Which is Better: A Relocation Reimbursement, Signing Bonus or a Hybrid Relocation Package?

Global mobility managers need to assist talents about the type of relocation package employers are offering to relocating talents. Are they offering a relocation reimbursement, a relocation sign-on bonus or what could potentially be a more comprehensive relocation package, a mix of both with some variations? 

Before one piece of clothing takes room in one’s luggage, the assignee needs to understand the fine print. Some companies will allow relocation, but not have sign-on bonuses or offer reimbursement but no relocation package. It really depends on the employer but it behooves global mobility managers to know what their talents can expect from the company.

Why bother learning all the complexities of relocation costs? Because there are tax implications for it. People can make considerable money on relocation packages, but these can be subject to IRS regulations, at least in the United States. Some say a relocation bonus is usually a given — that it’s likely to be the standard norm. It’s intended to sweeten the deal or convince the candidate to accept a job offer.

Bonus payments CAN place talents into a certain income bracket. So it’s vital to be prepared for the additional costs at the end of the year during tax season. Are tax implications going to be shouldered by the employer? Caprelo, a full service relocation company, reported that bonuses and reimbursable moving expenses are additions to the employee’s taxable income, requiring employers to also pay standard payroll taxes such as Federal, State and FICA.

Some form of relocation assistance is often offered on a regular basis for some high-demand work for employees agreeing to relocate. While this is a welcome benefit, it’s important to understand the difference of all the relocation packages. 

In a lump-sum bonus program, the employee is responsible for the relocation bonus tax. Caprelo explains it this way: If employers choose not to provide tax assistance (gross-up), a certain percentage is taken off of the total bonus that the employee receives to cover the relocation bonus tax owed to the IRS. 

For example, if an employee receives a $3,000 relocation bonus and the IRS collective tax rates (Federal, State and FICA) total is 30 percent, $900 is taken out of the bonus to cover the tax and the employee receives $2,100. Its article, Understanding Lump Sum Relocation Packages, will help make the best decisions on relocation packages.

Common moving expenses, which can be reimbursed later, can include:

  1. Direct moving company costs for transporting household and personal goods
  2. Packing and unpacking of household goods and personal property
  3. Storage costs for up to the first 30 days after the move
  4. Insurance on the household goods
  5. Transportation from the employee’s primary origin residence to the new location 
  6. In-transit lodging

Employee bonuses, on the other hand, are typically paid for one or both of the following reasons:

  1. Employer decides to offer a bonus as an incentive for the employee to agree to relocate.
  2. Employer recognizes that the cost of living is higher in the new location versus the employee’s current area.

It clarifies that bonuses as incentives or payments to defray increased cost of living must not be confused with reimbursing moving expenses that are the result of a job relocation.

Bonuses, as one-time monetary payments for one of the noted reasons, are then treated as additional taxable income. Usually, salary increases (which are more long-term in nature) are easier to understand and accept as taxable income. However, bonuses, even when generated by transferring an employee from one place to another, remain taxable income. Although these incentives or cost of living difference payments are related to the relocation, they are not eligible for income exclusion or tax deduction by the recipient. If this sounds confusing, it helps to have a lawyer in the room. 

Caprelo advises that management should adopt relocation reimbursement policies that take advantage of those available tax benefits, while offering reasonable, equitable and fair relocation programs for their valued employees. Many companies choose to provide tax assistance (tax gross-up) to further entice an employee to relocation. This can add 45 to 70 percent-plus to the total spent by the company. 

UrbanBound sees two types of relocation benefits:   

  1. A relocation package with covered services, often with the support of a relocation management company
  2. A signing bonus which is also known as a lump sum, cash, or relocation allowance

For UrbanBound, a sound relocation package can be the following: 

  • A list of pre-determined services covered or partially paid for by the company. This could include but is not limited to: assistance with the sale and purchase of a home, final destination travel, the transport of household goods, and temporary housing
  • A list of pre-determined vendors: Under many traditional relocation packages, employees are required to choose from a group of pre-approved vendors.
  • Orchestration of the move: Often, these services are provided by a third-party relocation management company; sometimes they’re provided by in-house mobility units. Either way, the work is conducted by live specialists primarily via phone and email.

Not every company is able to offer a comprehensive relocation package. The costs depend on the employee’s specific situation, family size, extent of possessions and family size. Also, there may be some services not covered in the relocation package. As a result, some companies will instead offer a signing bonus. Some employers have turned to the opposite approach of a relocation package: awarding cash benefits, also called relocation bonus, lump sum or cash allowance, without accompanying services.

Under this arrangement, employees are given a fixed sum and directed to make their own arrangements. The employee is left to decide how to use the relocation sign on bonus to manage their entire relocation process. Employees looking for housing assistance can rely on California Corporate Housing to customize their housing needs. 

Choosing between offering a signing bonus or a relocation package can be difficult, of course. While both are valid ways to attract and offer incentives for candidates and existing employees to move to a different city for work, there is a third option.

UrbanBound claims that it can offer the best of both worlds using a flexible managed budget policy that allows both employers and employees to customize relocation policies. In this scenario, it aims to do the following: 

  • Offers the flexibility and freedom of cash benefits, so employees can customize their relocation experience.
  • Offers the high-touch, personal service of a relocation package, minimizing the risk of mishaps and oversights.
  • Offers affordable, predictable budgeting for employers, plus opportunities to save if not all benefits are utilized.
  • Leverages technology to give employees the faster, better, on-demand access they expect.
  • Leverages technology to give employers real-time costs and data regarding each move, as well as analytics regarding the global state of their program.