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A Comprehensive Examination
Offering partial lump sums in lieu of reimbursement for certain policy benefits is well-proven in U.S. Domestic mobility policies and the strategy has become popular for its flexibility and ease of administration. Providing a partial lump sum for specific policy benefits can also allow relocating employees to spend how they feel best in their situation.
But do partial lump sums have a place in international mobility policies?
Let’s investigate!
What’s Your Comfort Level?
It may sound tempting to the employee and company to use partial lump sums in an international policy, however, it varies on each company’s comfort level surrounding how a partial lump sum would be used, particularly for:
- Specific benefits (e.g., temporary living, meal per diems, to/from airfares and baggage fees, spouse/partner counseling), and
- Specific employee levels (entry level, management, executives)
After all, since companies relocating employees “intra-country” – such as from Los Angeles to Las Vegas – use partial lump sums for certain benefits, why couldn’t employees relocating on assignment from Los Angeles to London, for example, do the same where appropriate?
The answer is…it depends.
It is no secret international moves have unique “grey” areas and nuances to address that are different from domestic policies. Successful, trouble-free international moves take considerable coordination involving timelines, logistics, and attention to detail for Global Mobility or Talent Management administrators. To help bring more clarity to potential concerns, consider the following:
Upsides for Using Partial Lump Sums for Certain Benefits
Companies operate with an eye towards overall efficiency and employee self-service where possible.
Those in favor of partial lump sums often cite the following:
- From a generational standpoint, Millennials taking international assignments may embrace using a partial lump sum compared to Gen-X or Baby- Boomer generations.
- Employees may feel more empowered to make relocation/assignment choices that work for their preferences and are incented to spend as little as possible to keep what remains.
- Partial lump sums make corporate budgeting for certain benefits more predictable and streamline the management process.
- Companies find issuing partial lump sums for certain relocation benefits more efficient than collecting receipts from the employee then reviewing and auditing expense reports so employees can be reimbursed.
- Anticipated savings may reach up to ten percent when using a partial lump sum allowance for certain benefits compared to a direct reimbursement approach.
Potential Downsides of Using Partial Lump Sums
Most companies prefer managed control of an international relocating employee’s approved benefits, logistics, and costs. Using a partial lump sum for certain benefits, while attractive on paper, can have its risks if the wrong benefits are included.
For example, it is strongly recommended to avoid including visa and immigration benefits, as well as overall taxation support, in partial lumpsums.
Consider the following:
- A partial lump sum may not be appropriate for executive or senior-level assignments. If the sum is deemed too low, getting an exception approved to increase the benefit for their perceived need can become an annoyance that negatively affects satisfaction.
- Client administrators will need to invest time to determine partial lump sum amounts that are fair and effective by location, decide which benefits should be included, and apply them across multiple policies. And all this work must be repeated as market changes occur.
- Currency fluctuations or high inflation can leave employees feeling short-changed or requesting exceptions due to a “special situation.” This can add to administrator workloads which could impact savings and potentially create tension for companies and employees alike.
- Relocating employees may spend significant time researching how far their funds might realistically stretch in their international destination, which could impede their productivity and responsibilities at work.
- Relocating employees may opt for less expensive options to retain more cash, instead of, for example, selecting safe and reliable temporary living apartments in the host country. There is also a risk of jumping into something that looks like a great deal only to realize it is a scam.
- Relocating employees who have previously been on a company international assignment with eligible costs reimbursed may not see the overall value in a partial lump sum.
- With partial lump sums often taxed as ordinary income, companies may be able to avoid taxation outside of a partial lump sum in certain countries. It is important to check with your tax firm before implementing any changes.
- If the relocating employee is responsible for taxes with the partial lump sum, they may be unaware of home and/or host country regulations that could result in penalties and / or negative company compliance issues.
Striking a Comfortable, Equitable Balance
Keeping the above considerations in mind, determining if using a partial lump sum in lieu of reimbursement for certain benefits boils down to what is the right fit for that company. To help assess the fit look at:
- Company culture and annual move volume,
- Employee “noise” levels about policy benefits,
- Employee demographics and job levels, and
- Company program flexibility and expense tracking goals. A partial lump sum allowance for international assignments may seem appealing but may also burden employees/ families with unexpected extra time for planning and research to effectively budget for their needs, all while needing to focus on the international transition, core job responsibilities, and / or family concerns.
“Beauty is in the eye of the beholder” and each company needs to strike a comfortable, equitable balance between employee workload, cost savings, risk, compliance, and flexibility.
If you would like to discuss international partial lump sum options or other topics, please contact your NEI representative at any time.
The above information is for general information only and is not presented as tax or legal advice. Please consult with your tax or legal advisors and internal stakeholders before making decisions and taking any action.
A Comprehensive Examination
Offering partial lump sums in lieu of reimbursement for certain policy benefits is well-proven in U.S. Domestic mobility policies and the strategy has become popular for its flexibility and ease of administration. Providing a partial lump sum for specific policy benefits can also allow relocating employees to spend how they feel best in their situation.
But do partial lump sums have a place in international mobility policies?
Let’s investigate!
What’s Your Comfort Level?
It may sound tempting to the employee and company to use partial lump sums in an international policy, however, it varies on each company’s comfort level surrounding how a partial lump sum would be used, particularly for:
- Specific benefits (e.g., temporary living, meal per diems, to/from airfares and baggage fees, spouse/partner counseling), and
- Specific employee levels (entry level, management, executives)
After all, since companies relocating employees “intra-country” – such as from Los Angeles to Las Vegas – use partial lump sums for certain benefits, why couldn’t employees relocating on assignment from Los Angeles to London, for example, do the same where appropriate?
The answer is…it depends.
It is no secret international moves have unique “grey” areas and nuances to address that are different from domestic policies. Successful, trouble-free international moves take considerable coordination involving timelines, logistics, and attention to detail for Global Mobility or Talent Management administrators. To help bring more clarity to potential concerns, consider the following:
Upsides for Using Partial Lump Sums for Certain Benefits
Companies operate with an eye towards overall efficiency and employee self-service where possible.
Those in favor of partial lump sums often cite the following:
- From a generational standpoint, Millennials taking international assignments may embrace using a partial lump sum compared to Gen-X or Baby- Boomer generations.
- Employees may feel more empowered to make relocation/assignment choices that work for their preferences and are incented to spend as little as possible to keep what remains.
- Partial lump sums make corporate budgeting for certain benefits more predictable and streamline the management process.
- Companies find issuing partial lump sums for certain relocation benefits more efficient than collecting receipts from the employee then reviewing and auditing expense reports so employees can be reimbursed.
- Anticipated savings may reach up to ten percent when using a partial lump sum allowance for certain benefits compared to a direct reimbursement approach.
Potential Downsides of Using Partial Lump Sums
Most companies prefer managed control of an international relocating employee’s approved benefits, logistics, and costs. Using a partial lump sum for certain benefits, while attractive on paper, can have its risks if the wrong benefits are included.
For example, it is strongly recommended to avoid including visa and immigration benefits, as well as overall taxation support, in partial lumpsums.
Consider the following:
- A partial lump sum may not be appropriate for executive or senior-level assignments. If the sum is deemed too low, getting an exception approved to increase the benefit for their perceived need can become an annoyance that negatively affects satisfaction.
- Client administrators will need to invest time to determine partial lump sum amounts that are fair and effective by location, decide which benefits should be included, and apply them across multiple policies. And all this work must be repeated as market changes occur.
- Currency fluctuations or high inflation can leave employees feeling short-changed or requesting exceptions due to a “special situation.” This can add to administrator workloads which could impact savings and potentially create tension for companies and employees alike.
- Relocating employees may spend significant time researching how far their funds might realistically stretch in their international destination, which could impede their productivity and responsibilities at work.
- Relocating employees may opt for less expensive options to retain more cash, instead of, for example, selecting safe and reliable temporary living apartments in the host country. There is also a risk of jumping into something that looks like a great deal only to realize it is a scam.
- Relocating employees who have previously been on a company international assignment with eligible costs reimbursed may not see the overall value in a partial lump sum.
- With partial lump sums often taxed as ordinary income, companies may be able to avoid taxation outside of a partial lump sum in certain countries. It is important to check with your tax firm before implementing any changes.
- If the relocating employee is responsible for taxes with the partial lump sum, they may be unaware of home and/or host country regulations that could result in penalties and / or negative company compliance issues.
Striking a Comfortable, Equitable Balance
Keeping the above considerations in mind, determining if using a partial lump sum in lieu of reimbursement for certain benefits boils down to what is the right fit for that company. To help assess the fit look at:
- Company culture and annual move volume,
- Employee “noise” levels about policy benefits,
- Employee demographics and job levels, and
- Company program flexibility and expense tracking goals. A partial lump sum allowance for international assignments may seem appealing but may also burden employees/ families with unexpected extra time for planning and research to effectively budget for their needs, all while needing to focus on the international transition, core job responsibilities, and / or family concerns.
“Beauty is in the eye of the beholder” and each company needs to strike a comfortable, equitable balance between employee workload, cost savings, risk, compliance, and flexibility.
If you would like to discuss international partial lump sum options or other topics, please contact your NEI representative at any time.
The above information is for general information only and is not presented as tax or legal advice. Please consult with your tax or legal advisors and internal stakeholders before making decisions and taking any action.
