With the passage of the recent tax law, the relocation industry is shifting. A large number of companies are already making policy changes to provide a Lump Sum Allowance for certain relocation benefits, since there is no longer a tax advantage of keeping receipts and submitting them for reimbursement of moving expenses. What does all of this mean for your company? Find the answer to these questions of how the new tax law impacts lump sum allowances.
How do lump sum allowances work?
By providing a Lump Sum Allowance that is calculated using a company’s policy to reflect the number of days for each benefit, level of hotels, fly/drive thresholds, etc., and then using a transferee’s actual family size and geographically-specific locations, an allowance can be provided that is both fair and accurate. How the transferee uses those funds is up to them. They don’t need to collect receipts or worry about expenses being out of compliance. If they want to stay longer at a less expensive hotel, use points, or use an alternative housing option, the choice is theirs. They can save money by eating fast food or they can spend it on an all-stops-pulled dinner date-- that is their choice as well.
How are lump sum allowances calculated?
After the parameters of a Lump Sum Allowance policy are established, companies or a Relocation Management Company (RMC) can run reports that typically only take a minute or two to complete between most locations in the U.S. and Canada using policies and benefits for new hires, renters, homeowners, executives, or any other policy differentiation. Transferees, based on their policy eligibility, are provided the allowance upfront (generally with the acknowledgement that the funds are to be used to cover their home finding, temporary living, and final move expenses). No receipts need to be collected, submitted, or audited (saving both the transferee and company/RMC time). Transferees should also understand that how they use these funds is up to their discretion and they should not expect to come back for an exception.
Does providing a flat amount for all transferees, or a flat amount based on policy tier or distance, make sense?
In short, no. A transferee moving from Boston to New York City has a significantly higher financial need than a transferee relocating from Dallas to Houston despite both moves being just a little over 200 miles. Transferees moving between the same two cities also have different needs. As an example, a transferee from Salt Lake City to San Francisco will incur different costs than someone relocating from San Francisco to Salt Lake City.
Overall, for Home Finding, Temporary Living and Final Move Expenses for a family of 4 there is a 45% difference, over $5,000, when moving between the same two cities but in the opposite direction. While the distance and airfare costs may be similar for these scenarios, the cost for rental car, hotels and corporate apartments can vary by thousands of dollars.
Will companies increase or decrease their use of lump sum allowances?
A leading attorney within the mobility industry said that, due to the tax changes, he expects a lot of companies to move towards Lump Sum allowances to cover many more benefits within their policies. This has already begun. There’s simply no more tax advantage to collecting receipts or paying directly for moving expenses. By providing an allowance based on company policy while using family size and location-specific data, a company can reduce the administrative burden while knowing that they are providing a fair and accurate allowance to their transferees. The employee benefits by having flexibility in how they use these funds. It is truly a “win-win” for everyone.
The relocation industry is facing big changes this year, and the best way to keep up with those is to stay educated. We hope to have answered at least a few of your questions regarding the tax law’s impact on lump sum allowances. If you have further questions, please contact us here.
About the Author
As Director of Relocation Services at Runzheimer, Denise is responsible for maintaining the quality of Runzheimer’s relocation products, including the development of new products and services. She works closely with Runzheimer’s Research and Customer Care teams to provide quality data, analytics, and service used to shape policy, set standards, and determine allowances for relocation-related reimbursement programs.More Content by Denise Oemig