Are you looking for a quick win for your global mobility program? A small change with a positive impact on your mobility program? This is the third post in our “Quick Wins” series. Each quick-win blog will offer ideas of straightforward changes that can be made to support your organization’s mobility principles. No one solution is going to fit everyone’s purposes, so in each post of the series, we hope you find at least one thing that can be a quick win for you. And if these quick wins are already part of your program, we hope you already see the benefits.
This blog post, in follow up to our recent blog post covering Aires’ U.S. Domestic Lump Sum Pulse Survey results, examines administering lump sum payments to employees. Lump sums are common relocation benefits, and there are advantages and challenges that go along with them.
As we are in the midst of inflation, more companies are questioning their lump sum payment practices. Below are some considerations that could lead to quick wins for your lump sum program.
Define the Approach and Decide on Amounts
One of the most commonly asked questions of the Aires Consulting team is “how much should our lump sum be?” While the answers to this question can vary widely, the most important thought to factor in is that a lump sum should be enough to cover some to most of the expenses the payment is intended to cover. The lump sum likely won’t cover everything, so companies should decide how much they can or want to cover.
It is also necessary to determine whether the amount offered should be firm or flexible based on certain factors. Companies usually have their own tolerances for cost, standards for support, and cultures that play a vital role in their approaches.
Lump sum payments are known to range from $3,000 to $50,000 or more. The majority of lump sum payments range between $5,000 and $15,000, and the most common single amount paid is $10,000.
Aires’ recent Lump Sum Pulse Survey highlights the different ranges and averages by employee.
Dress Up a Lump Sum
Another common question asked about lump sum programs involves expenses that might be better to include as an additional benefit in lieu of only paying a lump sum. This is often referred to as a Lump Sum Plus program.
The most common add-on to a lump sum is a household goods shipment. For some employees, this can be a major moving expense, while for others, it is not much of a concern. For the former, paying for professional support can be significant and increase move success.
Other expenses that are regularly added to lump sum payments include temporary housing and destination services. Today’s real estate and rental markets are challenging, and employers concerned with providing a great experience and attracting talent use these services to provide meaningful support to their relocating employees.
Dressing up a lump sum by adding another expense or two doesn’t mean the overall cost needs to increase. When paying for a major or minor expense, the lump sum amount is often reduced accordingly.
Be Competitive; Cover the Tax
When an employee is told they will receive a $5,000 cash payment for their relocation and later only receives approximately $3,400 due to tax withholding, there can be a negative impact. For this reason, most lump sum payments are tax-assisted through gross-up. Larger payments – those on the high-end of the range – are less likely to be grossed-up than typical amounts paid (e.g., $10,000 and similar amounts).
If gross-up is too expensive for your company to cover, consider adjusting the lump sum amount. Remember, there is a perception attached to cash payments – payments in which the employer pays the tax always provide higher employee satisfaction than payments for which the employee must cover the tax burden.
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If you’d like to discuss your lump sum approach and possible enhancements, please contact your Aires representative.