Have you noticed that your current relocation policy doesn't satisfy the needs of the employees you wish to relocate? Do prospective employees balk at moving to take the position you are offering? If so, you are not alone!

Employees' views of being relocated have changed over the years. In the 60's and 70's many considered it a badge of honor and proof of their worth to the company.

In the 80's and increasingly in the 90's, some employees became reluctant to move, predominately due to family considerations. Employers responded by offering or expanding family participation in the move. Employers contracted with relocation firms to develop packages that described the new area, the characteristics of surrounding towns, schools, religious organizations, and outdoor and indoor sports and activities. Family area acclimation and house-hunting trips were added or expanded. In the 90's, with more spouses holding full time jobs, employers started to offer spouse job-hunting and employment services to the relocation package. As some employees are single parents, some employers have entertained offering child care information and assistance in finding child care facilities, although at this moment, I do not know of any who have adopted this type of service.

In the new millennium, things changed. Employers added more benefits to entice employees to move. And, just a few years ago, employees seemed to accept a relocation more readily. Many practitioners believe that, in addition to the added benefits, the relocation let employees realize the dramatically increased value of their homes.

Then the housing nightmare struck. The economy tanked. Jobs became hard to find, and everyone knew a neighbor or relative who had lost their job.

1)    Let's start with what seems to be the biggest problem in relocating an employee - the employee's current home:

·         The current home's market price may be lower than the home's initial purchase price.

·         The mortgage(s) may be higher than the current home's market price.

·         Homes in the area are not selling quickly - even when priced competitively.

·         Renting the current home does not release the equity needed to buy a home in the new area, and if other means are found to provide for a down payment on the new home, the rent may not cover all of the carrying costs on the old home.

2)    Next, let's look at the possible impediments to an employee's buying a home in the new area. While this is a buyer's market, all is not rosy. As mentioned above, the employee may not have the funds for the down payment. Other factors may affect an employee's ability to qualify for a mortgage on a home in the new area. The employee's credit rating may have been impacted by the economy and social pressures, including: over-borrowing on the value of the current home, over extension of credit card debt, related late payments, defaults and other matters. The employee may be moving from a low cost of living area to a higher one and even with some equity from the sale of the current home may not have enough for a suitable down payment on a new home.

3)    As a bonus, in general, the costs of all of the overhead involved in the relocation and added enticements have increased.

4)    Finally, even with a higher unemployment rate, the available talent pool is decreasing:

·         Fewer employees want to be relocated due to newly started, or increasing, families.

·         Fewer employees are willing to move away from family and friend support structures.

·         Fewer employees are willing to risk a change in jobs.

·         Fewer employees are willing to change employers.

·         More employees have spouses with good jobs who may be reluctant to relocate.

Let's look at some ways companies may be able to mitigate the above concerns when redesigning a relocation policy. But let's first examine the purpose of a relocation.

What Are We Trying To Do?

Why are we relocating an employee? The answer should be that it is a business decision - that doing so is best for the company. What needs to be considered is the answer to the following formula:

1. The present value of the profit the relocated employee will produce that is in excess of the profit that could be produced by a local promotion or local new hire, minus
2. The cost of the relocation.

The formula should produce a positive answer. If it doesn't, we need to look at other contributing factors that may justify a negative one, such as preservation of market share or a customer. The present value should be determined using a period of three to five years (coincidently, the same, respectively, as the depreciation period of computer software and equipment) to recognize the introduction, acclimation, and increased performance stages the employee will go through. Starting with three years, the period should be increased in proportion to the larger scope of the new position. Of course, if the relocation is a step in a management development plan, or succession plan, the present value determination period may be longer than five years. A company should concentrate on improved short-term results to justify the move, and long-term results to justify the cost of the relocation.

One Lump or Two?

While having one policy for all relocations streamlines things, it may not answer the needs of varying levels or classifications of employees. Consider varying or making additions to a base policy as the level of the position or compensation increases. When looking at making changes, all pieces of the policy should be examined to be sure they meet the needs of the employee and the employee's family - and well serve the Company. If you will want the ability to alter a policy to meet specific needs, a statement of that ability should be a policy in of itself.

The Current Home

The biggest current impediment to a relocation seems to be the price of the prospective relocated employee's current home. But, from a business viewpoint, it may be the easiest (although not the least expensive) problem to deal with. Let's look at some ways a company might meet the needs of its potential transfer:

Well-Worn Practices: Under a GBO, or Guaranteed Buyout Option, the company, or a relocation firm employed by the company, buys the house at an appraised value and resells it. Under a BVO, or Buyer Value Option, the employee finds a buyer, and then the company or the relocation company buys the house at the price the buyer offered and resells it to the buyer.

Both the GBO and the BVO are designed to free the employee from the time and detail work required to sell the house. However, they do not recognize the bigger problems mentioned earlier in this article. The following are methods that a company may use to do just that.

Loss on Sale - Current market price lower than purchase price: Various surveys indicate that about 50% of companies have Loss on Sale provisions. Under a Loss on Sale provision, the company may pay the employee the difference between the initial purchase price of the house and the sale price. Various conditions or limits may be placed on the amount the company may pay, such as:

• The sale price will be based on an assessed value or an actual buyer's offer (which may be tempered by an assessed value).
• The purchase price will exclude, exclude a portion of, or include the cost of capital improvements (exclude because they are recognized in the sale price at market value; include because the employee paid for them in expectation of a higher sale price).
• A threshold of $X or Y% of loss has to be reached before the company will make any payment.
• The maximum company payment will be X% of the employee's salary, pay grade mid-point, the purchase price or the sale price.
• The company will pay Z% of the loss until the maximum is reached. Combining this with a threshold has also been used.
• Some companies treat the amount the company pays as loan that will be paid back, or forgiven over time. If considered a loan, it is important to treat it as such with full documentation, and perhaps a filed lien on the new home.

Equity Loss - Current market price is lower than the outstanding mortgage(s): This is similar to the Loss on Sale but worse. The employee will not only have a loss, but will have to dig into savings or investments to satisfy the mortgage(s). Many companies do not assist an employee with an Equity Loss. Those that do may treat it in a fashion similar to a Loss on Sale, using different conditions or limitations. If you consider creating an Equity Loss program, considering any payment to be a loan (to be repaid or forgiven over time) would be prudent. Again, the formal treatment of the loan is important. Please also refer to "Renting Current Home..." below for an additional alternative.

The House Won't Sell - The house is priced competitively but is still on the market: If you determine that the employee's house is priced right, but is not selling, adding a Staging Benefit to your relocation policy may be in order. Under a Staging Benefit, the company employs a firm that specializes in making the house more attractive to buyers by painting, making needed repairs, decorating and furnishing the house. Staging Benefits are in their infancy, so while you may be treading new ground, don't be bashful - remember that the goal is to free the employee of concerns about selling the house so he or she may concentrate on the new job.

Renting Current Home Provides No Benefit - No equity is released or the rent will not cover carrying costs: A negotiated alternative to providing a benefit in relation to the sale of the employee's current home may be to subsidize the lack of equity release, or insufficiency of rent over carrying costs if the employee decides to keep the house. The subsidy of equity release is done in an Equity Loss situation to provide a down payment on the new home and may be treated in a fashion similar to the Equity Loss described above or the No Down Payment outlined below. The subsidy of rent that is insufficient to cover carrying costs would be employed in a situation where there is a Loss on Sale, and it is agreed that employee will keep the home. This may also argue for a benefit under No Down Payment outlined below. Remember, the goal is to get the housing situation out of the way so the employee may concentrate on the new job.

Surprise! - A real estate transfer tax: More states are adopting or increasing real estate transfer taxes. These are poorly disguised sales taxes. Some states are considering, and one has adopted an additional tax if the owner moves out of state. You may wish to consider this additional expense when reexamining your relocation policy.

The New Home

No Down Payment - Also may be insufficient down payment: If an employee has incurred a Loss on Sale or an Equity Loss, the employee may not have the required funds for a down payment on new home. If you verify that the price of the new home is in line with market values, you may ask the company's main bank if it would entertain a second mortgage. At times, the bank may require the company to guarantee or co-sign the second mortgage. If a bank cannot be found to provide a second mortgage, the company may offer a loan to the employee. Again, the loan should be a formal one, and a lien on the new home considered. You may also consider negotiating loan repayment through mandatory payroll deductions.

I Can't Get A Mortgage - Employee's credit rating prevents any bank from offering a mortgage: An employee may have used, or misused, the current home, credit cards and other debt arrangements and damaged his or her credit rating so that a bank will not offer a mortgage. You have some hard choices to make. Let's look at some of them:

• Provide no home purchase assistance, forcing the employee to rent.
• Provide a regular stipend that recognizes the difference between the amount a typical home appreciates and the related mortgage payment and the rent paid.
• The company guarantees or co-signs the mortgage. Again, consider mandatory payroll deductions.

Moving Overhead

Even though we are in a down economy, it seems that little or no moving expense discounts are available on a regular basis. Areas, depending on how your present relocation policy is structured, that may provide some economy are:

• Establishing a maximum real estate commission on the sale of the current home of no more than 3 or 4%.
• Reducing the maximum reimbursement for packing, moving, closing costs, automobile transport, furnishing allowance, etc.
• Providing a loan over the reduced maximum reimbursement. Remember - a loan is a loan. As previously mentioned, the loan may be forgiven over time in lieu of payment.
• Consider limits on lease cancellation payments such as three months of rent.
• Many companies provide temporary and duplicate living expense benefits - sometimes both appear in a relocation policy, sometimes only one is included. Temporary living expense benefits cover the cost of housing at the new location before the move is made. Duplicate living expense benefits cover the carrying costs of the old house once the move has been made. If both benefits are offered, the Temporary living expense benefit ceases and the Duplicate living expense benefit takes over once the move has been made. With the real estate market in turmoil, if you are not going to make a change to your policy to assist with the sale of the old residence, these benefits should be re-examined. Rather than use separate limits for each benefit, consider a combined limit of 120 to 180 days or longer. Using a combined limit permits the employee to place emphasis on what is more important to him of her.
• If you combine the number of days an employee may use Temporary and Duplicate living expense benefits, you should look at your "travel home" benefits. Offering a set number of trips to be used before the move is made should not equal the number of weekends covered by the newly combined number of days. Thought might be given to setting a fixed maximum number of trips, and permitting them to be used on a scheduled basis, such as: permitting one per week for the first one or two months, one every two weeks for the next two months, and one every three weeks for the following months until the maximum is reached. The purpose of limiting the trips, other than to control costs is to fix the employee's attention on the new job and selling the old residence. This change in policy may also be used if you do decide to improve the company's assistance with the sale of the old home.
• Independent of or in conjunction with any of the new policy additions mentioned above in relation to the sale of the employee's current home, and below in connection with increased or new family related subsidies, limit duplicate housing expenses.

Shrinking Available Talent Pool

Family Matters: Employees starting new families or with expanding ones may look less favorably on a relocation. This may be due to a range of important reasons. Having a properly prepared package introducing the family to the potential new location is a basic necessity. Some companies are using relocation firms, real estate agencies, and community organizations to help with the introductions. The introductions should be designed to help the family know and appreciate the new location, and to provide assistance to replace family and friend support structures. Family counseling is a benefit that may also be offered. Stipends for child care, nursery school and pre-school, home maintenance and housekeeping services may be considered on a general or individual basis.

Change Can Be Scary - A relocation or change of employer can be frightening: Some companies have faced difficulty in relocating employees or hiring out of area employees because of the tentative nature of the new job, the soundness of the company, or the lack of other employment opportunities in the new location. These fears may be mitigated through the through preparation of an honest introduction to the new job and the new area, and the company's prospects. We have recommended the negotiation of a follow-on relocation guarantee in certain circumstances, such as the lack of similar employment opportunities in the area, the company's or the position's prospects are not compelling. The guarantee may come into play if the employee is terminated for any reason other than cause for a period of X years, or if compensation is reduced by more than Y% during that period. An example of a guarantee is one that pays all follow-on relocation expenses for a move out of the new area to any other area, not to exceed the distance of the move to the area, under the same policy provisions of the initial relocation.

My Spouse Earns More Than I Do - Working spouses can make substantial contributions to a family's income: Many families are dual wage earner families and more than a few relocated employees are females with male working spouses. Convincing a spouse to give up a secure, satisfying job with advancement potential can be a hard sell, and has gotten harder with the downturn in the economy. Companies have tried many things to mitigate this concern. Assistance with job hunting and placement including all services that would be offered by an outplacement firm for an extended period, introducing the spouse to networking opportunities through the company, subsidizing the loss of the spouse's income for a period of time, dual living expense for the trailing spouse at the current location so the spouse may continue employment for a period of time, and working with the spouse to construct telecommuting opportunities can all help to make both relocations work.

The Taxman Cometh

Now that we may have found the answers to our relocation problems, we need to prepare for the rain on our parade. It is our understanding as consultants, that in general, other than moving and limited storage of the household, one-time personal transportation to the new location for the move itself, and certain limited temporary housing, all other payments made by the company are considered income to the employee. Many companies "gross-up" these taxable amounts by making additional payments to the employee in the amount of the income taxes and the income taxes on this special payment. Additionally, if the company provides a low or no-interest loan, the difference in the market rate and the actual loan rate is considered income and will most likely be included as imputed income on the employee's W-2. If the loan is forgiven, in stages or at once, the amount forgiven is considered income at the time of the forgiveness. It is our understanding that in general, companies do not gross-up these amounts.

The New Policy

As veterans return home, many will come back to jobs, families, and lives that they held before their tour of duty. Adjusting back to civilian life can be a challenging process for all involved. For employers, it is important to recognize that there are certain steps that need to be taken to help this process along. The majority of returning veterans fall under the Uniformed Services Employment and Reemployment Rights(USERRA). USERRA establishes the cumulative length of time an individual may be absent from work for military duty and retain reemployment rights for five years. In addition to providing a much needed opportunity, employing veterans can have monetary benefits in the form of tax incentives.

 Reemployment rights extend to persons who have been absent from a position of employment because of "service in the uniformed services" (the performance of duty on a voluntary or involuntary basis in a uniformed service), which include:

1. Active duty/Active duty for training.
2. Initial active duty for training (and Inactive).
3. Full-time National Guard duty.
4. Absence from work for an examination to determine a person's fitness for any above duty.
5. Funeral honors duty performed by National Guard or reserve members.
6. Duty preformed by intermittent employees of the National Disaster System, part of Homeland Security- Emergency Preparedness and Response Directorate.

There are eight categories exempt from the five-year limitation:

1. Service is required beyond five years to complete obligation.
2. Service from which a person, through no fault of theirs, is unable to obtain a release.
3. Those involved in two-week annual training sessions and monthly weekend drills mandated, reservists and National Guard members.
4. Service under an order to remain on active duty because of war or national emergency declared by the President or Congress.
5. When active duty by volunteers and select reservists have been ordered to active duty without consent.
6. When put in duty in support of critical missions or requirements in times other than national emergency or war.
7. When federal service is needed of the National Guard and called to action by the President.
8. When federal service by member of the National Guard is called to action by the President to suppress an insurrection, repel an invasion, or execute laws of the United States.

On reemployment, the employee is treated as not having a break in service with the employer or employers maintaining a pension plan, for purposes of participation, vesting and accrual of benefits, by reason of the period of absence from employment due to or necessitated by service in the uniformed services.

In a non-contributory defined benefit plan, where the amount of the pension benefit is determined according to a specific formula, the employee's benefit will be the same as though he or she had remained continuously employed make up contributions in order to have the same benefit as if he or she had remained continuously employed during the period of service. In a defined contribution plan, the benefit may not be the same as if the employee had remained continuously employed, even though the employee and the employer make up any contributions or elective deferrals attributable to the period of service, because the employee is not entitled to forfeitures and earnings or required to experience losses that accrued during the period or periods of service.

In many pension benefit plans, the employee's compensation determines the amount of his or her contribution or the retirement benefit to which he or she is entitled.

(a)              Where the employee's rate of compensation must be calculated to determine entitlement, the calculation must be made using the rate of pay that the employee would have received but for the period of uniformed service.

(b)(1)    where the rate of pay the employee would have received is not reasonably certain, such as where compensation is based on commissions earned, the average rate of compensation during the 12-month period prior to the period of uniformed service must be used.

(b)(2)    where the rate of pay the employee would have received is not reasonably certain and he or she was employed for less than 12 months prior to the period of uniformed service, the average rate of compensation must be derived from this shorter period of employment that preceded the period of uniformed service.