What is relocation of employees?

Relocation of employees can be an important part of your company’s competitive evolution. This process, also often known as global mobility or corporate relocation, is triggered when your company moves existing or new employees from their current location to another one.

When it comes to making employee relocation work smoothly and effectively, it’s useful to offer additional benefits and compensation that helps make a staff member more motivated to change location. These, of course, should benefit both the relocated employees and your company because change can be crucial to shifting talent around in ways that benefit competitiveness and performance edge.

It’s a common myth that relocating employees is a complex and difficult process for everyone involved. While this certainly could end up being the case if it’s handled poorly, it doesn’t need to be. If your company already has a structured policy in place for handling worker transitions to new company locations, the staff members being moved can settle in quickly and productively.

Benefits and assistance stipulations in employee relocation packages (a subject covered in further detail below) can make moving much more enticing to a worker. These benefits often include financial support for departure, travel and arrival as basic bonuses. Other common features are pre-decision counseling, assistance with transition procedures, such as home selling and buying logistics, and help with transportation of personal property.

Relocation of employees isn’t an ideal fit for every company or business type, but it should be kept on the shelf as a dynamic option for any growing business.

Why relocate employees?

There can be many reasons for moving employees to a new location, and not all of them are directly related to a competitive edge. Companies sometimes move valued staff members to new locations more for the sake of the employees themselves, with the logic of making them happier and thus improving their productivity. With that said, the most common reasons for relocating employees include:

• Competitive advantage. A high-performing employee can be moved to a location that gives them more room for growth in ways that improve the company’s competitive performance.
• Office efficiency. One or more of your company’s offices may be underperforming or poorly managed. You can attempt to fix the issue by relocating an experienced employee to the location due to their capabilities.
• Strategic growth. If you’re opening a new location for your business or expanding an older one, relocating employees can be used to manage its growth with existing talent.
• Career and skill development. You might relocate employees to an alternative location because you wish to develop their skills or in-company career, and this is only possible in a new location with better room for professional growth.

Many other reasons for the relocation of employees might exist. The above are just a few common examples. Whatever your reasons for moving staff to different locations, they’ll be highly specific to your company. The important thing is to examine them critically and make sure they’ve been soundly planned and reasoned out.

Benefits of offering employee relocation packages

As briefly mentioned above, an employee relocation package is a range of benefits you offer to employees who you want to move to another location as an incentive for them to accept. While employee relocation packages aren’t generally a legal requirement for companies, it’s still vital to formulate them in detail.

A highly valued member of your staff is someone you should make an effort to keep with your team and place in the position where they can do the most for the company. Sometimes, for reasons of diverse growth opportunities or company hierarchy, moving them to a new company location is the only way to do this.

These employees shouldn’t simply be ordered to make such a move, though. If they’re talented enough to be worth keeping, they’re also talented enough to jump ship to a well-paying competitor. Because of this, orders that go against their basic comfort zone are an easy way to lose talent. By requesting that an employee move locations with an attractive employee relocation package, you can keep these workers happy despite the hurdles of having to change where they live and work.

Employee relocation packages can be standardized or tailored to each individual employee based on their circumstances. There are no hard-and-fast rules for their basic structure.

What to include in an employee relocation package template

What an employee relocation package contains may vary from company to company, but some key benefits and compensation agreements that any template could include are:

• Relocation compensation. Moving is almost always costly, and those costs will be among the biggest disincentives that your employees have against relocating. Providing them with a relocation clause that offers sufficient reimbursement for expenses, including moving costs and personal travel expenses, such as plane tickets, insurance, transportation of belongings and time lost to the move itself, is a solid good faith measure.
• Flexible dates for relocating or starting new duties. Moving is also stressful in terms of schedule logistics and time management. Because of this, a relocation package should give the employee some leeway in when they can change locations and how many days after moving they have before settling into their new business role.
• Paid time-off allowances. The time that employees spend on their move to a new location and settling their personal affairs during the process may keep them out of work for some time. Travel reimbursements may not be enough to cover this if it means lost paid labor time. To counteract this possibility, a relocation package may include partial or full salary coverage for the days spend relocating.
• Housing support. Selling a house or renting it temporarily and moving to a newly purchased or rented home can be extremely stressful and difficult parts of employee relocation. If your company offers to help an employee handle both financially and logistically, it can greatly smooth the transition and entice them into a location shift.
• Legal, tax and financial logistics assistance. If a relocation involves moving to a different state, province or country, there can be numerous legal, tax-related and immigration law logistics to cover beforehand. Employees shouldn’t be asked to take care of these on their own. A relocation policy that at least assists monetarily and in paying for professional expertise will be more favorable.
• Family assistance. Employees with family members and children joining them for their move will likely be dealing with stresses that are significantly greater than those of staff who live alone. This should be taken into account, especially in terms of helping a spouse find new employment at their destination or helping the employee with their school and home care needs for their children.
• Bonus or pay raise agreements. As a major additional financial incentive to entice valued employees to accept relocation, an outright pay raise or major bonus payment on top of many of the above relocation incentives could be a good idea. This option is especially worth applying if you’re moving your worker into a position with more responsibility or to a city with higher living expenses.
• Payback clauses. Somewhat more controversial but possibly necessary for protecting your financial investment in your employee’s relocation is a payback clause. This stipulation obligates a relocated employee to pay back costs your company spent on their move if they cannot fulfill a set amount of time in their new role.

It’s important to account for all the costs and difficulties that relocating employees entails for both the employee and your company. Relocation packages should be carefully designed around these issues to minimize the possibility of gaps in their structure that complicate logistics for both parties.

What is the average cost to relocate an employee?

The costs of relocating an employee can be considerable, especially in the case of high-level employees with high compensation and reimbursement expectations. On average, though, according to relocation and trade group figures, most companies spend anywhere from $21,300 to $25,000 on relocating employees who were and will be renting a home in their current and next destination. In the case of employees with families who owned their home and plan to buy a new one at their destination, costs can easily triple to between $61,600 and $79,429.

You can calculate employee relocation costs in a way that closely estimates the budget you’ll need to allocate for any employee’s change to a new location. This accounting of expenses can include costs covered in the relocation policy and costs such as:

• Travel expenses
• Packing, moving and insurance costs
• Housing outlays
• Storage and other transport costs
• Home sale and purchase expenses covered by your company
• Tax withholding changes for benefits and salary increases
• Relocation taxes
• Legal expenses for travel-related visas, work permits and other settlements

Complying with taxes for relocated employees

Tax compliance is a major part of relocation of employees if the change in venue requires your worker to move to a different state or country. This applies regardless of whether the move is temporary or permanent, and your accounting staff will have to take potential tax exposure into account.

Especially important is filing taxes in both the home office jurisdiction and the employee’s destination jurisdiction in a way that accounts for all relevant relocation expenses that your company covered directly or reimbursed the employee for covering.

With U.S.-based companies, employees who leave the country still have to file taxes on their income from overseas sources or subsidiary offices of the company in another country. The U.S. Tax Code makes filing obligatory, though it does offer foreign tax credits up to certain specified amounts.

Assisting employees in the management of their tax filing and tax equalization burdens while they work for your company in a different state or country is something that should be carefully set out in the relocation policy you agree to with your employee.