Navigating Relocation – Spring 2016

What is the historical origin of your lump sum program and which “type” is it?


April 6, 2016
By: Michael Deane
Co-Owner and Vice-President, Client Service
Lump sum approaches to relocation are typically inherited by HR departments without a clear understanding of their origin. How was that first $10,000 amount arrived at? When was it established? Do the original $10,000 cases look like current $10,000 cases?
Most Lump Sum Packages originated from the simple fact that at one point in time a number was picked. It was picked based on circumstances at the time and the desire for a hard cap on the cost of the relocation. These figures are frequently different $5,000 increments from $10,000 up to as high as $50,000.


Lump sum relocation packages offer benefits to employees and employers alike.
For employers it is easier to control and predict costs with lump sum packages and administration of these lump sums is also much simpler.
The advantages for the employee can be exaggerated but are a) greater control over choice of relocation activities in their hands and; b) the ability to shop around for the most cost-effective relocation options. Why are these exaggerated? While transferees do have greater control over the choice of their benefits, they may lose control over the relocation because they do not have suasion with the different vendors. In addition, shopping around for the least expensive vendor does not increase quality and thereby can also increase their loss of control over the process. Finally, this shopping around is guaranteed to be a productivity loss for the company.


Lump Sums are usually not intended to cover all relocation costs


It must be noted that most (but not all) lump sum expense programs are acknowledged NOT to cover all of a recruit’s relocation expenses. It is usually a SUBSIDY-POLICY only. The recruit WILL have expenses left over to cover him / herself.
So, it is important for HR to do an exercise in understanding how much it wants to subsidize a typical relocation. This exercise is inextricably linked up with the notion of the employee’s career path. If the employee is an individual contributor, perhaps she should contribute significantly to her own relocation, whereas a senior executive should contribute much less towards her own relocation.


Do you have variable distances, singles, couples, families, renters and homeowners?
If you have a large number of dispersed locations, employees will have an unpredictable variety of distances to travel. Trying to pre-determine lump sum amounts fairly to different employees is impossible. A pre-calculated lump sum penalizes those that relocate larger distances with larger families and rewards those that relocate shorter distances who are single. In addition pre-calculated lump sums can take the following into consideration: singles/couples vs. families, renters vs. homeowners.
One could end up with a matrix that looks something like this.
ndividual Contributor
< 500 km
> 500 Km
$X,000 + $Y,000
< 500 km
> 500 Km
$X,000 + $Y,000
< 500 km
> 500 Km
$X,000 + $Y,000
If family: add $5,000
If family: add $7,500
If family: add $10,000
If homeowner add: $5,000
If homeowner add: $7,500
If homeowner add: $10,000

So, what type of lump sum relocation package do you currently have?


In Canada, most employers actually run capped cost relocation programs, reimbursing employees based on submission of receipts and supporting documentation, rather than simply issuing a lump sum through payroll, taxed at source.
These are three primary types of lump sum relocation packages found in Canadian relocation:


1) Variable Lump Sum Relocation Programs

These packages are unique to different employees and/or transferees according to standards the company establishes. These standards generally include:

  • – Level of responsibility within the organization
  • – Salary level
With variable lump sum relocation programs, there isn’t a one-size-fits-all employees plan and the employer sets the parameters.


2) Contextual Variable Lump Sum Relocation Programs

Like #1 above, there isn’t a one-size-fits-all plan, but in addition to salary level, employers also consider (see the matrix above):

  • – Relocation distance
  • – Renting vs. buying
  • – Size of families
  • – Possible interviews with employees to create an educated budget
3) Managed Lump Sum Relocation Programs

These programs allocate a lump sum amount for relocation expenses and then have a third-party relocation management company collaborate with the employee as to how to use those funds. The Canadian tax code allows for many non-taxable or deductible expenses, however, it is complex. One expense that is non-taxable when paid or reimbursed by the employer is not always the same as what can be considered deductible. A good Managed Lump Sum Program sees the third party relocation management company working with the employee to use as many of the employer-paid money towards non-taxable expenses and saving deductible categories for him/herself just in case there are expenses over and above the lump sum amount.There are significant benefits to running a managed lump sum over and above the reduced administration and tax benefits to the employee.

When a company employs the services of a relocation management company they are buying our care and diligence, our protection of the interests of the employer and the employee and enhanced productivity both for HR and the relocating employee.

Providing a managed lump sum program gives the relocating employee the best possible chance of getting the most relocation actions done right the first time, thereby retaining as much of his/her productivity as possible.

The relocation company curates important information and can recommend high quality vendors.

Reporting: the employer can receive reporting which shows how lump sums were spent, and how many of them were maxed out, for year-to-year adjustments, intra-year accruals, etc.

Of course, when an employee has a capped cost on his/her relocation, cost decisions will frequently win the day. And we all need to acknowledge that we too would behave in the same way. Getting the service of that cheaper mover or foregoing important services such as the correct amount of insurance are always possible with lump sum programs. And of course, with the employee responsible for his/her own money, there is no guarantee that all the advice of the relocation company will be taken, but some of it will be taken and the employer can be confident that they were given the right advice.

So, All Points’ quick argument for Core-Flex (Move Plus Smaller Lump Sum) benefits as opposed to lump sums:

Lump Sum programs have focus on savings and cost predictability on individual relocations. However, a defined benefit move plus a smaller Lump Sum program frequently saves money over multiple relocations. Why? Because covering the cost of the move may cost more for some individuals, but it also takes advantage of those who
a) travel shorter distances; b) have fewer or no goods; c) elect to keep old location home.
Under any of these circumstances each Lump Sum amount is still maximized by the employee, but under a “Move Plus Smaller Lump Sum Program”, the company saves money from the small / non-existent move. In fact, this is a good example of why Move plus Small Lump Sum programs are fairer to employees. The person travelling over a large distance should not be penalized because of that distance.

The decision is yours!

Whatever you decide for your lump sum program or Core-Flex program the decision is yours. All Points just recommends that you shake off the handcuffs of lump sum legacy decisions, where the original scenario or intent is no longer known or relevant. And look at your lump sum options in order to optimize value and cost containment for both the company and your employees. You invest in your people, a talent strategy plan, and recruitment to bring in the best talent to your company because you know that people make the difference! When you find key talent to move your company forward, you want to pull in that talent by offering competitive compensation and benefits and that includes relocation.


Back by popular demand: Secondments, The Domestic Assignment.



April 6, 2016
By: Michael Deane
Co-Owner and Vice-President, Client Service


Canadian corporations are using more and more temporary secondments to meet their staffing needs. Domestic business strategies have always employed the use of short-term secondments, but it appears that they are increasing in frequency. This should not come as a surprise for three reasons. First, companies have used international assignments as a strategic way to get key staff to deliver important value to needful areas for short periods of time (1-3 years) for many years now. It was only a matter of time before this strategy played an increasingly larger role in the domestic business context. Second, there is a continued labour and specifically a skill-set shortage in Canada. While the recession did ease the worst of the labour shortage issues experienced in 2008, Canadian companies still are having a difficult time finding the skilled professionals to meet their needs. Part of the reason for this is due to what some economists are describing as structural unemployment. A structural unemployment situation results from a mismatch between the sufficiently skilled workers seeking employment and demand in the labour market. Even though the number of vacancies may be equal to the number of the unemployed, the unemployed workers may lack the skills needed for the jobs or may not live in the part of the country where the jobs are available. Third, and finally, companies hiring practices are still relatively cautious. Where possible, they would prefer to second a current employee with a particular skill-set and work experience to a location that has these needs, than add headcount. Furthermore, the newly hired employee would cost more in training and integration compared with the seconded employee that knows the company and how it does business already.That being said, Canadian companies rarely have a formal secondment relocation policy. Companies should address this growing need by writing formal secondment policies that are congruent with its current relocation policies. Policies should be written to create consistency, and also to fall within CRA guidelines to make these programs their most tax efficient.

Canadian Guidelines

If the transferred employee maintains their principal residence, reimbursed expenses are generally considered taxable compensation to the employee. However, the tax law provides an exception to the general rule for reasonable board, lodging and transportation allowances paid in connection with temporary employment at a special work site. To qualify for the exemption, the employee must have his/her principal residence at another location, which is not within reasonable daily commuting distance. The principal residence must not be rented and must be available for the employee’s use throughout the temporary assignment. Furthermore, the employee must be required to be away from the principal residence for at least 36 hours.

CRA considers an assignment to be temporary, if it can reasonably be expected that the work will not provide continuous employment. The determination of the expected duration of employment must be made on the basis of the facts known at the commencement of the assignment.

The employer can exclude the reimbursements from the employee’s T4 slip if the requirements are met and the employee provides the employer with a complete form TD4 Declaration of Exemption-Employment at Special Work Site.

So, it is important for the company to specifically note in its Secondment policy that employees must not rent out their principal residence, and must have that residence available for their own personal use. The company can note that if employees choose to either rent out or otherwise dispose of their principal residence, that housing support payments will convert to pay and will be taxed at source. In addition, the policy could provide disincentives to these actions such as specifically noting that rental penalties and origin home sale costs will not be covered.In addition, the company may want to consider if it wants to cover costs associated with the vacant management of the origin properties during the secondment. Vacant apartments are relatively easy for the employee to manage, but houses are more difficult and can prove to be a distraction for the employee. In addition, the employee should check with their insurance provider if they will provide insurance for a vacant home for the secondment period.

Two types of rentals at destination

When it comes to primary cities in Canada, furnished accommodation is a market that is well handled by the temporary accommodation industry. These companies are in the business of renting furnished properties for long period of times. They are fully equipped with kitchen equipment, sheets, television, internet, Wi-Fi, etc, so employees do not have to move their personal effects. These types of properties can easily meet the objectives of housing a secondee in a new location.

There are a few things that need to be considered before deciding if this type of property is right for the secondment strategy of your company. First locations. You should first find out if these types of properties are available in the locations that are most likely to see secondments. While the temporary accommodation industry has a great deal of product in primary centers, if your company’s secondments are in secondary or tertiary centers, then these properties are not likely to be there at all. Second cost. In general terms, these apartments are quite inexpensive. For example, a typical one bedroom temporary accommodation apartment can be found in large Canadian cities for long-term periods, such as 5-6 months for approximately $105 – $115/night, depending on location and duration. If you think about the average cost of a hotel room in a typical Canadian city, you would say that this is a very good price. However, once aggregated for 30 days, it is amazing how quickly the cost of $3,150, seems very expensive to a hiring manager. You should be aware of your company’s cost tolerance.

It may be a better idea to provide your employee with a proper rental home finding search and rent unfurnished properties, and then rent furnishings for the property. Most furnishings can be rented, and the overall cost is likely to be lower than the cost of formal temporary living. The reduced cost will vary, but can be as little as one-half to two-thirds of the cost of temporary living. However, if the secondment is less than one year, this may not be an option, as most landlords of unfurnished properties want their rental periods to be a minimum of one year.

Transportation and Movement of Goods/Storage

CRA does allow an employer to exclude from income the value of free or subsidized transportation between the employee’s principal place of residence and the special work site. This can be interpreted as trips home during the secondment.
Your secondment policy should be written carefully to exclude certain actions on the part of the employee. It is quite reasonable for an employee on a long secondment to reduce their overall costs so that they can maximize their earnings during the secondment. As mentioned above, one such action might be ceasing the tenancy in the origin city. As noted, this would make any coverage of destination lodging become a taxable benefit. It should also be noted that movement of household goods and storage of household goods during the secondment would also be deemed taxable benefits.

Ending the secondment

Finally, the policy should consider the end of the secondment. It is possible that the secondee will be asked to extend the secondment or take the position permanently. You will want to write your policy with this ending anticipated and referenced.
In conclusion, it is time for secondment policies to be formalized and put within the regular planning and relocation functions of Human Resources. Look at the benefits you would like to provide that are consistent with the quality of your benefits in the relocation policy. This will ensure a seamless and attractive secondment strategy in your company.

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