A growing trend in expatriate mobility is a ‘lump sum payment’ approach to address the plethora of costs and burdens that international assignees face. Essentially a company makes a cash payment to the expatriate in lieu of the company organising and paying for relocation services on the employee’s behalf. In theory this practice sounds inviting by reducing administrative demands and allowing expatriates to have choice and flexibility. Lump sums may not always be the easy remedy employers are expecting.
Lump sum payments vary considerably depending on the relocation costs a company is willing to cover. For some expatriates this ‘windfall’ can equate to the price of a medium priced car. There is great temptation for expatriates to forgo certain relocation services to purchase luxury items they may not have otherwise bought. It is little wonder that human resources have been overheard calling it the ‘plasma TV payment’.
Does it matter? If they want to ‘couch surf’ or use Airbnb in lieu of traditional serviced apartment accommodation then that’s their choice is it not? The company has met their side of the deal by paying the cash and now it all falls on the employee.
It is important to firstly consider the intent of relocation support. It has traditionally been to ensure that employees are ready to ‘hit the ground running’ and to be protected from significant financial or time pressures. It can also help companies to manage any compliance obligations. Does today’s self-service approach overlook these intentions?
Use of resources
One of the key concerns is that companies have spent years negotiating and managing relocation costs yet are expecting employees to find adequate cost effective solutions themselves with little assistance and minimal time. This sounds like added stress for both the expatriate and their family at an already trying time, and time spent away from their job as they research what to do in a foreign environment. Planning an international move has often been likened to having another part-time job so will have an impact.
There will still be an administrative time component to determine what lump sum to pay and to manage the payment. Key considerations are what to include or exclude, how much cash is needed when employees are paying directly, what taxation needs to be accounted for, and how does the payment get delivered to best advantage of exchange rates? These complexities can negate some of the perceived ingenuity of such payments unless well thought out which all takes time.
Lump sum payments may still be preferable to the extensive costs associated with maintaining a full service relocation program. Companies may also find it prudent to provide individuals with contact details of reputable suppliers that they can choose from, reducing research hours and dealings with unscrupulous providers. Online relocation tools and applications can also complement lump-sum payments providing a valuable resource of information to aid a smooth relocation. These tools are usually available 24/7 enabling employees and their families to access them at their own convenience without the reliance on providers who only work business hours.
Companies need to be mindful of any resulting tax burden that may fall upon the employee given most lump sums will be treated as taxable income depending on where and how it is paid. There is also a risk that employees will not make cost-effective purchasing decisions, as they may not be familiar with the many options that are available. Individuals will have no bulk purchasing buying power so may end up paying retail pricing for services their company may have been able to procure cheaper.
Companies also make the assumption that the individual has the ability to live within a pre-established budget when cash management may not be their key strength, especially with the temptation to spend the money on non-relocation items. Lump sum payments are often in lieu of longer-term items such as accommodation or car rental so the individual needs to allocate funding over many months. A mobility professionally recently shared a story of an expatriate choosing to cancel the rest of their accommodation reservation and other services, and move in with a friend so they could buy a small car instead. Never mind that they might be further from work, sleeping on a couch, and relying on the temporary generosity of a friend that may not work out in the long term. Sleeping in a car when your money runs out is not a sensible alternative.
Proponents will argue however that if you have enough trust in the individual to employ them within the organisation, then you should trust that they could manage their own personal finances appropriately. They are probably already home owners, investors and informed shoppers which gives them some advantage. In today’s online environment there is a range of useful information available to make informed comparisons. Many websites offer price comparison tools, instant quoting, hints & tips, and discounts for booking online. This ‘self-service’ trend is also popular with younger employees such as millennials who are very comfortable with online research and bookings, and who appreciate companies who trust them to make their own decisions.
A company may believe they have washed their hands of any compliance issues by hand balling the risk to the employee. If the employee does not correctly handle taxation or immigration requirements it may adversely impact not only the individual, but also the company as their sponsor and employer. There are arguably health and safety risks for budget conscious expatriates who choose to fly economy for long-haul flights when business would be the norm, or stay in cheap lodgings that are not as safe or secure. Not to mention using questionable second-hand vehicles or motorbikes instead of quality vehicles.
To better facilitate this companies may choose to lump sum payments only for less risky items, or to have some purchasing rules to mitigate some of the issues e.g. allowing accommodation of a certain star rating or bookings only with accredited international removalists. Companies can also set a minimum spend on certain items to ensure quality purchases and providers.
Expatriates are traditionally used to being hand-held and it may come as a shock to some to be left to their own devices. They may take too long to sort out their own affairs and start to feel resentful of the added responsibilities, as may their managers who can only make allowances for so long before it impacts productivity and the rest of the team. The expatriates may start to question the lump sum calculations arguing over the individual costs of items and time burdens that they are now having to bear. Employees may also seek recourse with the employer if the lump sum does not account for unforeseen fluctuations in living due to exchange rates or they become victims of unscrupulous providers. Dealing with these unhappy employees could require more administration resources, and could impact the morale of both the relocatee and the administrators left to deal with the fall out.
On the other hand there are definitely some intangible benefits in allowing employees to have choice and feel that they are in control of how they spend their entitlements. There may be a perceived added value from being able to shop around for the best option for their circumstances, and use providers that companies would not normally deal with for a variety of reputational, administrative or compliance reasons. Cost-focused managers may also see value in this model assuming it will be much easier to determine the exact cost of the assignment.
Reduction of buying power
Companies who allow employees to ‘self-serve’ also need to be mindful of reducing their own organisation’s buying power with service providers. Procurement may find it more difficult to negotiate deals for other areas of the business if providers can no longer be assured of the volumes they once had. Even if employees were to use their service, cancellations or not fully utilising services are becoming more prevalent as individuals weigh up the perceived value and seek to make alternative arrangements. Individuals may also fall victim to unforeseen cancellation policies and fees causing them further costs and anxiety.
The key to managing these issues it to set expectations and provide some generic guidelines around what they company will and won’t pay for. This will minimise any recourse and encourage individuals to purchase more carefully. If companies provide an ‘approved’ list of providers they can also help stem the flow away from their chosen supply partners. If employees can choose a provider this may also encourage suppliers to be more competitive.
So are lump-sum payments a blessing or a curse?
They can only be an advantage if they are managed properly. The intentions and ramifications of the payments must be clearly understood. It will also depend on the benefits and administration they replace, the guidelines and expectations within which they are paid, and the complementary tools and information that may be provided. If companies can manage these components effectively then lump sum payments may be an option for some of their relocatees.
The Employee Mobility Institute (TEMI) Steering Committee Member