Managed Lump Sums 101: How They Work, & Top 6 Benefits for Employees and Companies

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As an HR or GM leader supporting relocating employees, there's one conundrum you must be tackling right now: how to cut costs while providing adequate support.

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Traditional approaches like cash lump sums and fully managed moves have their flaws, both when it comes to cost control and supporting employees' needs. A new hybrid solution has emerged to address these challenges: the managed lump sum.

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Here we dig into the details on how managed lump sums work, and the top benefits of this increasingly popular solution for employees and employers alike - read on!

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The two standard approaches - and why they’re often not fit for purpose

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Pure lump sums

The concept of a pure lump sum is pretty basic - give relocating employees a sum of money and they can use this to fund their relocation. Sounds simple enough, right?

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In practice, it doesn’t always run that smoothly. Giving a lump sum puts the burden of budget management on employees, who may struggle to use it efficiently. Their employers are then inundated with requests for extra allowance, and unfortunately we see the lowest satisfaction scores from stressed-out lump sum recipients.

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There's also debate around whether lump sums neglect duty of care, and if they reduce DE&I due to the late timing of payouts. Plus, for companies and individuals alike, many of the tax benefits that can be accessed via relocation services are lost.

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Managed relocations

The alternative to a lump sum is a managed relocation package.

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There have traditionally been very high costs associated with this approach, such as:

●     30 days in a serviced apartment

●     Tax returns

●     Household goods shipments

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The bills rack up quickly, which is far from ideal for non-VIP relocators!

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Neither offer an optimal solution

With both of these traditional approaches, cost-cutting is a difficult challenge. Managed relocations are just generally very expensive, while with pure lump sums, costs can easily spiral out of control if the initial allowance is mis-managed.

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What's more, neither pure lump sums nor managed packages give much support to employees (unless they're a VIP). It's a tricky conundrum to solve!

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Managed lump sums - a hybrid solution

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This contrast between a complete lack of support associated with traditional lump sums and the high costs associated with a traditional managed move is why we’re seeing a sharp rise in the managed lump sum. This is a successful hybrid that merges the perks of both policies and mitigates many of the drawbacks.

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Six benefits of managed lump sums

1 - Access to reporting

You'll know exactly how lump sums are being spent and can track trends over time. This will allow you to further refine your policy and make sure it's benefitting transferees as intended as well as identify opportunities for cost efficiencies.

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2 - More flexibility

You can choose how restrictive your policy is, and whether the budget can only be spent on certain services, such as temporary accommodation or tax support. Some companies opt to be extremely prescriptive in how the policy is spent, while others set no restrictions as long as it's relocation-related. It's up to you!

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3 - Tax savings

Not every country has tax exemptions for certain relocation services, but very few countries allow a lump sum payment to be tax exempt. With a managed lump sum, you track what is paid towards services that are tax exempt, saving your company or your employee money - or both!

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4 - Relocation support for all

While financial support is of course a crucial part of a relocation, managed lump sums let you provide relocation assistance as standard, instead of having relocators completely fend for themselves. This can hugely increase feedback scores and make sure that employees are relaxed and ready to hit the ground running.

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5 - Duty of care

A managed lump sum policy ensures that your employees receive the guidance they need to spend their relocation allowance sensibly, budgeting properly for all upcoming costs. What's more, it means they don't have to pay for services upfront and then wait to be reimbursed, which is simply not an option for some.

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6 - Cost control

Budgets are professionally managed, meaning that the chances of a transferee requesting extra budget due to outstanding costs is substantially lower.

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Summary

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In an economic climate where cost-cutting is a high priority but competition for the best talent is fierce, managed lump sums can provide the best of both worlds.

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This approach combines the flexibility of pure lump sums with the support offered through managed policies. Many companies are recognising this as the ideal blend for relocators where budget is a constraint but they still wish to provide a high level of support - hence the boom in this policy type that we're currently witnessing.