It is often a challenge for a company to square off the needs of the employee with those of the business. This is especially true in the relocation business.
Many companies and organisations are now considering “a lump sum” policy approach for at least some of their relocating employees. That is to say that an employer would set aside a budget or even pay a fixed amount in cash to the employee for relocation expenses, leaving them free to decide for themselves on what the money is spent.
On paper this has its advantages.
Such a policy is theoretically less administratively cumbersome than a directed relocation programme and on a rough and ready basis it can be applied to all levels of staff, if required. The idea of “cash for relocating” can also be a powerful message to a new employee, since it offers them the freedom to decide on what and where their relocation allowance will be spent.
In reality lump sum programs are much more of an attraction to the employer than the employee. This is especially true when UK companies chose as an upper limit the tax free £8,000 relocation expenses maximum set by the HMRC. The £8,000 limit has not been revised by the HMRC since 1992 and 23 years later this amount simply doesn’t reflect the current cost of relocating.
In our professional opinion, broad brush lump sum programmes do not target the needs of employees and recruits effectively. They usually over compensate individuals who do not need assistance and under compensate those that do, particularly those employees with families. They do not address the fundamental yardstick of relocation that the employee should neither gain nor lose financially through the physical act of relocation
Understandably readers may think that since professional relocation companies like HCR are unlikely to gain from lump sum relocation programmes they are always going to criticise their introduction. However, as professionals we often have to pick up the pieces or provide advice on failed assignments. We would also like to high-light instances in recent history which expose some of the stresses and strains placed on the DIY relocator.
Many employees have little experience of the costs they encounter when moving house and can be surprised how little a lump sum will cover. Coupled with this is the requirement for the employee to find and vet suppliers of services such as removals companies and letting agents.
As an individual, rather than a company, the employee has much less leverage over fees and payment terms.
For example, removals companies regard individuals as a much higher payment risk and will therefore insist that any charges are paid in advance of any items being collected and transhipped.
In recent months, just such a removals company in the South of England suddenly went into liquidation. More than 30 customers found their goods impounded by creditors of the company. Not only did they lose the fees paid in advance to the company but they were also forced pay further charges to have their goods released.
The other major expense that relocating employees are likely to incur is fees paid to letting agents.
Prospective tenants can find themselves having to pay significant sums for administration fees associated with beginning a property tenancy. Fees charged by Letting Agents, which are often opaque have now become very unpopular not only with prospective tenants but sometimes even with landlords. Fees can amount to hundreds of pounds for what are often regarded as relatively simple tasks such as reference checking and the drawing up of a property lease itself a fairly standard document. It is often very difficult for prospective tenants to work out in advance what fees are likely to be payable so that comparisons between competing letting agents are at best difficult and, at worst, often impossible.
There are undoubted risks when dealing with letting and estate agents who stand to gain as much, if not more, from the landlord as they do from the potential tenant when renting a property. Individual clients often recognise this too late. HCR have experienced specific examples of employees being encouraged by agents to rent in residential areas they later found to be insecure and even dangerous.
These are just two examples of why HCR would suggest caution in using simple lump sum relocation programmes. They definitely have their place but it is by no means clear that they do actually enhance the employee experience on every occasion. It can be the case that employees believe they are being fobbed off with a policy that is administratively convenient for the employer but leaves them with a substantial and unsupported burden in moving themselves and possibly their family to a new and unknown location.
HCR maintains that there is still a clear argument for targeted relocation assistance that can pay significant dividends in terms of the crucial aspects of employee engagement and well-being. It is possible to combine the two approaches with a “Managed Lump Sum” policy. Briefly a budget is allocated to each relocating employee but this is managed by a relocation provider on behalf of the company which can then ensure the targeting of a tailored relocation benefits package. This is coupled with some set services paid for by the company which ensure the support is taken and provided.
Relocation is a significant investment for all businesses, whatever their size, and keeping a tight rein on budgets is vital to maintain business advantage; at the same time, organisations have to manage their talent creatively. The question organisations need to pose is: does a lump sum, DIY relocation help retain talent, entice new talent, provide value for money and add to the organisation’s brand?
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