Lump sum relocation programs are nothing new, but they continue to increase in popularity. If you’re not familiar with the concept, a lump sum relocation typically consists of a single, fixed amount provided to an employee by an employer to move to a destination.
Global mobility professionals often view this as a simple way to get employees into a new role quickly. However, that’s not always the case. In this blog, we’re exploring the top reasons companies choose lump sum programs, and the truths and misconceptions based on those ideas.
According to the 2018 AirINC Lump Sums Pulse Survey Result, the top four reasons companies choose a lump sum program are to:
Give more flexibility to the employee
Oftentimes, employees are happy to hear they will have the flexibility to spend their relocation money how they deem best suited to their situation. But, the problem with handing over a lump sum with minimal guidance is that the level of employees receiving this type of benefit generally have little to no experience relocating, so they may undervalue the costs of certain services, or even decide to forgo services that can be critical to setting them up for long-term success. That means that your employees’ flexibility can cost you in failed assignments and unhappy transferring employees.
With a variety of flexible plans available, companies may want to consider other options, including a core flex plan. Core flex policies combine typical relocation services, like household goods shipment and travel, with optional benefits based on employee need, such as home finding trips or spousal/partner assistance. By pairing common services with customized solutions, you and your employees get the flexibility, support and cost control you need to have successful relocations.
Lump sum programs often put less strain on HR and global mobility resources that handle mobility in-house because they are not responsible for managing the entire process for employees. If you‘re responsible for guiding employees throughout their relocation, it can become a time-consuming process, especially if you’re moving people around the world. Sourcing services in different countries with unfamiliar languages, customs and tax laws will typically take a hired outside source to complete.
While a lump sum program offers greater flexibility to the employee and potential cost savings, it does not address the concerns of providing employees with the assistance needed for Duty of Care that protects both the company and the employee. For example, assisting with challenges such as final trip, household goods shipments, housing, tax and immigration. International assignments are very complex in nature and in order for your company to remain compliant, it is always recommended, at minimum, you offer a core/flex policy ensuring CORE benefits are provided for a successful relocation.
Lump sum programs may save a company money in the short-term, but it can be misleading looking at just those numbers alone. Lump sums typically offer less benefits, and therefore cost less than fully-managed programs, however, pre-decision services and destination services like area orientation, home-finding, settling-in services and school search may be completely bypassed with lump sum relocations.
While these services may not seem worth the price prior to a relocation, they have real value. Studies show failed assignments can be a much bigger drain on a company’s resources. Adding these services into a relocation can help mitigate failed assignments, and even stop an employee from going on assignment if they’re not the right candidate. Before you make final decisions about your lump sum program, consider what services may be beneficial to your relocating employees to save your company money in the long-run.
Provide more cost transparency to the business
The truth is, you can’t always see through lump sum programs. While you will know the upfront total cost of a relocation, lump sum programs typically offer less transparency into spend than any other program. With no insight into where your employees’ money is being used, you may be unaware if your program is ineffective.
Partnering with a company that offers a digital lump sum tool that tracks how your employees spend money is one solution. By monitoring spend, you can clearly see what needs to be adjusted, and report back to leadership with accurate facts and figures.
Find the right program
One of the great things about global mobility is there are so many options to satisfy you and your employees’ needs. While this can be overwhelming, partnering with a provider that offers guidance, whether you’re interested in lump sum, core flex, or any other solution, will help you find the perfect fit.
Looking for a global expert to help make an impact on your programs and policy? Contact Sterling Lexicon today.
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