For Relocators
Understanding Relocation Costs: A Comprehensive Guide
November 28, 2024
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This PerchPeek article dissects the challenges and disadvantages of cash lump sum relocation packages, and the problems they cause for both relocators and their People and Finance Teams.
When relocating certain groups of employees, some companies will support them by simply providing a cash lump sum with minimal services, personal support, or significant guidance.
They do this for a few reasons:
These are just a few reasons why companies use a cash lump sum. But are they, alone, a truly suitable solution?
Lump sums receive some of the worst relocator feedback
The reality is that some of the worst relocator feedback (and in turn People Team feedback) comes from lump sum relocations. Lump sum relocations are also some of the most likely to see escalations, and the “flexibility and fairness” they offer actually come back to bite in the shape of poor relocator decisions and major financial escalations.
Here we dig into 8 reasons why cash lump sums, and a lack of any proper relocation support, can make things very difficult - and expensive - for relocators and their People Teams.
Lump sums are often given to more junior relocators who do not warrant a high enough budget for traditional relocation support. However, these employees are often the ones who really need the support! It's very often their first time relocating, and their lack of knowledge around processes and pitfalls can make it a much more arduous experience for them. The guidance through processes like local registration, setting up healthcare or reviewing a lease is basic, but can be vital to these relocators.
Without any relocation support, the People Team is the obvious port of call for all questions.
PerchPeek’s data shows that People Teams can spend half a day's work per relocator on answering questions. On average, a relocator will send over 500 messages throughout their move.
Many relocator issues create a lot more work than if the relocator was given basic guidance in the first place. For example, if they move into unsuitable accommodation, set up a bank account correctly, or do not get their local registration set up on time. all these eventually land back on the People Team’s doorstep.
Relocation services are not always cheap, and inexperience can lead to costly mistakes in terms of planning, budgeting, or choosing cost-effective providers. For instance, unsupported employees may ask to extend their temporary housing multiple times, not allocate enough money towards admin fees, or fall victim to booking scams.
When you give a cash lump sum to a relocator, there’s rarely any visibility on what that money goes towards. That means that People Teams have zero spend data to make any decisions to improve their relocation program. This can have negative impacts in both the short and the long term.
Relocators are very often new hires, and foregoing proper relocation support makes for an unenjoyable onboarding experience and a bad first impression. For some relocators, the amount of time and effort needed to research and understand a relocation process is very stressful and means their focus won’t be on getting to grips with their new company or role.
The poor relocator feedback of lump sums can lead to low morale, which has an inherent impact on business projects and targets. Assignments may even fail altogether, increasing employee churn, wasting talent budget, and proving extremely costly to replace and onboard new hires.
Relocator lump sums can be administered through various means, but one of the most common is to reimburse the relocator in their first paycheck. This has an immediate requirement for the relocator to have thousands of pounds ready in their pocket for initially funding the relocation, but this is not always the case, forcing some into financial difficulty before they even start their new role. This is particularly poignant for people from lower-income backgrounds, which has negative connotations in terms of diversity and inclusivity of the program.
When a lump sum is given and the spend is not tracked against specific categories of relocation services, there is no opportunity to receive tax deductions against particular employee benefits, which exist in many countries. This can cost millions for some companies.
So what is the right way to support them?
When working with a limited budget, Global Mobility needs to make sure there are some key elements in their relocator policy to give relocators the greatest chance of a happy and successful move.
How can this be done in practice?
At PerchPeek, we recommend using a Managed Cap Model for lump sum relocators.
In this system, a company restructures their lump sum programs by re-allocating a small portion of the cash lump sum towards a combination of tech and coach-based relocation guidance, with expense management support. This avoids relocators wasting the £8k by simply giving it in cash with no guidance.
For example: a £8k lump sum becomes a £6.5k Lump Sum + Core Relocation Support
This Core Relocation Support arms transferees with the tools, tips and templates needed to complete all their relocation processes, including how to spend their budget, whilst always benefitting from the guidance and responses of relocation experts.
Some great, low cost ways to help relocators:
With top Relocation Management companies, these can always be covered for under £2000 total (don’t let your provider tell you differently!).
The lump sum is still used, but spending is optimised
The majority of the lump sum budget is still spent as the relocator dictates as before, but (crucially) it is guided, capped and tracked.
Expense Management Tools, For Better Data and stipend advances
PerchPeek uses an Expense Management system that allows relocators to access their lump sum up front, and tracks all of their spends. We recommend doing this as it gives People and Finance Teams full data and breakdowns of where budgets are going to help make informed policy improvements.
Why is this system so much better than just a cash lump sum?
If you need to relocate employees, a cash lump sum is fine; it’ll get the job done.
However, no one really wins in this scenario. Assignees have a poor relocation experience, and employers end up spending extra time and money to help fix things.
A much better solution - and one that benefits both transferees and employers - is a Managed Cap Lump Sum with Core Support, where relocators receive the tools, guidance and coaching they need to succeed, whilst still getting the cash to spend on their key priorities. What’s great is that it doesn’t cost any more than the cash lump sum!
Thanks for reading.
Relocation is tricky, and not just for the person moving! In HR there are a lot of expenses and needs to consider, from home-finding to shipping, and everyone's requirements are different. How do you strike a balance between supporting staff and protecting your bottom line? In our full report, we've dug into the details to create all the guidance you need for your cost-efficient relocation policy. We hope you enjoy reading!
If you have any questions on transforming your Lump Sum Relocation Policy, or the Managed Cap Model, (or anything else!) - feel free to reach out to the PerchPeek team via the website.
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