Relocation Bonus
What is a relocation bonus?
A relocation bonus is a financial incentive offered by employers to help cover the expenses incurred when moving to a new location for work. This type of bonus is typically provided when a current employee is transferred to a different location or when a new employee is hired from another city or state.
A relocation bonus is given to help ease the financial burden associated with moving, which can include costs such as packing and moving services, temporary housing, real estate fees, and travel expenses.
Relocation vs. reimbursement vs. signing bonus
| Relocation package | Reimbursement plan | Signing bonus | |
| Definition | Financial support to cover the costs associated with moving for a job. | Refund of actual moving expenses incurred. | One-time payment, often used as an incentive for joining a company. |
| Payment method | Typically given as a lump sum, either before or shortly after the move. | Usually paid after the move, based on submitted expense reports or receipts. | Usually paid as a lump sum after the employment contract is signed and the employee starts work. |
| Tax implications | Often considered taxable income, though some employers gross up to cover taxes. | Can be non-taxable if it follows IRS guidelines for qualified moving expenses. Otherwise, it may be taxable. | Generally treated as taxable income. |
| Conditions | May require the employee to stay with the company for a certain period or repay the bonus if they leave early. | Might need to provide detailed documentation of expenses. Limits on types of costs covered. | Often requires the employee to stay for a specified duration or repay the bonus if they leave before that period. |
What is an average relocation bonus?
An average relocation bonus can vary widely depending on several factors, including the level of the position, the industry, the location, and the company’s policies.
For entry-level or mid-level positions, bonuses typically range from $2,000 to $10,000, covering basic moving expenses and temporary housing. For senior positions or specialized roles, the amount can increase significantly, often ranging from $10,000 to $30,000 or more, including comprehensive moving services and additional support. The specifics of relocation packages can sometimes be negotiated, especially for higher-level roles.
When is a relocation bonus paid?
The payment of a relocation bonus varies based on company policy and the specifics of the employee’s relocation agreement, but there are some common scenarios:
- Upfront: Some employers provide a lump sum relocation bonus upfront. This is often given before the move to help cover immediate expenses like hiring movers, shipping belongings, or travel costs.
- Reimbursement: In other cases, employers might choose to reimburse employees for their moving expenses. This means the employee pays for the moving costs initially and then submits receipts to the employer, who returns them. This usually happens after the move is completed.
- Installments: Sometimes, the relocation assistance might be paid in installments over a certain period (e.g., six months or a year). This can help with ongoing costs related to the move, like higher cost of living or temporary housing.
Employers often include a clawback clause in their relocation bonus agreement. This means that if the employee leaves the company within a certain timeframe (usually within one to two years of the move), they may be required to repay all or a portion of the relocation bonus amount.
Pros and cons of offering a relocation bonus
Offering a relocation bonus to employees has its advantages and disadvantages. Here are some key points to consider:
The pros
- Attracts talent: A relocation bonus can make a job offer more attractive, enabling companies to draw candidates from a wider geographic area.
- Competitive advantage: Companies that offer relocation bonuses may stand out in the job market, especially in industries where the competition for skilled workers is high.
- Eases transition: Financial support can help new employees relocate without the stress of financial burdens, leading to a smoother transition and quicker adaptation to their new role and environment.
- Increases retention: If the relocation package is tied to a tenure agreement (i.e., the employee agrees to stay with the company for a certain period), it can help improve employee retention rates.
The cons
- High costs: Relocation bonuses can be expensive, especially if the company is in a location with a high cost of living or if the relocation involves international moves.
- Administrative burden: Managing relocation bonuses can add complexity to the HR and accounting processes, including tax implications for both the company and the employee.
- Inequality issues: If not offered uniformly or transparently, relocation bonuses can lead to perceptions of inequality or favoritism within the workplace.
- Risk of short-term employment: There’s always a risk that the employee might leave the company soon after relocating. This is particularly the case when there is no contractual agreement for the employee to stay for a certain period after relocation.
Is a relocation bonus taxable?
In the US, a relocation bonus is generally considered taxable income. The Internal Revenue Service (IRS) treats these bonuses as part of an employee’s compensation package; therefore, employers typically withhold taxes on the relocation bonus, just as they would on a regular paycheck.
The 2017 Tax Cuts and Jobs Act made significant changes to the tax treatment of employer-provided relocation assistance. Before 2018, certain moving expenses reimbursed or paid directly by an employer could be excluded from taxable income. However, under the new law, most employer-paid moving expenses are now taxable, with few exceptions, such as for members of the Armed Forces on active duty who move under a military order.
What HR should consider when developing a relocation bonus policy
When developing a relocation bonus policy, HR should consider the following elements:
- Qualifications requirements: Determine who is eligible for the relocation bonus. Will it apply to all employees or only to certain levels or departments? Are new hires elegible, or is it only for current employees?
- Budget and financial implications: Assess the financial impact of the relocation bonus. This includes not just the direct costs of the bonuses but also potential tax implications for both the company and the employees.
- Benchmarking: Research what similar companies in your industry offer regarding relocation assistance. This can help you create a competitive policy to attract and retain talent.
- Scope of the relocation package: Decide what the relocation bonus covers. This can include moving expenses, temporary housing, travel costs, and other relocation-related costs.
- Exit strategy: Define the terms under which an employee might have to repay the relocation bonus, such as leaving the company within a certain time frame after relocation.
- Tax Implications: Understand and communicate the tax implications of relocation bonuses for both the employer and the employee. In many jurisdictions, relocation bonuses are taxable income, so this should be factored into the overall package.
FAQ
The amount of a relocation bonus varies widely, depending on factors like company policy, job level, and move distance. It can range from a few thousand dollars to much larger sums, with no standard amount across different companies. The specific amount depends on the company’s policy and the employee’s circumstances.
Whether a relocation package or a signing bonus is better depends on the individual circumstances. A relocation package is specifically tailored to assist with the costs and logistics of moving for a job, making it ideal for those needing relocation. In contrast, a signing bonus offers greater flexibility, as it is a lump sum of money that can be used for any purpose, making it more appealing for individuals who do not require relocation assistance.
