A well-designed employee relocation policy will improve the transferee experience, control organizational costs, meet employees’ needs and help you win new talent. Improving the employee experience means reducing stress so that employees can focus on work roles in their new locations. Relocation policies are not a one-size-fits-all! If you are seeing the same repeated exception requests over and over, consider adjusting your policy.
Below, we share some employee relocation policy best practices.
I. Home Sale
Guaranteed Buyout (GBO) or Buyer Value Option (BVO)
- Offering a GBO can be risky for your organization since it guarantees employees a home sale based on appraisal value, but if the home is not sold then your company takes the home into inventory and must resell it.
- A BVO, on the other hand, significantly minimizes the organizational risks seen with a GBO since your company purchases the employee’s home only after the employee secures an outside buyer.
- Some companies offer a GBO to their executives and a BVO to non-executives.
| Pros | Cons | |
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| BVO |
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Direct Reimbursement (DR)
Many companies will offer a DR in addition to a GBO or BVO.
Advantage of a DR
- Your company does not have to bring unsold homes into inventory since employees are responsible for selling their home and paying closing costs/commission fees up front.
Cons of a DR
- No tax benefit for your company or the employee.
- Your company will incur additional gross up cost (assuming you offer gross up).
- Employee is responsible for all costs up front (closing costs, commission fees, inspections, etc.).
Home Inspections
Most companies require a full home inspection for a GBO and BVO program. The home inspection is ordered by the Relocation Management Company (RMC). An inspection helps reduce risks of the company purchasing a home with unknown significant defects. The transferee is required to complete all necessary repairs before moving forward in a BVO or GBO program. Some companies want to avoid being too picky about required repairs, so an alternative to a full home inspection would be a major component inspection, as well as other specialized inspections if applicable, including the following:
- Well
- Septic
- Radon
- Termite
- Stucco
If there are suspected issues in other areas, additional specialized inspections might be ordered if the RMC determines it’s necessary, including the following:
- HVAC
- Roof
- Interior plumbing and/or electrical
- Structural/foundation
Home Sale Bonus
A home sale bonus can be an incentive for employees to sell their homes quickly.
- Beneficial to your company if you offer a GBO; offered less in a BVO program.
- Decide where you will cap this benefit, and if the cap will vary dependent on employee’s role. Many companies base it on a percentage of the sale and/or offer a higher bonus for those that can sell their homes within a desired timeframe.
- This is not required in today’s real estate market as homes are selling quickly as demand greatly outweighs the supply of available inventory.
Loss on Sale
Some companies offer a loss on sale, whereby the company provides an additional benefit to employees selling their homes for less than the original purchase price. This benefit is more prevalent with executives versus non-executives (usually at a capped amount).
II. Rental Assistance/Lease Break Assistance
Benefits can help transferees with early lease termination and finding a rental in the new work destination. Providing rental assistance can also help minimize move stress and ease transition into the new work role. If you choose to offer rental assistance, consider how many days of rental search you want to cover.
- Placing caps on rental assistance ensures your company is containing costs. If a transferee exceeds the cap, decide whether to provide an exception benefit on an individual basis.
- Encourage transferees to negotiate with landlords to insert a diplomatic clause into the lease that reduces future lease break fees.
III. Destination Services
Moving to a new location can be stressful. Area orientations, home-finding trips, destination closing cost payments, temporary housing and settling-in services can help ease the burden of a relocation. By providing destination services, the transferring employee will be able to focus on their new role sooner.
Temporary Housing
Providing fully furnished temporary housing can offset any meal reimbursement since temporary housing includes equipped kitchens.
House Hunting Trip
Providing a travel lump sum will simplify the process and allow employees to book/pay for house hunting trips.
Destination Closing Costs
Many companies will offer this reimbursement to executives versus non-executives.
- Capping support is a way to control costs for this taxable benefit, especially if your company is providing gross up. This could be especially helpful when moving employees to high-cost housing destinations.
- Only allowing reimbursement of typical closing costs is recommended to ensure your company is not reimbursing items that are non-standard.
Renter Destination Services
Some employers offer closing cost assistance to current renters buying a home in their new location.
- If you decide to provide this benefit, decide who will qualify. Only new-hire or existing employees, only executives or based on job level?
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Although it’s not the most commonly offered benefit, an incentive to rent can provide your company with potential cost savings on future relocations.
- Good option for employees who relocate often, thereby your company can forego paying closing and future home sale costs on a repetitive basis for the same employee.
IV. Household Goods (HHG)
The HHG move is one of the most stressful stages of a relocation.
- Make sure your RMC is proactive in their communications and provides opportunities for the transferee to give live feedback so that problems can be addressed immediately.
- Most companies will provide tax assistance with HHG moves, especially since the Tax Cuts and Jobs Act (TCJA) of 2018 was passed.
Vehicle Shipment
Create cost savings by basing the number of vehicles authorized on move distance. It is common for companies to offer at least one vehicle to be shipped if the distance will be over 500 miles, and up to two if the distance is over 1000 miles. This reduces the stress of requiring the employee and family to travel long distances in separate vehicles.
Temporary Storage
Most companies will provide temporary storage of the employee’s household goods until permanent housing is secured.
- To save costs, do not provide this benefit for personal reasons, e.g., during home remodeling, when the employee may want to store items until the work is complete, or if the employee is going on vacation and cannot be present for HHG delivery.
V. Lump Sum
Decide if you want to offer a partial or full lump sum policy to transferees. Some employees may enjoy the freedom of being able to use their relocation money as they see fit. Pros for providing lump sums include the following:
- Cost containment.
- Easy budgeting and administration.
- Market competitiveness.
- Great for employees with less to move.
- Internship programs.
There are three main types of lump sums discussed below: lump sum only (no counseling); managed lump sum (with counseling); and lump sum (in addition to other benefits).
A. Lump Sum Only Benefit (no counseling)
The transferee receives one lump sum payment. The employee decides how they plan to spend these funds.
- Commonly used with non-executives including entry-level hires and employees in development programs who rotate locations frequently.
- Typically, not utilized with higher-level relocations.
- Majority of lump sums are less than $5K
B. Managed Lump Sum (with counseling)
Allows your company to retain partial control over how the employee uses the money while still allowing some flexibility. The RMC counsels the employee on approved ways they can use their managed lump sum, and the funds are provided as a reimbursement after the employee incurs the cost or is direct billed to one of your RMC’s supplier partners.
- Managed lump sums are used more often as the only benefit to executives or higher-level employees versus a lump sum only (no counseling), used more often with entry-level employees.
C. Lump Sum (in addition other benefits)
This is the most frequently used type of lump sum benefit. It works well because companies can provide other benefits – tailored to the individual’s specific relocation needs – while still providing a lump sum that the employee can spend as they wish.
- This type of benefit will also allow your company to control costs and it adds some additional flexibility for the employee.
VI. Cost of Living Assistance (COLA)
Some of your employees may be moving to an area with a lower cost of living and some may be moving to a much higher cost destination. If higher costs exist, some companies will provide a limited term cost of living allowance to bridge the financial gap. Options for payout could include monthly, quarterly, annually or a one-time lump sum.
- Set an ending time-period for this benefit and decide whether the benefit will slowly decrease/taper during that time-period.
- It is best to only offer this benefit to those employees moving to higher cost destinations. If your employee is moving from one high cost of living area to another, consider withholding this benefit. Often employers will establish a threshold (typically a percentage), to offer the benefit. Others will identify specific areas/cities and only offer the benefit to employees moving to these pre-determined locations.
VII. Policy Exceptions
Decide how you want to handle policy exceptions and make sure you and your RMC are in sync. Even though you may have a great employee relocation policy, it’s not always one-size-fits-all! Individual cultures, specific needs and family dynamics may create the need for exceptions. Make sure your RMC is tracking all requests/outcomes. This information will help you determine where policy changes are needed.
Some common policy exception requests might include the following:
- Additional temporary housing or household goods storage.
- Additional crating of items, vehicles to be shipped or other services for a household goods move.
- Home listing parameters.
- Qualifying home requirements.
- Additional reimbursements for travel.
- Repair Requirements.
- Benefit extensions.
VIII. Policy Tiers vs Core Flex Benefits
With policy tiers, the company selects which employees receive specific benefit packages. Often, policy tiers are based on an employee’s role at the company. For example, relocation benefits provided to an executive might be different than benefits provided to an entry-level employee. While a tiered policy allows a company to be selective regarding which benefits are offered to each level of employee, some benefits may be offered in all packages. In other words, a HHG move could be offered to all relocating employees, but the cost of the move could have caps for lower-level employees. Some companies will only offer home sale assistance to higher level employees, but all other benefits may be the same regardless of role/job level of the employee.
In addition to employee position level, other factors that could affect which tier an employee fits into might include whether they are a homeowner versus renter, or a new hire versus an existing employee.
Core Flex benefits include a grouping of benefits that everyone receives, but the employee is also offered other possible benefits that they can pick from, sometimes based on their job title.
In Conclusion
Whatever policy decisions you make, consider partnering with a good RMC who can help write your policy and administer it cost-effectively. For more best practices, get our 2020 Benchmark Survey.
