Different policy tiers within your relocation program may require different strategies for covering your employee’s relocation costs. It is essential to understand the advantages and disadvantages of these standard methods.

Direct Billing: The relocation management company manages the procurement, organization, and direct payment to the service providers involved in your employee’s relocation. They review, combine, and forward the invoices to you for settlement. Although this approach may be pricier, it guarantees that your employee maximizes their benefits and reaches their new location promptly, alleviating any concerns about the expenses associated with the move. 

Expense Reimbursement: The employee pays for moving expenses upfront, and the company issues a reimbursement check at the end of the process. While not generally intended to cover an employee’s entire move (few families have the cash to pay tens of thousands of dollars for a move), reimbursements are commonly used for miscellaneous expenses as outlined in the company’s relocation policy. Typically, reimbursements are used for items such as travel costs or other related items.

Lump Sum: Unlike an expense reimbursement, a lump sum is commonly used as the primary financial benefit to a relocating employee. In a lump sum policy, a set amount of money is given upfront to the employee to handle the moving expenses as they see fit. 

Generally provided to entry-level or lower-level employees, the lump sum is typically the only relocation benefit offered. While the lump sum is seen as an excellent cost control tool for companies, it places additional burdens on employees, as they are left to manage their move independently. This is in addition to the lump sum, which is typically considered taxable income. Employees who receive their relocation benefits as a lump sum should note the payment for tax purposes. Employers should consider adding a tax gross-up to the lump sum to help mitigate the effects of the income tax on the employee’s benefit.