Relocation Bonus vs Relocation Reimbursement

Now, more than ever, companies need to attract and retain quality employees. A key way to accomplish this involves providing employees the benefits they need when they need them. And, when the company wants to transfer employees to a new business location that requires them to move, employees appreciate quality relocation packages to cover costs, streamline the move, and reduce stress.

Amounts of these benefits can vary based upon your industry, among other factors. If you’re in the competitive tech or finance industry, as two examples, your company may decide to offer a more generous package to retain top talent. The size of the company also matters with larger businesses often providing a bigger package than smaller firms. Workplace culture and previous relocation packages can also inform future ones.

As part of an overall relocation package, your company may decide to offer qualifying employees a relocation bonus or a relocation reimbursement. Although these approaches come with similarities, they aren’t the same—and they each have differing benefits for your employees and for your company. Here are pros and cons of each pathway.

Pros of a Relocation Bonus

With this structure, your company would provide a one-time fixed sum of money for relevant employees. This may be called a relocation allowance. Or, you may hear this approach called a cash allowance or a lump sum bonus.

“Fixed” doesn’t necessarily mean “equal,” though, because you can use multiple factors to calculate an individual employee’s bonus. These can include the employee’s rank, the cost of living at the destination location, moving costs involved, and what it will cost that employee to look for a new home.

This approach is more streamlined for companies than relocation reimbursements. Once your HR department calculates the bonus amount and your company provides it, there’s no tracking needed, reducing paperwork. From the perspective of your employees, they receive an upfront bonus to budget in the ways that make sense for their move. They don’t need to wait for relocation expenses to be reimbursed and, if there’s any money left over, they can keep it to use in their new home or other ways of choice.

Cons of a Relocation Bonus

Although employees may appreciate receiving upfront money, they are then responsible for budgeting that amount for their move. They could run out in the middle of their relocation and, if they don’t have their own funds to pay for their rest, the affected employees are in a tough situation. Employees may not like how this is taxable income that, when they file their income tax forms, could have an impact on their tax brackets. Some companies decide to provide tax assistance; if so, this is another cost for your company.

If an employee runs out of funds before the move is completed, this also puts your company in a difficult position because you need your employees at the new location. Plus, relocation bonuses front-load your company’s work with calculation of and payments for them handled upfront, making this an especially busy time with funds flowing out of the budget.

Also, if the relocation package doesn’t include an agreement requiring the employee to stay with the company for a specified amount of time, post-move, this can cause problems for your company. To avoid this scenario, include a time frame in your agreement and how much of the bonus must be repaid if the employee leaves the company before that.

Pros of Relocation Reimbursements

Under this scenario, employees pay their own moving expenses and then get qualifying relocation expenses reimbursed. Depending upon your company’s policy, this could refer to all moving expenses or ones up to a predetermined limit.

Unlike the bonus structure, where your HR department’s work is front-loaded, this system spaces out the work. Upfront, your company will need to determine if there are limits on moving expenses, and then the employees can keep receipts for reimbursable relocation expenses.

Your company can also monitor the relocation costs on the submitted receipts to get a sense of current rates, which can help you with future packages.

Cons of Relocation Reimbursements

When your company is relocating numerous employees, each with multiple receipts, keeping track of them and getting the relocation expenses reimbursed can become cumbersome. The longer the distance of the move, the more expenses that may need to be managed.

From the employee’s standpoint, keeping track of these receipts could be time consuming. Plus, if your company provides a limit to reimbursable relocation expenses for an employee, they could reach their limit before their move is complete. As noted earlier, this can cause issues for your company and the affected employee. Some companies try to address shortages by requiring pre-approvals of expenditures, but this can really add to the HR department’s burden.

Importance of Clear Reimbursable Relocation Expense Policies

If your company decides to go this second route, having a transparent, straightforward, and equitable policy established ahead of time, and communicating it well to employees, is crucial. Expenses often covered by employers include:

Choosing the Best Route for Your Company

Pros and cons clearly exist for both approaches. To cut through the overwhelm you may feel and make the optimal choices, reach out to Suddath. For more than a century, we’ve professionally helped with employee relocations. You’ll benefit from our:

We manage domestic employee and international employee relocations overseen by knowledgeable, experienced, and dedicated relocation specialists. To free up your human resource team and outsource relocation aspects to experienced experts, reach out for a professional consultation call.