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The Costs of Employee Relocation

Andrew Martins
Andrew Martins

Moving to another location for work can be costly, but employers can help ease that burden with a relocation plan.

  • Employee relocation packages help companies attract candidates from other parts of the country – and even the world.
  • There are three main types of employee relocation packages, and each has pros and cons.
  • Employees may try to negotiate the details of their relocation package.
  • This article is for employers who are looking into providing an employee relocation plan, as well as employees who want to know what's fair to expect.

Every small business owner wants to find the right candidate for an open position, and every job hunter looks to land the perfect gig. But what happens if the job candidate lives far away from the employer? In many cases, the answer is an employee relocation package. With the proper consideration and forethought, an employee relocation package can benefit all parties involved.

What is an employee relocation package?

An employee relocation package is a perk that companies use to assist new and current employees in moving from one location to another because the job requires it. This type of assistance happens more often in certain fields than in others. For example, tech companies, like LinkedIn and Spotify, typically offer relocation assistance.

If a small business is comfortable building its workforce locally, then it doesn't make sense to worry about an employee relocation package. But for businesses looking outside their geographic area, this kind of offer could be enticing enough to get a great candidate to move closer.

With a good job opening and the right employee relocation package, businesses can attract candidates from all over the country. A 2019 survey conducted by staffing company Robert Half found that approximately 62% of the more than 2,800 workers surveyed said they would consider relocating for the right job. Researchers also found that Raleigh, North Carolina; Miami; Des Moines, Iowa; and Charlotte, North Carolina were among the cities with the highest number of respondents who said they would move for a job.

While the decision for many job seekers depends largely on where they'd be leaving and where they'd be relocating to, it all comes down to the cost and the hassle of the move.

Key takeaway: Relocation assistance can help a new hire or a current employee move to a new city, state or country for work. By making the move easier and less expensive for employees, you can foster a higher employee retention rate and attract strong talent.

What does an employee relocation package typically include?

There are many approaches and options to consider when creating an employee relocation package, and the individual benefits may determine how attractive the package is for candidates. It is very difficult to understand an employee's needs before they start the relocation, Ilona A. Keilich, managing director of ExpatsGuide, told Business News Daily.

"There are a lot of hidden costs that can be quickly forgotten if the relocation is not managed properly," she said. "It is in the interest of the employer to ensure the relocation goes smoothly."

An employee relocation package can include a variety of options. Here are some components to consider:

Relocation reimbursement

Moving is costly, so companies can help by offering some financial reimbursement for expenses such as moving services, mover's insurance or transportation. While some companies provide the funds only after the moving employee submits relevant expense reports, others opt for a single lump sum upfront.

Flexible start date

New hires normally start about two weeks after accepting a job offer. However, if that new employee must move, it may take longer. When developing a relocation program, businesses should keep that in mind and ask employees how much time they need. By working with new hires from the outset, companies establish a more realistic time frame for the move and can also take the first steps toward creating a good working relationship.

Free visits

In some instances, companies let employees visit the region so they can get a lay of the land before making a big move. This usually means regular trips to the new location so they can start looking for housing and learn more about the area.

Temporary housing

If the employee needs to start by a certain date, companies can also consider temporary housing. Thanks to the rise of house-sharing programs like Airbnb, companies can avoid putting someone up at a costly hotel, though that option remains. Temporary housing can help the employee adjust to the new locale in a month or two. Along with rental costs for those two months, companies also often cover utilities.

Familial support

When hiring someone and asking them to move closer to your office, it's important to remember that they likely have people who depend on them. In some cases, it would make sense to assist the relocating individual's family in acclimating. Sometimes this means helping a spouse or partner find employment elsewhere, as well as providing child care and finding the right school for children.

Real estate cost assistance

In many instances, companies can help by covering the costs associated with buying or selling a home. Companies often do this by helping to market the employee's old home or buying the property themselves to sell at a later date. If an employee is a renter with a lease agreement in place, a company can address that problem by covering any costs that result from breaking that contract.

Pay adjustments or bonuses

The cost of living varies from city to city and state to state. As an added relocation incentive, some companies offer commensurate pay adjustments or relocation bonuses to help cover the difference. This is especially beneficial in states with high tax rates.

Payback clause

It's important for companies to get a return on investment from the relocation process. To cover their bases, businesses should consider adding a payback clause, which states that if the relocated employee leaves before a set period of time, they will have to repay the company's relocation costs.

Key takeaway: Employee relocation packages vary, but some options to consider include relocation reimbursement, a flexible start date, free visits, temporary housing, familial support, real estate cost assistance, pay adjustments or bonuses, and a payback clause.

How much do employers spend on employee relocation options?

Relocating an employee can be a costly endeavor for companies. The average relocation package costs between $21,327 and $24,913 for renters and between $61,622 and $79,429 for homeowners, according to a 2016 report by Worldwide ERC, a relocation services trade group.

Though the final cost of an employee relocation package varies widely, there are ways for companies to calculate and reduce these costs.

How to calculate employee relocation costs

As companies create relocation budgets, they can estimate how much a particular relocation effort could cost by considering the following expenses:

  • Travel to the new location
  • Packing and moving service costs
  • Moving insurance
  • Short-term housing
  • Storage units or other temporary storage solutions
  • Home sale or purchase
  • Tax gross up for benefits
  • Relocation taxes

While most of those items are self-explanatory, "relocation tax gross up" is less familiar to most people. A tax gross up is when an employer increases a person's gross amount of a payment to take the withheld taxes into account. Doing this prevents the employee from having to pay out of pocket.

The Tax Cuts and Jobs Act of 2017 essentially removed relocation expense tax exemptions and deductions. Because of those changes, which also ended the IRS 50-mile rule, relocation is a more expensive prospect.

Key takeaway: Some factors to consider when calculating the cost of an employee relocation package include expenses related to travel, housing and taxes.

Why employees should consider negotiating their relocation package

While employers have a lot to consider when creating employee relocation packages, the employees are ultimately the ones who are making a big life change and, as such, will want to keep some things in mind. Key among those considerations is the ability to negotiate the relocation package.

Though most companies have a relocation package mostly figured out by the time they offer a job, employees may have individual needs or requests for making the move as painless as possible. Priya Jindal, founder of Nextpat, said employees shouldn't hesitate to ask for those things.

"For many companies, relocating you in the beginning is a cheaper option than an initial salary boost," Jindal said. "Of course, that's a separate negotiation consideration."

For relocations, Jindal said her organization provides the following benefits:

  • A few days off
  • House-hunting trips domestically, and housing internationally
  • 10 days of hotel expense reimbursement on either end of the move
  • Payment of all moving expenses, including the packing up
  • Storage

Key takeaway: Employees should make sure to get the best relocation assistance package by discussing potential options with their employer.

Andrew Martins
Andrew Martins,
Business News Daily Writer
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I am a former newspaper editor who has transitioned to strictly cover the business world for business.com and Business News Daily. I am a four-time New Jersey Press Award winner and prior to joining my current team, I was the editor of six weekly newspapers that covered multiple counties in the state.