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All Points works with several high-tech firms and the talent that these companies seek is often found with Millennials. Millennials were born between 1981 and 1996. As at the time of writing, they are currently between 24-39 years old.
There are several things to know about relocating millennials successfully.
Four ideas that stand out are:
- They prefer to choose which destination services they use. Some prescription is necessary (everyone should get their Social Insurance (Tax ID or Local registration elsewhere)), but millennials like a “choose your own adventure” style of destination services. Maybe they will use it for home finding, but maybe they would prefer to do that on their own. Maybe they would prefer the time to be spent on how to find the best rock-climbing center in the city (yes, we will be able to go rock-climbing after COVID-19).
- Provide area information early on. They will be going to the internet quickly, but Destination Services Provider’s guides bring a lot of information that a Google search just cannot.
- Yes, even after COVID-19, younger Millennials (there is a big difference between those born in 1984 and those born in 1996) will still want to travel and be mobile. Companies can look at assignments as an opportunity to reinforce your culture with this cohort, and to maximize the likelihood of long-term retention by sending them on adventure. Rotational assignments are also excellent ideas for younger Millennials.
- Leverage technology as a tool. Millennials do like self-help tools (again, check with your Destination Services provider), but remember that employees still need the resources and guidance of a Relocation Consultant, because not all self-help tools can assist with all aspects of a relocation. Relocation professionals are excellent guides to pick up the pieces where Google did not help.
But this article is about household goods.
If you are relocating a Millennial you may be relocating them with a Relocation Allowance / Lump Sum. They will be deciding how to spend their money, and one conclusion they may reach is that the cost of relocating their furniture is greater than the value of the furniture. If you are 29, your furniture may be already handed down, or be the furniture you bought at the age of 24 from Ikea, and has already survived two local moves, being helped by your friends (Ikea furniture does not generally survive too many moves).
Should you allow transferees to buy furniture with their relocation allowance?
The answer is a resounding yes. If your recruit or employee concludes that they would rather use their allowance to buy furniture rather than move their goods, it probably makes most sense for them and you should allow it.
But you must treat it differently.
You need to be prepared how to handle a request to buy furniture with a relocation allowance. The difference is that while Canada Revenue Agency allows for household goods to be shipped in a non-taxable fashion, they do not allow furniture to be bought for an employee. You cannot just reimburse them through accounts payable and deduct dollar for dollar from their allowance. So, you will have to make a choice as an employer:
- Gross-up the employee for funds spent on furniture. Allow the employee to spend their funds on furniture, and then send the receipted amount back to them through payroll grossed-up. This will end up costing the company more than the originally prescribed relocation allowance amount, which defies the object of the Relocation Allowance approach in the first place. Not recommended.
- Explain to the employee that they can use their funds in this way, but that they will be reimbursed through payroll and taxed at source. In most cases, employees will receive approximately 55% of the money they spent on the furniture, which may be a hard pill to swallow from a liquidity perspective. For instance, if they spend $4,000 on furniture, it is likely that they are going to receive a shortfall of approximately $2,200 back through payroll (example only. Provinces vary, and remember for that pay period, they are likely to jump to a a higher marginal tax rate).
There is a better way
There are a couple of things to remember:
- Your younger Millennials may not be very liquid. Relocation Allowances (if not spent through payroll and taxed) presume the recruit or employee can spend the money in the first place. They may not be able to do so. Perhaps they do not have $4,000 saved up for furniture. In other cases, their international credit cards may not be accepted.
- If you reimburse them through payroll without gross-up, this essentially is a different version of the problem above. If someone can afford to be out of pocket $4,000 for a period of 15 days, can they be out of pocket $1,800 entirely, after they only get $2,200 back from you?
So, there is a better way. First, an RMC can advance them funds, which can take care of the liquidity problem. And the RMC can pay them out their full $4,000 but explain to them that their Relocation Allowance will not only be reduced by the $4,000, but by a hypothetical tax as well. So, they get the full $4,000 but their Relocation Allowance is reduced by, say, $7,600 after the hypothetical tax. Then the RMC reports the hypothetical withholding to your payroll, which puts the withholding on their T4 ($7,600 to box 14 (earnings), $3,600 to box 22 (income tax withheld); the employer would also have to add $400.00 to one of their source deduction remittances to the CRA, so that their year-end T4 reconciliation balances). You get full reporting on the Relocation Allowance amount, there is no risk of going over the budget total, coordination between payroll and your RMC is minor and most importantly the employee has their furniture.
Hey government – don’t let them eat cake but let them buy furniture.
It is often said that governments move at a much slower pace than technology. That is pretty obvious, but they also move at a slower pace than relocation trends. It makes complete sense that many younger recruits and employees will choose not to move their furniture, but instead, buy new furniture. If the government allowed, during a relocation, a $4,000 “buy new furniture” allowance, then this would be fair to those that relocate with furniture that is worth less than the cost to move it. This would save Canadian corporations money, which would be good for the economy. This would save employees money, which is good for the economy, and only very marginal tax dollars are lost. This would be a huge break with past practices, but it makes economic and socio-economic sense.
Hey, I have the ear of Chrystia Freeland (joking, but only kind of), maybe I can convince the Ministry of Finance to get with the times. Come on Chrystia, put the Air Pods on and listen to some Bad Bunny and let young, important talent coming to our country, go to Structube and buy $4,000 worth of furniture. It is good for all in the end.