Relocation imbursement policies and considerations

Even in the age of remote and hybrid work, there are times when you may need employees to relocate to a new work location. As business needs change or your business expands, employees may be transferred or promoted to roles in different work locations. When this occurs, it’s common to provide a relocation reimbursement to help offset the cost of moving for the employee.

Relocation reimbursement is designed to help ease the burden of employee relocation by covering costs like moving services and temporary housing to help the team member get set up in their new home. Find out how to craft a relocation expense policy that will provide the best relocation experience for your team while keeping the process organized and cost-effective for your business.

When should employers offer a relocation reimbursement?

Explore three common relocation scenarios and learn when you should and should not offer relocation reimbursement.

Employee reassignment

Relocation expenses are typically reimbursed when an employee moves to a new location at their employer’s expense. Employees that are transferred based on business needs or who are offered a promotion at another location typically receive relocation reimbursements. Moving is costly and disrupts an employee’s life quite a bit, so employers offer relocation reimbursements and other forms of moving assistance to make the process easier on employees.

Employee-initiated transfers

Employees that request to transfer offices for personal reasons, such as wanting to be closer to family or move to a lower-cost area, are typically not offered relocation reimbursements. Approving employee-initiated transfers can help businesses retain staff who wish to move to new areas, but employees typically don’t expect to be reimbursed for these moves and it isn’t cost-effective to offer relocation reimbursements or bonuses for them in most cases. Employers should have clear guidelines and approval processes in place to ensure that businesses are only paying for moves that specifically serve a business need or otherwise meet company policy.

New hire relocation packages

Some businesses offer relocation reimbursements for new hires. Whether or not you should offer relocation packages for new employees typically depends on how competitive the hiring market is for your industry. Businesses that aim to recruit from top colleges across the nation or who have to compete for candidates with highly specialized skills may want to offer relocation benefits to incentivize possible employees to move to work for you. If your company has access to plenty of local talent or you’re willing to fill roles remotely, the added relocation expenses may not be worthwhile.

What relocation costs do employers typically cover?

Moving can come with a lot of different expenses. Here are the key ones that employers typically reimburse.

Packing of household goods

Some employers also reimburse for packing services. This removes some of the stress and time commitment of moving by paying a team of movers to pack up the employee’s belongings in their current house or apartment.

Temporary housing costs

Employers will often reimburse for the cost of temporary housing such as short-term rentals or hotels for a set period of time while the employee looks for housing in a new city.

Costs related to leaving current housing

Employers will often reimburse employees for early lease termination fees if the employee will be required to break their lease to move. If the employee is a homeowner in their current area, employers may reimburse the employee for some costs related to the home sale such as realtor fees.

Travel expenses

Airfare or car travel costs to the new destination are typically reimbursed. Most employers will also cover travel costs, hotels, and meals if an employee needs to take a trip to their new destination to look for housing, tour schools for their kids, or otherwise get set up in their new location before the official move. Most employers only cover a single pre-relocation trip and put a cap on the number of days covered.

Types of relocation reimbursements

There are several different ways that employers can handle relocation reimbursements. Here are the most common ones to consider.

Traditional expense reimbursement

Many companies follow their standard expense reimbursement policy for relocation expenses. Employees keep records of the expenses incurred and submit them for reimbursement. For large expenses, it’s common to require pre-approval by human resources or the employee’s department leader.

Lump sum payments

Some employers offer a lump sum payment, sometimes referred to as a relocation bonus, rather than reimbursement of individual expenses. Under this option, employees receive a set amount of money upfront and are responsible for managing their expenses themselves with it. If an employee’s new residence is in a higher-cost-of-living area, the relocation bonus will often exceed the expected relocation costs to provide extra funds to help offset the higher housing costs.

Vendor payments

Some employers work directly with vendors such as moving companies to handle certain steps of the relocation process. Employers can pay the vendor directly. Plus, larger employers with frequent moving and packing needs (or frequent hotel stays) may be able to negotiate better rates with vendors.

Sample relocation reimbursement policy

When an employee is required to move or transfer to a new worksite over 50 miles away from their current location, the company will provide relocation reimbursement under the provisions of this policy.

Employee eligibility

Full-time employees that are reassigned to a work location more than 50 miles away from their current worksite may be eligible for relocation reimbursement to cover approved moving expenses. Employees must receive approval in writing from their department head and the human resources department.

Reimbursement process and timeline

Relocating employees must submit documentation, such as invoices or receipts, to verify the specific moving costs incurred. Expenses will be reimbursed within 30 days, in accordance with [Company Name]’s expense reimbursement policy.

Select expenses may be paid as an advance or through a vendor voucher. Employees seeking an advance will need to obtain approval from human resources and sign an amended relocation agreement documenting the advanced payment. Employees that receive an advance will still need to submit documentation showing the expenses paid with the advance upon completion of their move.

Covered relocation expenses and limits

[Company Name] will reimburse [Employee Name] for the following expenses:

1. Initial house-hunting trip. To help the employee arrange housing before their relocation, the company will cover transportation and accommodations for the employee and their spouse to make one initial house or apartment-hunting visit to their new location. Up to five days of travel, meals, and lodging will be covered by [Company name]. Upon return from the trip, the employee will need to submit proof of incurred expenses in accordance with [Company name]’s expense reimbursement policy.

2. Temporary living expenses. The company will cover up to 15 days of temporary lodging for the employee, their spouse and dependents for a period of no more than 15 days following their relocation.

3. Packing and relocation of household goods. [Company Name] will reimburse the employee for the cost of a packing and moving service to relocate their household items to their new location. Employees should obtain and submit a moving quote to human resources for approval before contracting with a moving vendor.

4. Travel. The company will reimburse the employee for travel to the new destination. This includes reimbursement for flights, car travel, or moving truck rentals if applicable.

5. Additional relocation expenses. [Company Name] will reimburse the employee for miscellaneous costs incurred during the relocation process such as early lease termination fees or utility setup costs. The employee must submit documentation of these expenses and should obtain advanced approval for any expenses totaling over $100.

Repayment in the event of early termination

Employees that voluntarily leave or who are involuntarily terminated for poor performance within 12 months of relocation to the new worksite, will be required to reimburse [Company Name] for relocation expenses covered under this agreement.

Employee tax obligations

Relocation reimbursements are typically considered fringe benefits by the IRS and may be included in the employee’s taxable income. [Company Name] will provide any employee receiving relocation reimbursements with the appropriate federal and state income tax forms reflecting all relocation assistance paid to the employee. Employees should plan for this additional tax obligation and may want to meet with a CPA to understand how the Tax Cuts and Jobs Act impacts their tax obligations and ability to deduct qualified moving expenses.