As part of a company’s domestic relocation services, the final move benefit has remained consistent, apart from the repeal of the moving expense deduction as part of the Tax Cuts and Jobs Act. Most companies reimburse final move expenses after the trip has taken place. Best practice across industries covers airfare for moves farther than 250-500 miles or mileage at the current IRS rate for those driving their cars.
Lodging typically includes one night at the departure location, one night at the destination location, and additional en-route nights if driving. Companies provide a per diem to cover meals. If an employee has shipped their car(s) and is flying to the new location, it is typical to provide a rental car for up to 10 days or until their car(s) are delivered, whichever is shorter.
Companies with a corporate travel policy usually require transferring employees to adhere to it for relocation travel. Additionally, as with household goods shipments, most companies have opted to tax assist the final move benefit where applicable.
Miscellaneous (Relocation) Expense Allowance
The Miscellaneous Expense Allowance (MEA) covers a range of relocation expenses not explicitly mentioned in the corporate relocation policy. These may include pet shipments, tips and gratuities, childcare, and utility deposits. In most cases, the MEA can be used for any expenses related to the employee’s move.
In the traditional program model, the MEA can either be a flat amount determined by policy or tier or a percentage of the employee’s salary, such as one month’s salary. The benefit is usually a predetermined flat amount in a managed cap or core-flex program.
As a best practice, the company (or the relocation management company, if applicable) should provide the transferring employee with the MEA early in the relocation process. This ensures that the necessary funds are available when needed, empowering the employee and reducing administrative burdens for the employer. While some companies still opt for the MEA as a reimbursable expense, this does not align with the spirit of the MEA, which is to alleviate financial hardship for the employee as they incur expenses not covered elsewhere in the relocation policy.
Trend(s) to Watch with the Final Move Benefit
Typically, the MEA benefit is not tax-assisted. However, TRC has observed more companies grossing up this allowance as an additional benefit. To attract and retain talent, employers are finding innovative ways to build competitive advantages in their mobility policies. Tax-assisting the MEA is a small but meaningful change that can put a considerable amount of money back into the pockets of transferring employees.
Repayment Agreements
Given the considerable investment a company is making in relocating an employee, and often the employee’s family, a repayment agreement is essential. The employee should sign the agreement before the company initiates any relocation activity. The repayment agreement should clarify what happens if an employee voluntarily terminates their employment or the company terminates them for cause. Best practice is a two-year repayment agreement, effective from the initiation date of relocation benefits. Ideally, the agreement should stipulate full repayment of the benefit amount within the first year, followed by a prorated amount throughout the second year.
Tax Assistance
The excitement of being offered a corporate relocation and moving to a new location can sometimes cause employees to overlook the taxability of employer-provided relocation benefits. The IRS considers nearly all relocation benefits as income to the relocating employee and, therefore, taxable.
During the W2 season, some employees are taken aback when their annual income is much higher than stated in their offer letter. This discrepancy can be confusing and frustrating as they struggle to reconcile that inflated number with their take-home pay. Employers must discuss the tax implications of relocation with prospective employees and, at the very least, advise them to seek tax consultation if it is not already included as a specific benefit.
Benefits Worthy of Further Consideration
Cost of Living Allowance (COLA)
The Cost of Living Allowance (COLA) is becoming increasingly important as companies realize that employees are hesitant to relocate to higher-cost areas without a means to maintain their standard of living. While inflation has raised the cost of living in many parts of the U.S., certain cities, such as San Francisco, New York City, and Boston, were high-cost locations long before the recent inflationary pressures and will likely remain so even as inflation recedes. When employees are offered a relocation, they will carefully consider whether their purchasing power remains similar in the new location.
COLAs can take several forms, including permanent or temporary salary increases (temporary if the employee plans to move again soon) or an allowance targeting the cost-of-living difference between the old and new areas, provided in each paycheck. Most companies that offer a paycheck COLA do so on a scaled basis. For instance, in the first year of the move, the employee would receive 100 percent of the COLA amount. In the second year, they would receive 66 percent; in the third year, 33 percent; and in the fourth year, no COLA would be provided.
This method assumes that within the same timeframe, the employee will receive salary increases that would help adjust to the cost of living in the new location. It also assumes that the employee will find ways to stretch their paycheck further as they become accustomed to the new area. For instance, opting to drive a couple of extra miles to shop for groceries instead of going to the nearest and potentially most expensive store. These adaptations are learned over time.
Best practice is to provide tax assistance or “gross-up” on all taxable benefits, with the potential exception of the MEA. Tax assistance refers to the employer covering the tax payments wholly or partly to mitigate this burden for the employee. In some cases, relocation benefits can even push employees into a higher tax bracket, negatively affecting their living standards. The tax aspect of relocation should consistently rank as a top priority when employers discuss the implications of moving with employees.
Home Sale Bonus
To encourage a timely sale, some companies offer a home sale bonus. This is a time-limited payment to encourage employees to consider all bona fide offers. Faster sales return employees to productivity more quickly, reduce employer costs, and make the relocation process less stressful for employees. Companies usually combine the home sale bonus with GBO programs and occasionally with BVO programs as an incentive to entertain all offers, reducing the potential of homes coming into inventory. In a weaker real estate market, the home sale bonus combined with a list price cap effectively encourages homeowners to set a realistic list price from the outset of the process.
Spouse / Partner Transition Assistance
Companies today rarely offer spouse/partner transition assistance for domestic moves. With a full-employment economy and the possibility of remote work arrangements, it is simpler today for spouses/partners to continue their careers or maintain their current position in the new location.
While the primary focus of this support has traditionally been on the spouse/partner’s career, it is essential to recognize their significant role in the relocation’s overall success. Beyond career counseling, this assistance facilitates adjustment to the new location, encourages engagement in meaningful activities that align with the local culture and community, and helps the spouse/partner cope with the stress and challenges associated with the move. At the very least, access to an Employee Assistance Program should be provided and discussed with the employee and their family.
Pet Transportation Assistance
Until recently, it was rare for companies to provide pet transportation services as a standalone benefit. Yet according to Forbes, two out of three U.S. households own a pet, and most pet owners consider their pets part of their family. Facilitating the transportation of beloved animals is an essential aspect of a comprehensive relocation program.
Employers that offer a miscellaneous expense allowance often advise transferring employees to use a portion of these funds to move their pets. However, as pet ownership has grown, more employees expect their employers to provide pet transportation assistance as a defined, standalone benefit.
Ready to Learn More About Domestic Relocation Services and Best Practices? Download TRC’s latest ebook, to explore:
- New ways to make your employee relocation package both competitive and cost-effective;
- Relocation benefits that might be worth reconsidering;
- Steps to jump-start your corporate relocation policy review process; and
- How to improve your current domestic relocation policy to produce successful outcomes.
Download the eBook and get ahead of the curve on your employee relocation policy and its domestic relocation benefits.
