More employers are relying on lump-sum allowances to cover relocation expenses, but is it really wise to expect employees to go it alone?

During the booming 1990s, relocating an employee typically entailed a full-service package that covered every facet of the move, from selling a current home and buying a new home in the destination city, to travel expenses and temporary living costs, to household-goods packing, shipping, storage and unpacking. Conventional thinking was that such an all-encompassing approach resulted in the greatest likelihood of a successful transition for the employee and his or her family.

Now, however, with the cost of a full-service relocation hovering just under $70,000, according to Cartus Corp., a Danbury, Conn.-based global relocation-management company, a growing number of organizations are incorporating lump-sum allowances into their relocation policies. Thought to encourage savings by empowering employees to play a more active role in the management of their relocation, lump sums are a relatively simple concept that involves giving an employee a pre-determined amount of money to pay for some or all of the costs related to his or her move.

While just 42 percent of companies rely on lump sums to cover the entire cost of a relocation, 55 percent use them for miscellaneous expenses and 47 percent use them for travel expenses, according to the Atlas Van Lines’ 46th Annual Corporate Relocation Survey, issued in 2013. A smaller percentage use them for temporary housing, household goods shipping and storage, and rental or real-estate assistance.

Granted, lump-sum relocation allowances are nothing new. They initially rose to popularity in the early 1980s, but then fell somewhat out of favor as organizations adopted a more administratively heavy approach that entailed accounting for every penny spent. In recent years, though, lump sums have become popular once again, as the economic downturn had employers looking for ways to trim relocation costs. Lump sums are an attractive option because they give the employer the ability to control costs and are far less administratively cumbersome than a full-service move, both for the company and the employee.

“Employees are able to utilize funds in a way that best meets their needs and are not required to submit expenses for reimbursement,” says Jill McDonald, vice president of policy consulting for SIRVA Inc., the Oakbrook Terrace, Ill.-based global mobility service provider delivering integrated relocation and moving solutions. “This, in turn, reduces companies’ needs for accommodating exception requests and managing expense reimbursements.”

In 2009, Bentonville, Ark.-based Walmart Stores Inc. replaced its “very administrative reimbursement-only policy” with one that incorporates a lump-sum component into every tier, according to Kandi Kelley-Pritchett, systems and payments compliance manager for corporate relocation. That’s across four domestic policies, one Canadian policy and one expat policy. The rationale for the change, says Kelley-Pritchett, was to “become more efficient and more consistent across all of our levels.”

At Walmart, lump sums are granted to all relocating employees, regardless of level, although Kelley-Pritchett, without offering any details, does concede that “the level determines the amount.” The retail giant offers a miscellaneous lump sum, intended to cover what Kelley-Pritchett calls “the miscellaneous incidentals that could occur that aren’t covered elsewhere in the policy, like pet shipment or driver’s licenses,” and a temporary housing lump sum intended to cover housing and rental-car costs for up to 30 days.

According to Kelley-Pritchett, lump-sum allowances are a powerful attraction and retention tool.

“Associates don’t want to have someone tell them how to spend their money,” she says. “It allows them to have that free will, to know that their incidentals are covered, and it helps us maintain relevance because a lot of companies are using lump sums.”

Yet, along with their rise in usage comes a growing concern that lump-sum allowances place too much responsibility in the hands of employees, who are often not equipped to make the best decisions when choosing a vendor or budgeting money. But helping them with these decisions can also open up another can of worms. Just how much assistance can an employer offer without mitigating the autonomous nature of the lump-sum concept? Are lump sums even a good idea in the first place? Employers, and their HR and relocation leaders, have many complex issues to address in this fluctuating arena.

A Dangerous Trend

Despite their growing inclusions in relocation policies, not everyone is sold on the concept — at least not as it’s commonly deployed. When used properly, lump sums are “an extremely effective form of reimbursement,” says Jeff Ellman, president and co-founder of UrbanBound, a Chicago-based web-enabled relocation-services provider. However, the way most companies are using them, Ellman says, makes them fraught with problems. He goes so far as to label their use “a dangerous trend.”

“Companies generally drop the ball at the same spot in the hiring process — they give the new hire a lump sum of money and wish them ‘good luck’ with their move,” says Ellman. “Most people don’t know what to do with this lump sum of money, so they end up feeling let down by the lack of relocation support.”

That lack of support is compounded by the fact that lump sums are disproportionately granted to young, inexperienced hires. According to an independent study by Cartus, 62 percent of lump-sum recipients are renters, singles and college recruits. These young employees are the least equipped to manage the funds wisely.

“The irony is that lump sums are being given to the population that’s least experienced with moving,” says Michael Krasman, CEO and co-founder of UrbanBound. “Your more senior-level executives have often moved many times before, so they already know what goes into it and they may even have some assistance in place for how to handle certain tasks, but they are going to get a fully managed move through a relocation company.”

At the same time, the lure of being allowed to keep whatever money is left over often leads employees, especially those with little moving experience, to rely on budget-priced, less-than-reputable service providers.

“Most lump-sum transferees will pocket as much of the money as possible and make some really poor decisions,” says Ellman. “They’re going to use ‘Billy Bob’s Moving Company’ because it’s the cheapest, but then their household goods are held hostage because it’s actually going to be three times more than they were quoted.”

Autonomy vs. Assistance

To help employees avoid that detrimental cost-cutting trap, some companies have started introducing a concept known as “lump-sum plus.” They give relocating employees access to a network of vetted service providers they can rely on to handle their move professionally, often at a discounted price. However, employers that opt for this approach are going to have to decide whether to require employees to use just those vendors or be allowed to go “out of network,” says Frank Patitucci, CEO of NuCompass Mobility in Pleasanton, Calif.

“The company is trying to negotiate good rates, but on any given day, the employee can go on the Internet and find a better price,” says Patitucci. “Do you want them to do that or do you want them to stick within the approved network? If they go out of network, what kind of liability issues are you going to face?  It will be interesting to see how that plays out.”

According to Kelley-Pritchett, Walmart’s approach is a lump-sum-plus one, giving employees access to vetted temporary housing providers and discounted rental cars. Ultimately, however, it’s up to employees to decide which vendors get their lump-sum dollars.

As millennials — those born between the early 1980s and early 2000s — continue to add to the workforce, employers will undoubtedly keep turning to lump sums as a cost-efficient means of moving workers, says Donna Barber, manager of consulting solutions at Cartus. Tech-savvy and craving autonomy, these young adults are the ideal lump-sum recipients — assuming the company gives them the assistance to manage the funds wisely, that is.

“When you look at this next generation, they are great on Craig’s List; they can find all the tools they need and they feel they are a very mobile population,” says Barber. “But you have to ask yourself, ‘What have you accomplished if you just write them a check?’ You have to balance cost and service and find the optimum solution to achieve your mobility goals.”