Cost of living, the cost of basic expenses in a particular location, is often factored into the decision to accept a relocation. The cost of food, housing, utilities, transportation, taxes, common retail purchases, and healthcare are often considered when determining a location’s cost of living. Some employees moving to a higher cost location receive a cost-of-living allowance (commonly referred to as a COLA).

The purpose of a COLA is to determine the difference between the origin and destination cost of living, commonly referred to as the differential. The differential most often comes from an external data provider. Using an outside source for this information alleviates any bias from the company, offers defensible data from the supplying company, and creates an environment of consistency in which all employees are treated equally. Understanding and having documentation to support the difference in cost of living between two locations is critical to offering this support.

While COLAs are standard in expatriate programs, they can also be found in U.S. domestic mobility programs, particularly with companies moving from low-cost areas to high-cost locations such as New York City and San Francisco, CA. With inflation on the rise, historically strong sellers’ housing markets, and a steady increase in work-from-home positions, employers have questioned their COLA practices (or lack thereof). Aires’ recent Pulse Survey examined the way employers determine compensation structures and COLAs for their employees.

Key findings of the survey include:

  • 84% of companies offering COLA benefits do so through ongoing payments.
  • Companies relocating 75 or more employees per year are twice as likely to offer COLA than companies relocating less than 75.
  • COLAs, paid through either a one-time payment or ongoing payments, are not likely to be grossed-up.
  • COLAs are most often paid for 2, 3, or 4 years, declining each year.
  • Only 8% of companies offering COLA provide a separate payment to address high housing costs in a market.
  • The most commonly designated high-cost areas are:
    • San Francisco/Bay Area, CA
    • New York City Metro Area
    • Boston, MA
    • Los Angeles, CA
    • San Diego, CA
    • Washington, DC
    • Chicago, IL

For a copy of the full Pulse Survey results, which details common compensation structures, common COLA benefit structures and payment schedules, additional high-cost area information, and the projected future of COLA benefits, please contact your Aires representative.

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