the employee’s total salary to recoup that loss, according to Society for Human Resource (SHRM) estimates.
Another important consideration here: the impact on reporting and tracking metrics. If companies relinquish total control and accountability over the spend with the lump sum approach, they lose valuable insights into the true costs of the move.
“Today’s employee is a consumer of the workplace. Employees are no longer satisfied with checking in and out and receiving a paycheck. They are looking for meaning in their work, a supportive, collaborative environment and an employer that can match the lifestyle they want.”
That quote from a Gallup Workplace study, echoed in similar form by numerous other business reports, explains the current employee/employer relationship. Despite the tough economic headwinds, the labor market remains extremely tight and companies are competing for the best skills. The people with those skills are becoming more discerning about how, where and for whom they want to work.
As noted above, an employee’s or candidate’s ability and willingness to relocate may already be tempered by prohibitive costs and rising interest rates. The promise of a more positive, rewarding opportunity and meaningful work can be strong incentives to move. Companies focusing on delivering that, throughout all stages of the employee journey, have a significant competitive advantage.
If an individual’s skills are considered valuable enough to want to bring them into or move them within the company to a specific role and place, the relocation package should reflect that supportive, collaborative environment today’s top talent is seeking.
Another crucial factor here is relocation’s role in helping companies achieve greater diversity, equity and inclusion (DE&I). Employees have varying relocation needs and expenses based on their individual circumstances. Providing a standard lump sum, even if tiered by job level or region, may still result in inequitable treatment, as it doesn’t account for the unique financial requirements of each employee, or their family dynamics, such as a need for child or elder care in the new location. The “one size fits all” premise of the lump sum may be woefully out of step. Employees talk, and news of a bad experience travels fast.
Effectiveness check: Multiple studies have shown the direct correlation between high levels of employee engagement and company profitability and ROI. A relocation of any sort is an investment in talent, and especially for new hires, it is the first impression an individual has with the company, management and overall brand promise. Providing a certain level of support and guidance to help employees on the move – beyond a single sum of money – demonstrates a commitment to their success and sets both parties on the right path for a long and mutually beneficial relationship.
Many employers find the managed cap or core/flex approaches prove more viable alternatives to the typical lump sum. These models still deliver a level of control over costs by setting maximums as determined by the company, but also offer employees some flexibility and choice. Whatever policy option works best, the keys are to focus on the word “managed,” which helps ensure not only the right financial levels of support, but higher levels of care and expertise by working with known and vetted partners.
In other types of relocation policy models, companies determine a limit to the amounts that employee relocation benefits cannot exceed, either holistically, or by maximum levels of financial support for individual services. A key difference to lump sums is that funds are not typically disbursed directly to the employee but can be handled via direct service partner agreements. Some organizations will use dollar-based models, while others may offer a points-based system, in which the employee has a pre-determined set of points to apply to the services that best suit their individual and/or family needs.
Another alternative to the lump sum approach when it comes to covering the costs of shipping household goods is to consider a direct contract with a reputable and experienced household goods mover. There are several advantages, including:
With the increasing costs associated with just about every aspect of a move, the steep competition for talent and skills, and the heightened focus employees have on working in a fulfilling, supportive and collaborative environment, now is a good time to take a hard look at the lump sum and evaluate whether it’s still the right approach for your company, your people and your bottom line.
Need some assistance in evaluating your current program? Contact us to see how we can help.