Lump sum in Relocation
Alperen Celik - December 9, 2022
About to receive a Lump Sum payment from your company for your relocation? Here’s what you need to know.
What is a lump sum payment?
A lump sum payment is cash in the bank to cover preferred relocation-related expenses. It is often used for pension plans and other retirement and retirement schemes. Employers are also increasingly (64%) using lump sum payments to provide flexibility in needs for relocating employees. Simplification of mobility programs and cost containment are other often used argument.
Two different lump sum schemes are amongst the most popular. Employers either only pay for relocation-related expenses or they also cover additional expenses on top (lump sum plus). Another distinction is the method of costs covering. Certain employers cover fees directly whilst others transfer the lump sump amount to the employee (less control, more flexibility).
Where do most people spend their lump sum payment on?
Analysis amongst our customers and additional market surveys indicate employees spend most of their lump sums on Short Stay (76%), Homefinding (56%) and Immigration Services (46%).
When an employee is still in search for a house or is not able to move in just yet, he or she will temporarily have to vacate somewhere else. These cost are inevitable incurred and therefore typically covered by the company as an accommodating service.
When starting a new endeavour somewhere new, finding a home can be time consuming (during workinghours). Employers want their employees to land well, and therefore often cover the cost for finding a new home. Mostly the cost is equal to one month rent. Teaming up with local realtors speeds up the process significantly.
Required visa and immigration services are often included in addition to a lump sum. Local experts and knowledge have to be levered in order to smoothen the process. Complex, local procedures can hamper a smooth start. Employers therefore prefer to not only cover the cost but also arrange for this service.
Lump Sum Plus
If your employer covers more than relocation-related expenses it is called lump sum plus or, in some cases, employer benefits. A good example is when the employer also pays for the move of furniture and other goods. The war for talent has led the majority of employers to cover more than just relocation-related expenses. Our study shows the following services are most often covered under the lump sum plus arrangement.
Moving and storage household goods
Employees often prefer to take some personal belongings with them overseas in order to make them feel at home. However, large variations in pricing of international relocations and a lack of standardized tariffs can make moving a costly affair. Therefore, employers often cover the relocation of belongings at least in part. It is not uncommon to request multiple quotes from moving companies to insure the best price and quality.
Expats living in another country are usually required by law to take a local health insurance if eligble. For employers the wellbeing of their employees is pivotal. Cost covered through a local or (upgraded) international health insurance package therefore is often added to the list of covered expenses. Seniority and expertise of the employee within the company do play a role.
Alternative lump sump packages are partial lump sum or managed lump sum. The latter caps the amount to the employee. The employee submits expense receipts in a policy that delinates the provisions convered. Employers sometimes upgrade the policy by working with a relocation management company (RCM). They advise employers en help them allocate budgets responsibly.
Lump Sum Relocation Benefits
The mostly cited reasons for offering benefits is cost control and flexibility. When summed up, employee relocation cost can stack up to a significant amount. Packages therefore help employers keep track of these expenses.
At the same time, employees seize control over their relocation-related expenses and can easily prioritize reducing the burden for employers