Although there is no hard and fast rule when it comes to wooing the best, brightest and highest producing leaders of industry, executive relocation packages sweeten a deal that frequently involves cross-country or international moves. Michigan State University(1) suggests that it is common practice for a company to cover the actual moving expenses that a new executive incurs. In some cases, the company may also pay temporary housing costs or even give the worker a lump sum payment of anticipated expenses.
Taxable Fringe Benefits?
In its Fringe Benefits Audit Techniques guide from 2005 (and updated in 2010), the Internal Revenue Service (IRS)(2) warns employers that some of the items included in relocation packages are actually taxable fringe benefits. The implications for the employee are clear: s/he has to pay taxes on the money or value. For the employer this means that the funds must be included in the year-end tax statement.
It is noteworthy that the IRS recognizes moving expenses and also transportation costs as exempt from this ruling, but only if it considers them “qualified.” For a discussion on the latter, the human resources professional or tax clerk must get professional help from a tax accountant.
Ideas for Relocation Perks
Just what should a company include in its executive relocation packages? Depending on the financial health of the company – and the caliber of executive it seeks to attract – there are a number of possibilities.
- Perks: These fringe benefits provide little luxuries, such as athletic skyboxes that the executive and family members may use when visiting live sports events. Other perks include memberships to clubs or corporate credit cards.
- Bonuses: A sign-on bonus is a common feature for relocating execs. Other bonuses may take the form of stock awards, extra vacation time and performance bonuses.
- Expense Reimbursement: Staple features of relocation packages, they seek to minimize the expense associated with moving, relocating an individual or entire family, finding new transportation, securing a permanent home and also shipping personal belongings. In some cases, the reimbursement may also cover the expense of selling a home.
If done properly, executive relocation packages are sure to attract the industry’s top talent. Should the package be improperly administered, there is a chance of losing the new exec to a rival or placing the employer at risk for discrimination lawsuits.
For example, the contract negotiations with a new executive must stipulate that the worker agrees to work for the company – and consistently performs at predetermined benchmark levels – for a specified period of time. Failure to adhere to this stipulation may result in the employer’s demand for repayment of graduated relocation package cash equivalents. This contract protects the company against relocating an executive at its expense, only to have an industry rival woo away the worker as soon as s/he becomes known in the field.
Secondly, human resources professionals must be vigilant and warn company execs against offering low-cost loans or similar financial products, unless they are also available to other employees. It is too easy for a worker to allege discrimination if s/he does not receive a loan while an exec does.
The art and science of putting together executive relocation packages is the mix of generosity and fiscally conservative practices. Remember that the performance of the new executive must justify the expense of paying for the move and associated expenses.
Photo Credit: “Luggage” by Mattes/Wikimedia Commons at https://commons.wikimedia.org/wiki/File:Reisegep%C3%A4ck.JPG