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Lump-sum programs consist of giving employees a specific amount of money upfront to cover—or help cover—the costs of their moves. Employees then typically manage the move themselves, although some companies provide assistance through a third-party relocation provider.
Managed-cap programs don’t provide funds directly to the employee but contain expenses by limiting the amount that can be spent per relocation—e.g., $15,000—and may also designate monetary caps for benefits such as temporary housing and homesale closing costs. Companies usually engage relocation providers to manage these relocations, which will track costs up to the caps and coordinate services delivered by supplier partners (van lines, temporary housing, car shipments, etc.). As individual needs can vary, some managed-cap programs allow for the selection of benefits as long as the total cost does not exceed the cap.
Both options have their pros and cons, which companies must weigh against their budgets, objectives, and organizational cultures.
Unlike lump-sum programs, companies using managed caps are more likely to have them in place for all employees. With this type of program, spending limits can be based on whatever parameters a company establishes: employee level, percentage of salary, the employee’s profile, etc. This last item could take into account factors such as family size, departure and destination location, etc.
Deciding whether to offer a lump-sum or managed-cap relocation program will depend on several factors, including company culture, talent availability, competitive positioning, employee experience, and the budgeted amount. If the latter is $5,000 or less, a lump sum is generally the better option. For amounts that exceed this, a managed-cap program may be best, as it often provides the employee with a better relocation experience while still keeping costs fixed (up to the cap) and reducing the company’s and/or employee’s tax liability.
For more information and a comparison chart, see the original article.
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