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July 28, 2017

Relocation costs revealed: How much should employers offer?

 

As an executive recruiter, I’m always pleased when I hear my client uses a third-party relocation firm and receives standard relocation benefits. However, many of our middle market corporate and nonprofit clients don’t have a relocation program in place. Thus, I’m often asked the question, “How much should we budget and offer for relocation?” The answer? It depends. However, I want to take some of the guesswork out of relocation costs through this post. 

 

According to the 2015 Transfer Volume & Cost Survey cited by Worldwide ERC:

  • The average cost of shipping household goods for a U.S. domestic transfer was approximately $13,000
  • The average cost for a new hire homeowner relocation was approximately $71,800

These averages vary widely depending on a number of factors, including family size and homeowner status. As demonstrated by the numbers above, moving household goods is only one piece of the puzzle. 

 

Candidates who are currently employed and relatively happy in their roles don’t want to lose money when taking on a new position, and often look to the hiring organization to account for additional costs of a required move. Individuals who have typically worked in large corporate environments where full relocations packages are the norm may expect that expenses such as house hunting trips, temporary housing, realtor commissions and closing costs will be part of the offer. Some may even assume a guaranteed buyout of their house.

 

So what should a company offer when negotiating with a top-notch candidate who requires relocation? Middle market companies and nonprofit organizations should be aware of the expenses that a candidate will incur when relocating, even if you decide to negotiate on the following items as you would with base/bonus, paid time off and other elements of the overall compensation package:

 

Candidate Expense

Estimate

Typically Offered?

Move of household goods/autos

$10,000 - $30,000

Yes

House hunting trip(s)

$2,000 - $8,000

Yes

Temporary housing

$6,000 - $10,000

Yes (length of time negotiable)

Family transportation (flight/hotel) for actual move

$1,000 - $3,000

Yes

Employee trips home during transition

$1,000 - $3,000

Negotiable

Storage

$5,000 - $15,000

Negotiable

Commissions/closing costs for buy and sell of home

Varies widely based on home value.

Example: $300K x 6%= $18,000

Negotiable

Gross up for taxes if lump sum

$10,000 - $20,000

Negotiable

Miscellaneous expenses (utility hookups, professional cleaning, document updates, etc.)

$1,000 - $5,000

Negotiable

 

Note the estimates above are impacted by the candidate’s specific situation, home value, location, timeline and ownership situation.

 

Most of our nonprofit and middle market corporate clients without a formal relocation plan offer a lump sum allowance or reimburse expenses up to a capped amount – usually between $10,000 and $60,000. 

 

Here are other considerations when evaluating relocation benefits:

  • If a relocation allowance is paid as a bonus/lump sum on a paycheck, it will be taxed as income and the total benefit to the candidate diminishes substantially.
  • You should be clear about whether the company plans to provide an allowance (taxed as income), reimburse actual expenses up to a certain amount or directly pay a relocation company. In any case, candidates should be encouraged to retain receipts for tax refund purposes and talk to their financial advisors about specifics for their situation.
  • It is typical for organizations to include a “claw-back” clause to protect the company if the new employee were to leave within a certain time frame.
  • Some employers tie relocation benefits to the timing of the move to motivate a shorter transition period.

If you are conducting a search for a new leader and the local talent pool will not yield the candidates you seek, chances are you will eventually be faced with questions from regional/national candidates regarding relocation assistance. It is important to prepare for relocation costs, as it will likely become a topic for compensation package negotiations and will certainly impact your budget.

 


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