Employees to be relocated to new locations may receive a lump sum or an allowance budget to cover their transition expenses. It’s not a question of which is better or worse, it’s more about the relocation principles in use and which plan best reflects the employer’s and the employee’s expectations.

Structure

The lump sum relocation policy allows global mobility departments to establish a fixed cost for relocation services and keep the budget within those guidelines. A simple approach, a clear structure and limited deviations from one assignment to the other.

An allowance budget is always broken down into cost categories with allocated maximum amounts. Such an approach provides a clear guidance to employees (especially first-time movers) as they can visualize the necessary expenses they will incur while relocating.

Budget planning

Using the lump sum policy reduces the administrative burden on global mobility departments. Global mobility (and payroll) only processes a payment(s) and then hands off cost allocation and budgeting to the employee.

The tailored allowance budget approach takes into account more factors: specifics of the market, the cost of living, employee profile. Thus it requires more time for planning and consulting with relocation experts to set up a realistic budget for the relocation project, but it keeps the employee more motivated and heard.

Generally, any overruns of the budget are covered directly by the employee in both cases, so budget planning is clear and effective, mobility departments can accurately calculate the spending.

Resources and support

Lump sum packages provide more freedom for employees, but without a structured approach and experience it might lead to overspending, which the employee must cover from her or his own pocket. Moreover, the employee ends up spending more time on the relocation, as most tasks, contract signings and steps are performed without any support from the company.

With the tailored allowance approach, the employee receives more support from her or his company and relocation experts, therefore time economy is considerable. Tailored allowance plans are a better fit for employee needs, increasing their satisfaction and motivation.

Here you can compare Lump sum and Tailored allowance packages to see which one suits your employee best.

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