The Costs of Employee Relocation

What is an employee relocation package?

An employee relocation package is a financial benefit that companies provide to assist new and current employees in moving from one location to another because the job requires it. This type of assistance happens more often in certain fields than in others. For example, tech companies like LinkedIn and Spotify typically offer relocation perks.

If a small business is comfortable building its workforce locally, then it doesn’t need to worry about an employee relocation package. But if an organization is looking for qualified staffers outside its geographic area, this kind of offer could entice a great candidate to move closer. With a good job opening and the right employee relocation package, businesses can attract candidates from all over the country or even the world.

A post-pandemic survey by moving company Allied found that nearly 37% of people would move for “career advancement or the opportunity to make more money,” and 64% said they had received a compensation package for moving for work. The study also found that “smaller to midsize companies most commonly relocate their employees” compared to larger businesses.

How much do employee relocation packages cost?

Relocating an employee can be a costly endeavor for companies. The average relocation package costs between $19,309 and $24,216 for renters and between $72,627 and $97,116 for homeowners, according to American Relocation Connections (ARC), a corporate relocation group. The range depends on whether the person is a new hire or a current employee.

Though the final cost of an employee relocation package varies, there are ways businesses can calculate and reduce these expenditures. As companies create relocation budgets, they can estimate how much a particular relocation effort may cost by considering the following expenses for the employee:

• Travel to the new location
• Packing and moving service
• Moving insurance
• Short-term housing
• Storage units or other temporary storage solutions
• Home sale or purchase
• Tax gross up for benefits
• Relocation taxes

While most of those items are self-explanatory, “relocation tax gross-up” is less familiar to most people. A tax gross-up is when an employer increases the gross amount of a payment to an employee to take the withheld taxes into account. This prevents the employee from having to pay out of pocket. The Tax Cuts and Jobs Act of 2017 essentially removed relocation expense tax exemptions and deductions. Because of those changes, which also ended the IRS 50-mile rule, relocation is more expensive than it used to be.

What does an employee relocation package typically include?

There are many approaches and options to consider when creating an employee relocation package. Just like with a competitive corporate benefits package, relocation perks may affect how attractive a role is to candidates. But it’s difficult to understand an employee’s needs before they start the relocation, said Ilona A. Keilich, founder and managing director of ExpatsGuide.

“There are a lot of hidden costs that can be quickly forgotten if the relocation is not managed properly,” she added. “It is in the interest of the employer to ensure the relocation goes smoothly.”

An employee relocation package can include a variety of features to make the prospect inviting. Here are some key components to consider.

Relocation reimbursement

Moving is costly, so companies can help employees by offering some financial reimbursement for expenses such as moving services, mover’s insurance or transportation. While some businesses provide the funds only after the moving employee submits relevant expense reports, others opt for a single lump sum upfront.

Flexible start date

New hires normally start about two weeks after accepting a job offer. However, if that new employee must move, it may take longer for them to get established. When developing a relocation package, businesses should ask employees how much time they need. By working with new hires from the outset, companies establish a more realistic time frame for the move and can take the first steps toward creating a good working relationship.

Free visits

In some instances, organizations let relocating employees visit the region so they can get the lay of the land before making the big move. This usually means regular trips to the new location, at the employer’s expense, so the employee can look for housing and learn more about the area.

Temporary housing

If the employee needs to start by a specific date, companies can consider providing or funding temporary housing. Thanks to the rise of house-sharing programs like Airbnb, businesses can avoid costly hotel prices, though that option remains available. Temporary housing can help the employee adjust to the new locale in a month or two. Along with rental costs for those few months, companies also often cover utilities.

Familial support

When hiring someone and asking them to move closer to your office, remember that they likely have people who depend on them. In some cases, it may make sense to assist the relocating individual’s family in acclimating. Sometimes this means helping a spouse or partner find employment elsewhere, as well as providing child care and guidance in finding the right school for the employee’s children.

Real estate cost assistance

In many instances, companies can make relocation appealing by covering the costs associated with buying or selling the employee’s home. Businesses often do this by helping market the staffer’s old home or buying the property themselves to sell later. If an employee is a renter with a lease agreement in place, a company can address that problem by covering any costs that result from breaking the contract.

Pay adjustments or bonuses

The cost of living varies from city to city and state to state. As an added relocation incentive, some companies offer commensurate pay adjustments or relocation bonuses to help cover the difference. This is especially beneficial in states with high tax rates.

Payback clause

It’s important for companies to get a return on investment from the relocation process. To cover their bases, businesses should consider adding a payback clause, which states that if the relocated employee leaves before a set period of time, they will have to repay the company’s relocation costs.

What are the benefits of offering employee relocation packages?

There are several reasons why business owners should consider offering employee relocation packages.

A larger talent pool

The biggest benefit of providing employee relocation packages is accessing a wider talent pool. Do you want to hire the best talent in the world? You need to be willing to get new employees where they need to be to work for you. In today’s climate, a competitive relocation package is table stakes to attract the top candidates you’re looking for. After all, who wants to work for a company that makes relocation a burden? 

Less time for HR to fill the role

When a human resources (HR) department is free to find the best candidates for a job regardless of location, they’re able to find the best people in much less time. And as qualified talent is identified faster, your HR department can reduce costs in recruitment and onboarding. As you build a team from different backgrounds, you also improve your corporate diversity, equity and inclusion (DEI) efforts. It’s a win-win. [Related article: How to Create an Inclusive Workplace Culture]

Improved retention rates

As you find the right people for the right role, employee productivity, satisfaction and retention rates all go up. When people have committed to moving to a brand-new location for the right job and fit, they’re motivated to stay with the company. Employee retention is typically a result of a good corporate environment. That starts with the onboarding process, which can include the employee relocation experience. [Learn how to reduce employee turnover.]

What are the drawbacks of offering employee relocation packages?

Of course, there are also downsides to employee relocation packages that business owners should weigh.

High cost of relocation

The biggest drawback to relocating an employee is the high cost of moving. There are many expenses, such as shipping or moving services as well as assistance with purchasing a new house or leasing a new apartment. Simple elements of moving, like finding a place to live or buying airfare to fly an entire family to a new city, all need to be considered, and these costs add up quickly. 

Decreased productivity

A company’s screening process is incredibly important when considering potential employees. Many candidates will be thrilled to be a part of the team, but there are other people who just need a job and may not actually want to be in this new location. To get the best out of your people, they need to want to be there. If an employee is miserable and stressed in their new environment, they’re hardly going to be doing their best work. In fact, there is a known correlation between stress and decreased productivity.

Risk of early resignation

It’s no small thing to ask a person and their family to uproot their lives to move to a new city or state. The process is disruptive and exhausting for employees and a lot of work for a company to ensure a healthy transition. In fact, according to the Allied survey, over 25% of relocated employees say the biggest stress of moving is adjusting to their new community. If that adjustment goes poorly, a relocated worker may regret their employment agreement and want to back out of it.

Making sure an entire family adjusts to a major move is one thing, but making sure your employee is the right fit is just as important. Companies need to be proactive after the move to make sure the staffer is adjusting to their new environment. If they’re not adapting well and decide to leave, that relocation investment was all for nothing.

Why should employees consider negotiating their relocation package?

While employers have a lot to consider when creating employee relocation packages, the employees are ultimately the ones who are making a big life change and, as such, will want to keep certain factors in mind. Key among those considerations is the ability to negotiate the relocation package.

Though most companies have a relocation package mostly figured out by the time they make an offer, employees may have individual needs or requests to make the move as painless as possible. Priya Jindal, founder of Nextpat, said employees shouldn’t hesitate to ask for those things.

“For many companies, relocating you in the beginning is a cheaper option than an initial salary boost,” she said. “Of course, that’s a separate negotiation consideration.”

When Jindal’s organization relocates employees, it provides the following benefits:

• A few days off
• House-hunting trips domestically and housing internationally
• 10 days of hotel expense reimbursement on either end of the move
• Payment for all moving expenses, including packing
• Storage

The employee relocation balance

Relocating an employee is no small task, but the benefits are well worth it. When you create a welcoming, accommodating relocation package, your employees receive the assistance they need at every step and you gain top talent. However, if there’s one small part of your compensation package that’s lacking, that could deter candidates from joining your company in the first place. With thoughtful planning and execution, you can build a relocation plan that satisfies you as the business owner as well as your relocating employee. Learn more about bringing on new staffers in our employee hiring guide.

Andrew Martins contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.