Choosing The Right Relocation Policy: Lump Sum Or Allowance Plans?

When relocating employees, sometimes it can be difficult to decide which type of relocation policy should be used. Lump sum is one of the most popular relocation expense reimbursement methods as it is easy for the employer and gives the employee flexibility, however there are other methods that can be good alternatives.

A lump sum is a set amount of money that the company provides to their relocating employee. The amount is calculated by the company then given to the employee who can use it as they see fit for their relocation needs. The employee is not obliged to use the entire amount or even any on their relocation despite it being provided for this reason and can keep the money left over. Some relocating employees therefore attempt to spend as little as possible on their relocation in order to keep as much of the lump sum as possible. 

An alternative to traditional lump sum packages are capped allowance plans. These plans are similar to the previously mentionned package however in this case the company sets a maximum amount that the employee can spend and often dictates what the money can be spent on. COntrary to the traditional lump sum packages, should the employee not reach the maximum amount set, they do not usually get to keep the remaining money. This method can be more cost-effective for the company, however it can also lead to the employee having to pay relocations expenses out of pocket in case of overspending.

A flexible allowance plan can prevent this issue from occuring. By breaking down the different expenses into categories and assigning a maximum amount for each, the transferee can cherry pick which categories they need to use. This method provides a guideline for employees as they can visualize the different necessary expenses in their relocation.

Each method of reimbursement has its pros and cons and the choice of package depends on the company and the relocating employees profiles. Lump sum packages offer the employee more freedom, however they can be less cost-effective for the company and can lead the transferee to confusion as there is no structure. Allowance plans can save the company money however they are not always well suited to every employee. Flexible allowance plans allow transferees to tailor their relocation budget to suit their individual needs and in some cases can therefore be the most attractive to companies and employees alike.  

Source: Urbanbound