decoding the language of lump sum

Lump sum has been gaining a lot of

Traction

in the relocation space

FLEXIBLE ALLOWANCE PLAN CAPPED ALLOWANCE PLAN

Lump SUM WITH RMS

CORE/FLEX

FLEXIBLE ALLOWANCE PLAN CAPPED ALLOWANCE PLAN

Lump SUM WITH RMS

CORE/FLEX

There are clearly of options to

choose from  

Out of the $75 billion dollars spent in the U.S. on corporate relocation…

70% of companies use a lump sum distribution policy…

It’s becoming a much more

g u i d e d relocation option

Lump sum amounts didn’t always accurately account for needs:  

Car shipment Pet assistance School-finding trips Language training Spousal support

Lump sum amounts didn’t always accurately account for needs:  

Car shipment Pet assistance School-finding trips Language training Spousal support

Employers had into what

their employees needed

Where one person might only only $7,000 for their relocation…

…another might need $15,000.

And there was no light being shed on the reasons why.

Story time.

Let us tell you about Relocating Rachel.

Rachel was being relocated from

St. Louis to San Francisco.

Her company gave her $15,000 and said:

“See you in a month!”

Here’s the thing about Rachel. She was strapped

with student debt, so cash was tight.

She decided to take that $15,000 and get

to San Francisco the cheapest way possible, and then pocket the

leftover money.

Bad move, Rachel.

Rachel forewent a homefinding trip, found

the cheapest moving company possible, didn’t

ship her car, and chose not to pay for

any storage.

Turns out the moving company showed up late

and moved really slowly and inefficiently. They even

broke a few of her items.

Then she got in her car, drove through the night,

got to her new apartment, and found

out it wasn’t quite what she was expecting.

It was really small and off the beaten path. She couldn’t fit all of her things in her space,

either. But she didn’t have any storage.

Rachel wasn’t happy. She had to go to her

first day work the next morning, and she hadn’t

unpacked a single box.

Now, Rachel is stressed, unhappy, and uncertain if

she made the right decision by moving across

the country.

All our Relocating Rachel needed was…

It’s situations like this where lump sum’s lack of structure

can really your transferees

When a transferee plans poorly for a relocation…

…they often have to dip into their own funds. This isn’t always feasible, especially since:

2/3 of graduates walk away from college with an average of $26,600 in debt

Don’t let this happen to your transferees. We’ll show you how with 4 types of

guided lump sum options.

FLEXIBLE ALLOWANCE PLAN

what it is: Employers separate the relocation into different categories and assign a maximum amount of spending per category. For example, if a company decides the expenses they are willing to provide reimbursement for include: shipping household goods, short-term housing, traveling expenses, and 2 homefinding trips, they will assign an amount that the employee can spend per category, and the employee can go from there. If they don’t spend all of the allocated money in one specific area, they can transfer the remainder to a different area and spend it there.

Let’s take a look at an example:

FLEXIBLE Allowance Plan

Household Goods -----------$8,000 Short-term Housing-----------$900 Traveling Expenses------------$500 2 Homefinding Trips-----------$2,000 (Actual spending)

Household Goods -----------$10,000 Short-term Housing-----------$700 Traveling Expenses------------$100 2 Homefinding Trips-----------$2,400

FLEXIBLE Allowance Plan

Household Goods -----------$8,000 Short-term Housing-----------$900 Traveling Expenses------------$500 2 Homefinding Trips-----------$2,000 (Actual spending)

Household Goods -----------$10,000 Short-term Housing-----------$700 Traveling Expenses------------$100 2 Homefinding Trips-----------$2,400

Employees can

around as needed

It provides the transferee with some kind of structure…

…without limiting them too much in terms of how much money can be spent per category.

Remember tax implications, too. Some areas of a relocation are tax deductible, so if a transferee takes money away from one of those areas,

and instead puts it towards a taxable area, you might end up

spending more than you bargained for.

FLEXIBLE Allowance Plan

Household Goods -----------$8,000 Short-term Housing-----------$500 Traveling Expenses------------$500 2 Homefinding Trips-----------$2,000 (Actual spending)

Household Goods -----------$6,000 Short-term Housing-----------$500 Traveling Expenses------------$100 2 Homefinding Trips-----------$4,000

exempt from taxes  

not exempt from taxes  

this combination is actually more expensive  

Be open to hearing this plan called

of different things, too.

CAPPED ALLOWANCE PLAN

what it is: Unlike flexible allowance plans, employees cannot transfer funds from one area to another. The employer will often have a policy stating what kinds of things the employee can use the lump sum for, similar to a flexible allowance plan, and if provided, they can use the support of a relocation management software or a relocation consultant to guide them through the process.

One downfall of this plan is that a lot of people don’t know where they are going to need to spend money and how

much of it, so they might reach one cap much quicker than anticipated and one much slower, and this can be stressful.

Additionally, transferees have to be with keeping and

tracking their receipts for reimbursement

This plan is a little more cost effective when comparing it to a flexible allowance plan. You

don’t run into the same sort of issues, specifically related to unforeseen tax expenses.

The main differences?

Watch out for the possible troublesome

areas though:

If the employee doesn’t spend all of what they are given,

leading to unnecessary spending just to reach the amount given

Let’s check out an example of what this policy might look like.

CAPPED Allowance Plan

Household Goods -----------$10,000 Homefinding Trip-------------$300 Car Shipment-----------------$1,000 Short-term Housing----------$500 (Actual spending)

Household Goods -----------$10,000 Homefinding Trip-------------$300 Car Shipment-----------------$1,000 Short-term Housing----------$500

CAPPED Allowance Plan

Household Goods -----------$10,000 Homefinding Trip-------------$300 Car Shipment-----------------$1,000 Short-term Housing----------$500 (Actual spending)

Household Goods -----------$10,000 Homefinding Trip-------------$300 Car Shipment-----------------$1,000 Short-term Housing----------$500

Funds stay and actual spending is the

same as what is allotted

If you choose to reimburse transferees (instead of

giving them the money up front) remember to try and be as quick as possible

with turn around time.

LUMP SUM WITH RMS

A good RMS (relocation management software) can change lump sum from a dangerous trend…

into an overwhelmingly positive one.

what it is: An RMS is an important tool for a few reasons. For one, it provides transferees with an overview of the costs they’ll run into, along with a timeline on when they should be expecting them—ensuring employees don’t end up overspending in one area too soon. It also educates users on tax implications by outlining all potential tax breaks and explaining terms that might new (such as the 50 mile rule, in-transit storage , etc). By housing guides and important documents in an RMS for transferees, it makes this information accessible at all times and allows transferees to take things at their own pace.

don’t forget the power of pairing RMS with

human contact

Relocation specialists deal with lump sum policies on a daily basis,

so they know how to

, saving you a lot of money.

CORE/FLEX

When you ask an employee:

“What are your top 3 concerns for this

relocation?”

1.) Finding a house 2.) Shipping my stuff

They almost always rank their top concerns as:  

Enter: core/flex

what it is: With a core/flex approach, employers offer a “core” set of benefits which is covered in full (usually household goods and housing assistance) through direct billing, along with a list of “flex” benefits to use based on needs and seniority (the higher your level, the most flex benefit options you’ll receive). Employers then offer a smaller lump sum which functions similarly to the flexible allowance plan discussed earlier. Transferees get to basically craft their own relocation policy. Having multiple policies for your different transferees is much more realistic and less time consuming with this approach.

It takes time to get the process up and running, but once you have a system in place…

the benefits will far exceed the initial

time spent.

What it looks like:

Core/flex

Household Goods: Covered in Full •  Moving Company X •  Moving Company Y

Short-term Housing: Covered in Full •  Housing provider X •  Housing Provider Y

Choose 3 additional benefits:

•  Homefinding trip - up to $300 •  30 days of storage - up to $500 •  Spousal assistance – up to $800 •  Language training – up to $2,000 •  Pet assistance – up to $600 •  Lifestyle transition assistance – up to $1,500 •  Car shipment – up to $2,500

Core/flex

Household Goods: Covered in Full •  Moving Company X •  Moving Company Y

Short-term Housing: Covered in Full •  Housing provider X •  Housing Provider Y

Choose 3 additional benefits:

•  Homefinding trip - up to $300 •  30 days of storage - up to $500 •  Spousal assistance – up to $800 •  Language training – up to $2,000 •  Pet assistance – up to $600 •  Lifestyle transition assistance – up to $1,500 •  Car shipment – up to $2,500

This is the

plan of the four.

Where lump sum was once a check and a “good luck!”, it’s moving more towards a structured plan that encourages transactions to be

handled between employer and supplier, instead of the employee. This takes a lot of stress off of your employee’s plate and allows them to

focus on their new career and settling into their new city.

Core/flex will continue to gain traction, just like we’ve seen with lump sum.

Core/flex will continue to gain traction, just like we’ve seen with lump sum.

So stay tuned.

There are a lot of different routes you can take when choosing a lump sum

policy that’s right for your employees.

As long as you dive in and really understand the drawbacks and benefits

of each lump sum plan…

…you’ll have no problem choosing the right one for your company!

Want to learn more?