Is a North American Unit policy right for you?

July 1, 2010:

Companies often have domestic relocation policies that are based on the relocation practices of the country in which the Head Office is located. As relocations in other countries grow over time, the original domestic policy can be shoe-horned to work elsewhere. As relocation practitioners, we know this approach is not very effective for a host of reasons improper terminology and practice descriptions, tax differences and even cultural differences being just a few.

It is often said that Canada and the United States have a special relationship, and this extends to relocation. In many regards, relocation practices between the two countries can be quite similar. However, there are very important differences as well: the most obvious and significant being the two tax regimes treatment of relocation expenses. To put it in simple terms, Canada Revenue Agency (CRA) rules that the majority of relocation expenses ARE NOT taxable, providing they meet its criteria for relocation. This differs greatly from the practice in the United States where the Internal Revenue Service (IRS) deems that the majority of relocation expenses ARE taxable.

The solution in common practice is to have a separate set of policies for each country. Then, in some cases, a company may have a cross-border policy for transfers between the two countries, although in most instances there is no separate cross-border policy document. Should a company have American policies, Canadian policies and cross-border policies? Imagine, if you will, a company with three policy tiers: this could mean nine different policies to maintain and administer – no small feat. Maintaining policy could take on a life of its own. Each time there is an adjustment to policy it requires coordination with all of the other policies.

So are we destined to have multiple policies to cover every contingency? Perhaps not! All Points has found that, in some cases, it is useful to look at creating one single North American Unit policy. Some might argue that it would be confusing for the employee to have read through information that is not related to his/her relocation Our experience shows that this does not occur if the document is clearly set-up. In most cases, the employee is reading benefits that are mutual to each country, and only a minority of the time do they have to quickly pass over information that is not intended for them. In fact, the transparency of showing the policy for both sides of the border has the added benefit of eliminating many misconceptions around the differing practices in both countries (transferring employees always assume that the grass is greener on the other side of the border).

What factors make a North American Unit policy the right choice for a corporation? The number of American versus Canadian moves is usually not a factor. There are always going to be more American moves than Canadian moves. A better question is to look at cross-border activity: if there is a reasonable amount of cross-border activity that is permanent in nature (i.e. not assignments), then a North American Unit permanent relocation policy might be a good idea. Could those that have relocated domestically within one country, later relocate across the border, and then domestically within the new country? If so, a North American policy is appropriate as well. This would provide employees with one policy that is equitable across both countries, but gives key differentiators where practices differ due to tax circumstances and can even give a cross-border appendix for issues such as immigration, customs and tax filing assistance

Are there similarities between the two countries salary grades, or if not is there only one tier of policy? If either of these factors is in play at the given company, then a North American Unit policy will be useful. If, on the other hand, the salary grades look very different, and there are a number of tiers of relocation policies, blending the two countries practices may be very difficult and any merging of the policies may have to wait.

A North American unit policy for permanent domestic or cross-border relocations can, at first glance, look more complex than having a simple one-country domestic relocation policy. However, there is a lot of common, straightforward writing that looks identical in either country for example, information such as how to select a Realtor, or about the household goods shipment. . Other information such as explaining the Canadian guaranteed home sale process versus the Amended Value Option is more challenging but still possible.

Perhaps the most challenging policy to merge is the lump sum policy. In Canada there are benefits to using a managed lump sum approach where the employee draws down on the lump sum for eligible relocation expenses. Any funds not utilized in this manner are typically then paid to the employee net of taxes. In the US the lump sum is typically paid to the employee through payroll net of taxes, because there are so few benefits that are deemed non-taxable. One solution that has worked effectively for our clients is to use the managed lump sum for both countries. The allowable non-taxable deductions would, of course, be fewer in the United States than in Canada, but the household goods move (one of the only non-taxable elements) is one of the single most expensive elements of relocation and would go a long way towards using up the lump sum allowance.

The keys to making such a merged policy successful are no different than with any other policy: clear writing, backed-up by verbal communication and perhaps other accompanying documents.

So while there may be some challenges in setting up a North American Unit policy for your company there are many benefits to doing so: greater ease of maintaining policies, ensuring equitable treatment of employees on both sides of the border, a document that finally has an appendix to handle cross-border difficulties, and greater synergy between the relocation units in both countries are just a few.

A North American unit relocation policy is possible – the only thing left to determine is whether or not it is the right approach for you.

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