State:

National
There are reasons for moving employees, in good times and in bad. Companies in the throes of retrenchment may want to close and consolidate several worksites, requiring workers that want to stay with the employer to move. An employer may be bought, or companies may merge, meaning relocation. An employer may hire new workers that must move to the work operation from states all over the nation. An employer may move operations to a foreign country and require managers to move to that country or may hire a valued worker that must move here from another country.
However, with the cost of relocating a homeowner estimated to be between $50,000 and $65,000, and the cost of relocating a renter estimated at between $15,000 and $20,000, relocating an employee has major financial implications, even though a good portion of these costs are tax deductible. With the availability of constant communications, including for meetings, employers must decide whether the on-site presence of a worker is worth subsidizing the move and for how much. Also consider that some experts theorize that employees who are relocated are more likely to leave a company than nonrelocated employees. Please see the national Homeworkers/Telecommuters section.
Subsidies as incentives. Relocation subsidies or funding are an important incentive for employers who wish newly hired or present employees to move to a new area. Many employers assume part or all of the costs incurred by an employee transferred from one place of operation to another within the company; some employers also underwrite these costs for new hires. This practice, once limited to newly hired, executive- and professional-level employees, may be extended to any skilled or experienced workers.
What is covered. Costs covered by employers typically include the packing, transport, and unpacking of household effects, disconnection and reconnection of major appliances, premiums for insuring items being moved, and the transportation of the employee and the employee's family. If the distance is great, the cost of transporting a car might also be covered. A variety of other reimbursements are also possible.
How much to cover. In deciding upon a compensation package for new or transferring employees, employers need to make an analysis focusing upon the individual worker. Just about all employees want to “stay whole.” Therefore, if a present employee is to be transferred to another city or state, the cost of living may be different; if it is more expensive, the employer needs to take that into account and decide how to accommodate the new needs.
Many companies restrict payment to the cost of transferring “household furniture and effects,” defining the term to exclude such items as boats, power tools, building materials, and trailers. The cost of moving cats, dogs, and other common pets is often covered, but the transport of exotic animals is ordinarily not included. Although the practice is uncommon, some employers will not pay to move goods above a specified total value or total weight. Some companies pay a proportion of the moving expenses at the time of the move, and agree to reimburse the employee for the remainder if the employee is still on the job at the end of 6 or 12 months.
Estimates and payment. Estimates on moving costs are not always dependable. Additionally, most movers will refuse to unload unless paid by cash, money order, or certified check at point of arrival.
Additional transfer arrangements. In addition to the actual costs of moving, some employers provide for the reimbursement of living expenses (or a per diem allowance) for a specified number of days at the new location while the employee is seeking living accommodations. In a few cases, employers reimburse the employees for advance trips to seek accommodations for the family at the new site.
Guaranteed sale of residence. A standard practice has been for the employer to guarantee the sale of a relocated employee's house at a particular price. Basically, the employer agrees to buy the house if it isn't sold when the time comes to move. In a depressed housing market, these agreements become risky (they effectively turn the employer into a real estate speculator). Because there are a number issues, including tax consequences associated with buying and selling an employee's house, most employers contract the work to relocation companies. Employers should also consult a good real estate lawyer before developing and implementing a policy of this kind.
Turnover after relocation. In order to guard against employer loss of relocation payments due to employee termination within a few months of relocation, employers might require employees to repay some of the relocating expenses if they voluntarily leave within a set period of time. Please see the national Turnover section.
With many workers now renting, any relocation planning should take them into consideration. In addition, most transferees will become renters in the new location, at least temporarily. It is better to identify "guides" at the new facility to answer questions about neighborhoods and conduct tours of areas that might be a good fit socially and financially to the transferring employee (young children, singles, etc.). This function should not be left solely to realtors.
Many relocating employees have spouses with their own careers. Employers should assist them in finding new jobs. Children may need help adjusting to new schools, teachers, playmates, etc. In helping spouses find new work employers should have counseling and informational material available for newly relocated employees, inform them about such resources, and urge the spouses to take advantage of them.
There are tax deductions for both employer and employee involved in these practices, and it is a good idea for an employer to know what they are. These tax breaks may be an incentive for applicants or employees to take the new job, and move reimbursements are deductible to employers.
For a move to be “qualified” for tax deduction (under Section 217 of the Internal Revenue Code (IRC) (IRC Sec. 217), the time and distance tests must be met:
• The time test is met if the employee works at least 39 weeks during the first 12 months after arriving in the general area of the new job location.
• The distance test is met if the new job location is at least 50 miles farther from the employee’s old home than the old job location was.
Deductible moving expenses include only the reasonable expenses of:
• Moving household goods and personal effects from the former home to the new home; and
• Traveling (including lodging) from the former home to the new home.
The moving expense exclusion applies to any amount an employer directly or indirectly gives an employee (including services furnished in kind) as payment for, or reimbursement of, moving expenses. The exclusion applies only to reimbursement of moving expenses that the employee could deduct if he or she had paid or incurred them without reimbursement. However, it does not apply if the employee actually deducted the expenses in a previous year.
International moves are extremely costly for an employer, and there are particular, unique pressures associated with international moves, especially for spouses and children. Any plans for international relocation should be carefully reviewed to determine if the employee could accomplish the same goals through telecommunicating and/or periodic trips abroad. If an employer does determine transfer is preferable, the company should contract with a vendor that handles these types of moves. The Workforce Mobility Association (www.worldwideerc.org) is a good resource.
It’s a good idea for an employer to get an employee to sign a relocation agreement outlining the terms of what moving expenses/relocation fees it will cover. Many such agreements require an employee to repay some of the reimbursed expenses if the employee leaves the job before the end of a set period of time. Repayment may be based on a prorated schedule over some period of time set by the employer and (obviously) agreed to by the employee.
Note: A disclaimer should be added stating that the agreement is not to be construed as nor is there a guarantee that the company will continue to employ the employee for the entire period. The employee should sign the agreement.
Last reviewed October 2014.
Related Topics:
National
There are reasons for moving employees, in good times and in bad. Companies in the throes of retrenchment may want to close and consolidate several worksites, requiring workers that want to stay with the employer to move. An employer may be bought, or companies may merge, meaning relocation. An employer may hire new workers that must move to the work operation from states all over the nation. An employer may move operations to a foreign country and require managers to move to that country or may hire a valued worker that must move here from another country.
However, with the cost of relocating a homeowner estimated to be between $50,000 and $65,000, and the cost of relocating a renter estimated at between $15,000 and $20,000, relocating an employee has major financial implications, even though a good portion of these costs are tax deductible. With the availability of constant communications, including for meetings, employers must decide whether the on-site presence of a worker is worth subsidizing the move and for how much. Also consider that some experts theorize that employees who are relocated are more likely to leave a company than nonrelocated employees. Please see the national Homeworkers/Telecommuters section.
Subsidies as incentives. Relocation subsidies or funding are an important incentive for employers who wish newly hired or present employees to move to a new area. Many employers assume part or all of the costs incurred by an employee transferred from one place of operation to another within the company; some employers also underwrite these costs for new hires. This practice, once limited to newly hired, executive- and professional-level employees, may be extended to any skilled or experienced workers.
What is covered. Costs covered by employers typically include the packing, transport, and unpacking of household effects, disconnection and reconnection of major appliances, premiums for insuring items being moved, and the transportation of the employee and the employee's family. If the distance is great, the cost of transporting a car might also be covered. A variety of other reimbursements are also possible.
How much to cover. In deciding upon a compensation package for new or transferring employees, employers need to make an analysis focusing upon the individual worker. Just about all employees want to “stay whole.” Therefore, if a present employee is to be transferred to another city or state, the cost of living may be different; if it is more expensive, the employer needs to take that into account and decide how to accommodate the new needs.
Many companies restrict payment to the cost of transferring “household furniture and effects,” defining the term to exclude such items as boats, power tools, building materials, and trailers. The cost of moving cats, dogs, and other common pets is often covered, but the transport of exotic animals is ordinarily not included. Although the practice is uncommon, some employers will not pay to move goods above a specified total value or total weight. Some companies pay a proportion of the moving expenses at the time of the move, and agree to reimburse the employee for the remainder if the employee is still on the job at the end of 6 or 12 months.
Estimates and payment. Estimates on moving costs are not always dependable. Additionally, most movers will refuse to unload unless paid by cash, money order, or certified check at point of arrival.
Additional transfer arrangements. In addition to the actual costs of moving, some employers provide for the reimbursement of living expenses (or a per diem allowance) for a specified number of days at the new location while the employee is seeking living accommodations. In a few cases, employers reimburse the employees for advance trips to seek accommodations for the family at the new site.
Guaranteed sale of residence. A standard practice has been for the employer to guarantee the sale of a relocated employee's house at a particular price. Basically, the employer agrees to buy the house if it isn't sold when the time comes to move. In a depressed housing market, these agreements become risky (they effectively turn the employer into a real estate speculator). Because there are a number issues, including tax consequences associated with buying and selling an employee's house, most employers contract the work to relocation companies. Employers should also consult a good real estate lawyer before developing and implementing a policy of this kind.
Turnover after relocation. In order to guard against employer loss of relocation payments due to employee termination within a few months of relocation, employers might require employees to repay some of the relocating expenses if they voluntarily leave within a set period of time. Please see the national Turnover section.
With many workers now renting, any relocation planning should take them into consideration. In addition, most transferees will become renters in the new location, at least temporarily. It is better to identify "guides" at the new facility to answer questions about neighborhoods and conduct tours of areas that might be a good fit socially and financially to the transferring employee (young children, singles, etc.). This function should not be left solely to realtors.
Many relocating employees have spouses with their own careers. Employers should assist them in finding new jobs. Children may need help adjusting to new schools, teachers, playmates, etc. In helping spouses find new work employers should have counseling and informational material available for newly relocated employees, inform them about such resources, and urge the spouses to take advantage of them.
There are tax deductions for both employer and employee involved in these practices, and it is a good idea for an employer to know what they are. These tax breaks may be an incentive for applicants or employees to take the new job, and move reimbursements are deductible to employers.
For a move to be “qualified” for tax deduction (under Section 217 of the Internal Revenue Code (IRC) (IRC Sec. 217), the time and distance tests must be met:
• The time test is met if the employee works at least 39 weeks during the first 12 months after arriving in the general area of the new job location.
• The distance test is met if the new job location is at least 50 miles farther from the employee’s old home than the old job location was.
Deductible moving expenses include only the reasonable expenses of:
• Moving household goods and personal effects from the former home to the new home; and
• Traveling (including lodging) from the former home to the new home.
The moving expense exclusion applies to any amount an employer directly or indirectly gives an employee (including services furnished in kind) as payment for, or reimbursement of, moving expenses. The exclusion applies only to reimbursement of moving expenses that the employee could deduct if he or she had paid or incurred them without reimbursement. However, it does not apply if the employee actually deducted the expenses in a previous year.
International moves are extremely costly for an employer, and there are particular, unique pressures associated with international moves, especially for spouses and children. Any plans for international relocation should be carefully reviewed to determine if the employee could accomplish the same goals through telecommunicating and/or periodic trips abroad. If an employer does determine transfer is preferable, the company should contract with a vendor that handles these types of moves. The Workforce Mobility Association (www.worldwideerc.org) is a good resource.
It’s a good idea for an employer to get an employee to sign a relocation agreement outlining the terms of what moving expenses/relocation fees it will cover. Many such agreements require an employee to repay some of the reimbursed expenses if the employee leaves the job before the end of a set period of time. Repayment may be based on a prorated schedule over some period of time set by the employer and (obviously) agreed to by the employee.
Note: A disclaimer should be added stating that the agreement is not to be construed as nor is there a guarantee that the company will continue to employ the employee for the entire period. The employee should sign the agreement.
Last reviewed October 2014.
CT-WEB02
Copyright © 2017 Business & Legal Resources. All rights reserved. 800-727-5257
This document was published on https://Compensation.BLR.com
Document URL: https://compensation.blr.com/analysis/Staffing-Training/Moving-Expenses-Relocation/