Understanding Lump Sum Programs and Options

Posted on: June 15th, 2020 by David Scott

Lump sum relocation programs should never be considered a “shelf-item.” They are not restricted to a one-size-fits-all tactic, nor should they be. Just as any relocation program can be tailored to your company’s business objectives and goals, your lump sum can as well. What’s important is understanding the underlying principles, assumptions, and basics of the lump sum philosophy so companies can make the best decision for their organization.

Four Basic Options Trending Today

  • Flat Lump Sum
    • This option allocates the exact same amount to each transferee, regardless of their status, title or time with the organization. The employee is given the “net” check and they may use these funds as they see fit. Tax assisted.
  • Variable Lump Sum
    • This option is designed based on company-defined objectives. Employers can use whatever benchmarks or basis they choose. A few of the most common benchmarks used are logical and definable, such as:
      • What is the industry standard cost of each benefit?
      • Are they renters or homeowners?
      • Will short-term housing be required and for how long?
      • What is the salary level or compensation plan of the transferee?
      • How many miles to the new destination? How many family (dependents) members are moving?
    • Tax assisted.
  • Managed Lump Sum
    • Often referred to as a “Capped” lump sum, this option helps reduce administrative requirements while the relocation partner (RMC) records and tracks the designated expenses and manages, by priority/cost, the dollars allocated for each transferee. This program keeps the transferee focused on using the dollars wisely where costs/expenses are to be incurred and helps manage those costs using preferred supplier partners. The RMC can alleviate the time-consuming responsibilities from the Employer and help reduce liability for potential costly errors in execution. Tax assisted.
  • Partial Lump Sum
    • This option allows the Employers to offer transferees a lump sum for a portion of their relocation expenses and reimburse the remainder on a receipt-submission basis. Tax assisted.

Whichever option fits your company’s culture and business objectives best, it is important to remember that all relocation expenses, paid on behalf of the employee, are considered taxable income and will be reflected accordingly on the employee’s tax return.

Why Use a Lump Sum Program?

Two primary reasons motivate Employers to utilize a Lump Sum payment.

  • Managing Costs: Flat and Partial Lump Sum Programs can deliver the cost control mechanisms that organizations strive to maintain. Employers may feel it is easier to manage relocation costs and maintain a more hands-off approach.
  • Ease of Administration: The administration of documentation and supplier invoices may be more manageable with lump sum programs. A combination of fewer HR/relocation personnel, and lump sum programs, may allow employers to reduce the level of staff, training, education, and management, to carefully document covered expenses and IRS regulations of each move.

Is it right for you?

Understanding the pros and cons of lump sum programs should be weighed seriously before being incorporated into your relocation program. Consideration should be given to two very important factors:

  • Loss of Productivity: There’s no question, relocation is stressful. When employees are busy organizing and managing own relocation – marketing and selling their home, arranging for movers, locating affordable short-term housing, and purchasing a new home – their minds are not on their job. This causes significant hours of lost productivity.
  • Employee Satisfaction and Retention: Lump sums look great on paper — but the high-level of stress associated with a move — even the smallest “thing” the company does (or does not do) for their relocating employee, during this time, will have more impact, than it would under more routine circumstances, through a more streamlined approach. Long-term retention of these valued employees, when left on their own, if often lessened by using this option.

Bottom Line to Relocation

Many companies utilize a lump sum option in their relocation program. It works, once the ideology of its usage is understood. A smart way of utilizing a lump sum is to embrace it “like” a miscellaneous allowance; intended to cover a specific group of services, while offering full-service attention, to each employee, throughout their move. Reducing administrative time and maintaining cost controls while retaining happy employees makes offering a well-structured lump sum, an attractive “add-in” to any relocation program.


Have questions or want to learn more about Lawrence Relocation Services, please contact Ginny Taylor, Director of Relocation Services, by email or by phone at 540-966-4550.