Relocating for a job can be an exciting yet daunting prospect for employees. Among the many considerations that come into play, financial aspects often loom large. One crucial component of relocation packages that can greatly alleviate the financial burden on employees is providing tax assistance, which is more commonly called gross-up.
Let’s Start by Reviewing: What is Gross-Up?
Gross-up is a financial provision offered by employers to cover the tax obligations incurred by relocating employees when the company reimburses them for relocation related expenses or pays a vendor on their behalf. In simpler terms, it's a way for employers to ensure that their employees don't end up bearing the additional tax burden associated with a relocation.
So, what is the benefit to your relocating employees? The benefit of gross-up for a relocating employee is to alleviate all, or some, of the tax burden associated with relocating. Nearly all the expenses related to relocating are viewed as taxable income to the IRS. Whether they are moving their household goods, staying in temporary housing, or getting reimbursed for travel related to relocation, Uncle Sam wants his share. One of the only areas that isn’t taxable is a qualified home sale which is a whole different story that you can conveniently read about here!
When companies reimburse relocation expenses or make payments to vendors on their behalf without grossing up, the tax liability still exists. That liability can be satisfied by withholding from the employee’s expense reimbursement. However, vendor payments cannot be short paid so the tax liability would be taken from the employee’s regular paycheck. By providing gross-up, employers essentially cover or offset some of the liability that the employee will face.
Since relocation is stressful enough, everyone should offer gross-up, right? Maybe, but gross-up is expensive. There are different methodologies for calculating gross-up which on average come out to roughly 55% of the expense amount incurred during a relocation. If you are trying to cover most or all the liability for high wage earners this could easily jump to over 100% of the expense amount. Gross-up can become one of the higher spend items in a relocation program. There is a delicate balance between spend and the overall benefits package when formulating your gross-up strategy.
We know what gross-up is now and we know the potential spend impact…so what is the benefit for your global mobility program? Let’s explore a few:
Attracting Top Talent: In today's competitive job market, offering comprehensive relocation packages can be a key differentiator in attracting and retaining top talent. Gross-up adds considerable value to relocation packages, making them more attractive to potential hires.
Increasing Employee Satisfaction and Retention: Relocation can be a stressful experience, and financial concerns only exacerbate the challenges. By incorporating gross-up into your relocation program, you demonstrate a commitment to employee well-being, which can boost satisfaction and retention rates.
Mitigating Financial Risks: Failure to properly address tax implications can result in unexpected financial burdens for both employees and employers. Gross-up helps mitigate these risks by ensuring compliance with tax regulations and avoiding potential disputes or financial setbacks down the line.
Enhancing Employer Brand: A relocation package that includes gross-up reflects positively on your employer brand. It signals that you prioritize the financial welfare of your employees and are willing to invest in their success and smooth transition.
Promoting Fairness and Equity: Offering gross-up equally across all levels of the organization demonstrates a commitment to DEI initiatives in the relocation process. It ensures that all employees, regardless of their tax bracket or financial situation, receive equal support when relocating for the company.
Gross-up is a valuable offering for your relocation program, offering significant benefits for both transferring employees and employers. By covering the tax obligations associated with reimbursed relocation expenses and vendors payments, expense gross-up provides employees with financial relief, security, and peace of mind during what can be a challenging transition period. For employers, it represents a strategic investment in talent acquisition, retention, and employer branding. Incorporating gross-up into your relocation program can ultimately contribute to a smoother, more successful relocation process for all parties involved.