What is a Repayment Agreement in the Relocation Industry?
A Repayment Agreement is a legal document that defines the expectation of a specific length of time for a relocation assignment, as well as the employee’s willingness to remain with the company during this time. Companies offer relocation assignments to employees with the expectation that there is a specific length of time for the assignment, and structure a Repayment Agreement should the employee depart prior to the end of the assignment.
During this time, the employee agrees to remain with the company and work to the defined parameters of the assignment. As confirmation of this expectation and agreement, a Repayment Agreement is proffered to the employee, to be signed accordingly. Most companies follow this practice, and it is easy to obtain an employee’s signature on a Repayment Agreement.
Generally, a Repayment Agreement sets forth the timeframe that the company expects the employee to remain working in the relocation assignment. Should the employee leave the company prior to the expiration of the timeframe, the employee would owe the company an amount related to the relocation costs that the company paid to move the employee to the new location.
The amount of the repayment could be the full amount of moving costs, or a negotiated amount agreed upon by the company and the employee. The amount could also follow a graduated scale, reducing over time so the employee’s portion is pro-rated. The Repayment Agreement usually includes a full description of all costs considered for possible repayment, along with the specific amounts for each cost.
Why is a Repayment Agreement Important?
A Repayment Agreement is important for a company to have in place should the relocating employee decide to leave the assignment. Employees under consideration for relocation assignments often have exceptional skills, specific knowledge, and talents that are valuable to the company. Competitors and recruiters search for these employees and make offers of employment.
A Repayment Agreement lets the relocating employee know their out-of-pocket direct costs should they consider leaving their current employer. This usually provides a significant hurdle for competitors and recruiters who might be asked to cover the cost of any Repayment Agreement. Also, since the employee usually does not want to repay these relocation costs, this helps keep them within the assignment. Additionally, should the employee decide to leave, the employer will receive the repayment and be able to use those funds for other relocation costs or further investment.
However, companies should consider how easy or difficult it is to recruit within their industry. Difficulties recruiting employees to work for a company or within an industry might be an indicator that structuring a Repayment Agreement is not in their best interest.
What is included in the Calculation?
A number of costs might be included in a Repayment Agreement calculation. Costs might include any or all of the following, or more:
- Household goods packing and unpacking services
- Household goods moving van line costs
- Travel to and from the new location during the assignment process including
- Costs associated family assistance during the relocation including school searches
- Spouse or partner assistance including career resources and cultural adaptation
- Pet care assistance
- Temporary housing
- Home sale assistance including commissions and fees (these costs may be considerable in a repayment agreement)
- Property management costs
- Home finding assistance
- Mortgage assistance
- Vehicle lease or purchase
- Interim health insurance
- Child care
- Visa and immigration costs
- Tax assistance including gross up costs
What is a Good Length for a Repayment Agreement?
Generally, a good length for a Repayment Agreement should depend on the total costs for the relocation and an assessment of the employee’s value to the organization in the specific assignment. Keep in mind that the relocation assignment is in place to help the company achieve an objective. Therefore, the Repayment Agreement should have a timeframe long enough for the objective to reach fulfillment, or at least meet substantial progress toward a larger, long-term goal.
In general, most relocation contracts require employees to work in the assignment for one to two years. Employees must repay the relocation costs if they depart employment on their own, or if they separate from the company for cause.
How Can a Company Collect on a Repayment Agreement?
While it is easy to obtain an employee’s signature on a Repayment Agreement, collecting a repayment is more difficult. Often, the employee will have departed to a new location. They also may change their address and contact information without informing their previous employer. Companies often rely on internal departments such as Accounting or Human Resources to try to collect repayments. This puts an undue burden on these employees, who may not have skills for collecting repayments from individuals.
A better option is to work with a qualified Relocation Management Company (RMC) that has experience in collecting repayments. RMCs have access to a wide range of resources designed to help clients with their relocation programs, including collections for Repayment Agreements. This removes the burden of collections from the company and lets them focus on pursuing corporate objectives and seeking new hires.
Global Mobility Solutions’ team of corporate relocation experts have helped thousands of our clients design their relocation programs with appropriate Repayment Agreement provisions. We can help your company understand the importance of inserting appropriate Repayment Agreements into relocation assignment offers, and assist with collections when necessary.
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