Relocation allowance: what's included and what is it for?
Whether you are an assignee or an HR professional, you will want to negotiate the right package for each assignment, and ensure there are no nasty surprises further down the line. The first point to clarify is that negotiations will divide into two separate parts:
1: The ongoing remuneration or salary that the expat receives during their assignment
2: The lump sum used to cover the cost of relocating (and returning).
The first will depend on a number of factors – notably the previous salary, and the additional benefits that are required in the given location. A mining industry expat in Namibia may well find life both more complex and expensive than a banking expat in New York, and the ongoing package will vary accordingly.
However, the aim of this article is to outline how the cost of relocation is covered – often known as the ‘relocation allowance’. It is in the interests of expats themselves to ensure that everything is covered, while the global mobility team will also want to ensure that assignees are happy, and that the cost estimated at the start of the program does not escalate as expats seek to have additional unforeseen expenses covered by the company.
Important note: the subject of this article should also not be confused with the moving allowance, which dictates how many goods the expat can take with him for his assignment – typically expressed in container space or weight.
How are relocation allowances used and paid?
There is some variation in the way that relocation packages are distributed, calculated and spent. Some companies (typically, smaller, more entrepreneurial companies) may simply offer a cash package, which the assignee uses to manage his or her own move. While this may seem attractive to companies with neither the time nor the expertise to calculate and manage a relocation package, it has serious downsides. It can be highly tax-inefficient and, by putting the onus on the expat to self-manage, creates stress which impacts on the effectiveness and productivity of the expat at work. Not only that, the ad hoc nature of cash bonuses often leads to disgruntlement as expats realize they are not all given the same bonuses.
Instead, many companies opt for what is known as a Managed Capped approach – ie a budget is made available for moving/relocation expenses. Policies will of course vary, but the expat has less freedom (it is not a cash bonus, after all) and needs to provide receipts.
Beyond cost of moving: what should be covered by the allowance?
In either scenario, expats need to know what they need to cover, so we have put together a short list. Whether managed by the expat themselves or by a relocation partner working on their behalf, these are the items that relocation packages should provide for:
Moving costs: the bulk of the expense of moving involves transporting household goods to the new host country, including packing and unpacking, as well as the management of the shipping process. If arranged through an experienced relocation partner, a single, fixed fee is paid to cover all services. This should include insurance and advisory services – which in turn help to avoid other unforeseen costs.
Travel: airfare for all members of the family. This will usually cover a reasonable amount of trips back home, especially at holiday times.
Orientation trip: some expats visit the new host country in advance, typically to investigate accommodation options and to familiarize themselves with the area. These costs typically include air fares, hotels, meals etc.
Storage: it may not be possible to coordinate the arrival of the expat with the arrival of their goods. In such cases, temporary household goods storage should be covered.
Accommodation costs: While the overall compensation package is calculated to cover cost of housing, there are also one-off costs associated with selecting a place to live. Help with other details such as signing a lease and inspecting a home may also be provided. If accommodation is not agreed before departure date, temporary accommodation should also be covered. These costs may also cover services such as cleaning, electrical, heating, telephone and broadband set-up.
Home sale/lease break costs: Relocation allowances may cover the cost of arranging for the rental or sale of the expat’s property in the home country, or cover the costs of terminating a lease. Equally, this may also include the cost of tasks such as cleaning and the termination of services and subscriptions (broadband, phone etc).
Medical costs: Vaccinations and any other medical arrangements should be included in negotiations.
Documentation: Typically, the company will arrange for necessary visas, work permits and other paperwork related to the move. If not, any costs arising from this should be covered by the relocation allowance.
Pets: if family pets are also moving, additional costs may arise, potentially including paperwork.
Spouse support: if the expat’s spouse or partner requires assistance in finding work or establishing their own business, this may require financial support which could be covered in the allowance.
Cultural support: relocation allowance can also include ‘cultural training’ – which could range from one-off classes on what to expect in the new destination to ongoing language tuition.
Repatriation: The return journey will also need to be covered. Clarify whether this is part of a single allowance or if there is a separate agreement in place to cover cost of the elements above when repatriating.
Make life easier with the all-inclusive relocation package…
Ensure that the points above are included in negotiations and there should be few nasty surprises, whether for the expat or for the company. Increasingly, however, many of these elements are included in a single relocation package that is managed by a reputable relocation partner. FAIM-certified movers will ensure that all costs are covered, and will take care of much of the research and planning that goes into relocating, which frees you up to concentrate on the effect the move will have on your career and family.