What Are the Different Types of Relocation Packages?
It’s easy to get lost in jargon when you’re trying to understand your benefits policy. Knowing what the different types of relocation packages are can help you understand how to use your benefits to your advantage. Plus, it’ll make conversations with your HR team easier.
While each company’s relocation package is going to vary, the main difference between the types of relocation packages is the way the money is given to you. There are four different ways that you can receive your benefit. Each option is going to create a different way to approach budgeting your move, so understanding how yours works is one way you can try to eliminate stress before you start planning.
How big is the company you work at? Is it large or small? The size is likely going to impact the amount of money that they’re willing to give, but it will also play a role in the type of relocation package they use. We’re breaking down each of the four types of relocation packages below so you can determine how your package is going to benefit you.
How Are the Four Types of Relocation Packages Used?
At a high level, you can look at relocation assistance as one of two options: your company will either pay for all of your moving costs — or they’ll only pay for some of them. Then we can break each of those options down by looking at how the money is dispersed.
First, let’s look at direct billing. If this type of benefit is included in your relocation assistance, your company will receive all the bills from your moving costs, or the services they’ve chosen to cover, and pay for them. Direct billing is a nice option to have, because you won’t even have to think about the cost of your moving expenses. Many companies like direct billing, especially for new hires, because it allows your focus to be more on getting to your new location, not how you’re going to pay for it.
The other benefit of direct billing is that the expenses are excluded from taxes. So, instead of owing taxes on these expenses and having to claim a deduction, these expenses aren’t taxed at all. It won’t have to be reported on your W2, so you’ll actually save on taxes, and your employer might be able to save too.
Another kind of relocation package is reimbursement. This is just like expensing travel costs on business trips. Once you’ve collected all your moving costs, your company will pay you back. Typically, reimbursements are set at a certain amount, but there are situations where they’ll cover everything. If your company isn’t working with a third party for employee relocations, you’ll want to shop around for moving services that are going to fit your budget best. In this situation you will have to keep track of receipts and how much you’re spending, but it can make the process less stressful because you know that you’ll get at least some of your money back.
Lump sums are a type of relocation package that has jumped in popularity in recent years. More and more companies are switching a portion — or all — of their relocation packages to lump sums because they’re easier to provide support and they allow employees to decide how they’re used. With a lump sum, you’ll receive a set amount of money that’s a pre-negotiated, one-time payment you can use at your discretion for moving costs. If there’s anything leftover, it’s yours to keep. While you can use it on whatever you want, once that money is gone, it’s gone, so you’ll want to budget accordingly.
Just like the other options for relocation packages, lump sums are going to require careful budgeting to ensure you don’t overspend. You’ll also want to pay attention to when you’re getting the money, and to how much taxes are taken out. While some will give it to you immediately, most will include it in your first paycheck. Some may even give it at the end of a probation period. If you’re not getting it right away, you’ll need to make sure your finances will be able to handle your moving costs until the money comes in. When it comes to taxes, if your company doesn't give it to you post-tax, they may “gross-up” their lump sum so that will drop down to the intended amount once taxes are taken out. Otherwise, you should be prepared to have money taken out for taxes when you do receive it.
If your company isn’t working with a third party to manage their relocations, you’ll be on your own for your move. While getting a chunk of cash to spend on whatever seems great in theory, it often creates a stressful situation as employees try to manage everything on their own in the short window they have to move.
On the other hand, since you can use that money on whatever you want, you can put a portion toward services that help you streamline the moving process for you.
Third Party Relocation
We’ve mentioned this last one a few times, so what is third party relocation? These companies are in the business of helping people move for work, so they work with companies to help manage the employee relocation process for them. Without a third party, relocations are usually handled by HR teams. But with a third party, once you’ve got your paperwork completed for your new role, you’ll be connected with a representative at the third party who will give you information on your relocation benefits and how you can use them.
Most third party relocation companies will also set you up in a portal that provides information on local movers and moving services in your area that have been vetted by the third party. These are always helpful because they cut time out of your moving process.
If your company doesn’t use a third party, don’t be surprised if you see more than one type of relocation package in your benefits. A lot of companies will combine methods to create a solution that works well for employees.
For example, let’s say you’re starting a new job with a large company. Their relocation package gives you $10,000 for moving expenses. $5,000 is used as direct billing on moving services and insurance, and the other $5,000 is given as a lump sum for other miscellaneous fees. According to the 2018 Atlas Van Lines Corporate Relocation Survey, smaller companies are more likely to offer a lump sum for moving and storage services, whereas larger companies will be more keen to direct bill the moving company and give you a lump sum to cover any other moving costs.
How to Become a Master of Your Relocation Benefits
Moving is hard. Making sure you’re able to stay within the constraints of your budget and get to your new location on time is harder. Wishing you just didn’t have to deal with all the stress of finding the right place to live? Let us do it for you! At Dwellworks Direct, our team of local experts can help you find options for a new home that fits your needs — all you have to do is decide which one you like most. We can even help you get settled in your new area, learn the culture, and more. Want to learn more about using us as part of your relocation benefits? Find out more about the services we offer for people moving for work here.
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