Lump-sum Relocation Risks

Why Lump Sum Isn’t the Best Way to Relocate

Employers often assume that lump-sum relocation is the easiest way to relocate your employees. Providing your employee a set amount of cash and a set time frame cuts down on administrative burden and gives the employee full control. However, there are a few risks that you shouldn’t overlook.

As this article in HR Daily Advisor notes, lump-sum relocation can put undue stress on the employee, who may or may not have the moving experience needed to make effective choices. For the company, it can be difficult to determine the right amount for lump-sum allowances and still be cost-effective. In many ways, the risks of lump-sum relocation are greater than the benefits.

Five Lump-sum Traps to Avoid

Let’s take a look at some of the biggest traps that companies can fall into when they choose a lump-sum approach:

1. The income tax problem. A relocation lump-sum allowance operates like a bonus. As an employer, you must withhold state and federal taxes and pay Social Security taxes, meaning either the employee receives a smaller net amount or you must increase the lump-sum payment to provide the employee enough to cover their moving costs.

2. Cost control. Individual relocations can vary widely, and it can be difficult to know what amount to pay without taking into account the distance of the move, family size, or any special needs. You risk paying too much or paying too little, causing difficulty for either your business or your employee.

3. Time management. With the challenges of hiring a moving company, selling the house, finding reliable information, and scheduling these activities before the new start date, lump-sum relocation can end up taking much more time than needed. This can result in an unproductive employee, a failed move, or worse — a resignation.

4. A negative employee experience. Lump-sum relocation can encourage employees to make choices that will save as much of their allowance as possible, but sometimes increase stress or complications — such as renting a self-haul truck or sleeping on a friend’s sofa. By giving the employee control without any guidance, you give up the chance to ensure that the employee has the support and positive experience they need for a successful transition.

5. Accountability for a relocation-gone-wrong. When any of these risks create problems that neither the employee nor hiring manager can solve, they turn to you, the employer. Without the expertise of a relocation partner, you’re left alone to bear the burden of responsibility.

Avoid Risk with Alternatives to Lump Sums

With these risks in mind, you can’t afford to ignore the alternatives. You want your employees to relocate with as little stress and frustration as possible, and for a reasonable cost for your company. With a lump-sum relocation alternative, this is totally possible.

Two alternatives to lump sums are hiring a relocation management company or using a managed lump-sum program. Each has its advantages, but overall, these alternatives to lump sums will equip your employee with the resources they need and give your company peace of mind.