Most relocation policies are designed to provide structure to the otherwise haphazard series of events that accompany moves from one location to another.
A relocation policy provides the administrative framework within which companies can gain control over this process – more effectively managing the costs incurred when relocating an individual. But designing and implementing a relocation policy across an organisation isn’t purely intended as a convenient method of securing money or reductions in tax liability – though both are often a trigger for policy review (note The Finance Act provisions and the ceiling of £8,000 for tax-free treatment).
A relocation policy should embody the business objectives your organisation wishes to secure through enhanced employee “mobility”.
These objectives could be as simple as a desire to see that employees are moved quickly and happily without compromising their financial position (i.e., neither gaining or losing at the end of the process). The rationale for this equitable approach is based on maintaining employee productivity during and after the move, and the value to the organisation of that individual’s contribution in the new area. A relocation policy should, perhaps, also be a reflection of your corporate values and written as a carefully considered part of an entire employee relations strategy.
At a practical level most policies at least outline the allowances, the compensation rules, the costs that the employee can incur, the tax treatment of cost reimbursement, and so on. These define the corporate ‘rules’ by which the move from A to B is handled and the conditions that apply to the transfer – from changes to employment contracts and conditions through to hotel costs.
Whatever your corporate culture – the tax regime within the UK ensures that cost control remains at the forefront of the business justification. How your organisation measures value for money will dramatically affect the relocation policy you design – and the way that it is applied.
Who is it for?
Relocation policies are designed for a number of ‘stakeholders’: the employee (and their family whose support in the endeavour is often overlooked), the line manager funding the move, the HR administrator, the taxation specialist, the HR strategist and even the statutory authorities (such as The Inland Revenue – whose interest in the affair should not be underestimated). Some organisations extend this list to include staff associations or unions, compensation and benefit specialists, recruitment managers and so on.
Some companies have different policies for different grades of staff, or make a distinction between ‘career progression’ relocations and group move scenarios (the latter often being an ‘enforced’ move). But every organisation recognises that the largest obstacle to a relocation is the inescapable fact that the UK is the largest home-owning nation in the world (with all the challenges that creates to mobility within the workforce). Relocating employees incurs estate agents costs, guaranteed sale price schemes, solicitor’s fees, stamp duty, mortgage costs and redemption fees, building surveys – all of which need to be managed against a 1993 tax regime that seems to have forgotten that costs have risen over the intervening 11 years since a ceiling on eligible expenses was established.
A company gains control over all these elements (and third party costs such as removals, hotels and travel) as well as other associated allowances by having a relocation policy that specifies what they will reimburse, how it will be reimbursed and how every item is to be recorded.
A policy isn’t static
It is important to continually benchmark the process (at least on an annual basis). Things change, and it is essential to incorporate these changes into a policy. For instance, keeping an eye on the property market or remaining informed about changes in housing legislation will ensure a policy remains practical and effective.
Remaining vigilant also means keeping up-to-date with economic and social developments in prospective destination areas so appropriate and accurate advice can be offered.
It is also important to benchmark individual cost elements of a relocation policy against market rates and comparable company practices. This will help manage expenses against initial cost justifications by keeping employee expenditure within specified parameters.
Ultimately, benchmarking is about analysing the effectiveness of policies by collating the views of assignees. Their experiences will help you fine-tune your policy to ensure more placements are successful.
The importance of an appropriate relocation policy is obvious – it streamlines the moving process and achieves greater employee productivity. That said, problems can arise. Most of these can be addressed by preparing a clear and thorough policy that outlines the limitations of the remuneration package – such as the percentage of stamp duty to be paid by the company – and other factors including repayment of relocation funds if an employee leaves the company prematurely.
It is also important to thoroughly manage the costs of a relocation project because with so many factors involved, expenditure could easily outstrip the benefits. Accurate cost projections can help in this area. More specifically, if the costs of a relocation policy aren’t properly structured and planned to include legitimate tax avoidance procedures, tax liabilities may ensue that could have a crippling effect on both the company and the employee.
Finance Act 1993
Notes: INLAND REVENUE. Income tax and National Insurance contributions on relocation packages. (IR134)
Available from local Inland Revenue offices or Enquiry Centres (see your telephone directory for details) or from the Inland Revenue website: http://www.inlandrevenue.gov.uk/leaflets/c1.htm
The Association of Relocation Agents was founded in 1986 to co-ordinate the activities of the growing relocation industry in the UK. It is the professional body for the relocation and home-search industry in the UK and Europe. www.relocationagents.com
The European Relocation Association (EuRA) is the international industry body for relocation professionals. Launched in Brussels in May 1998, EuRA now has over 236 members worldwide.
SIRVA Relocation provides innovative ways for customers to achieve their individual business goals, while providing global end-to-end relocation services. www.sirva.com