Corporate Relocation Package

Are Home Sale Benefits Collectible From Transferees Under a Payback Agreement?

Wednesday, February 18, 2009 by hank roth

Even before the current economic crisis, a majority of companies required transferees to sign repayment agreements, under which the employee agrees to repay relocation benefits if they leave the company within some specified period after being transferred.

Such agreements commonly include a requirement to repay costs that were incurred by the employer to acquire and dispose of the employee’s home in the departure location under a home purchase program. Such costs are usually the largest part of the expenses incurred to move the employee.
If a home purchase program is properly organized and implemented, IRS agrees that costs incurred are not taxable to the employee. See Rev. Rul. 2005-74. However, employers sometimes express concern that inclusion of those costs in a repayment agreement is somehow inconsistent with the original exclusion of the costs from income.

That concern is not well-founded.

A repayment agreement simply imposes a condition on the employer’s willingness to undertake the expense of moving the employee. It does not operate to characterize any of the expenses as employee benefits, either taxable or not taxable. The company incurred many costs to move the employee, some taxable and some not (for example, moving household goods). Under the repayment agreement the employee simply acknowledges that the employer expects a return on its investment in moving the employee. The benefit to the employer of incurring the costs will not be realized if the employee accepts relocation but then leaves employment within a short period of time.

Requiring the employee to repay such costs does not in any way suggest or imply that the costs were incurred to benefit the employee. Indeed, as discussed in the previous paragraph, it tends to suggest just the opposite.

Moreover, when the employee does repay the home sale costs, the employee in effect has simply paid his or her own costs of home sale. There is no benefit to the employee at all, taxable or nontaxable.

Consequently, including home sale costs in a repayment agreement should not be taken as suggesting that such costs were a taxable employee benefit in the first instance.

However, as with all other costs included in a repayment agreement, the agreement should clearly specify the categories of cost that are subject to the agreement. Doing so will help the company to enforce the agreement, if that becomes necessary.

Reprinted from the Worldwide ERC Tax and Legal Mastersource with permission. Article prepared by Peter K. Scott, ERC Tax Counsel.

How to Effectively Plan for a Group Move: Critical Questions

Tuesday, February 3, 2009 by SIRVA Relopinion

Before you announce that a corporate group move (or relocation) is taking place, it is important to be prepared. A part of that will be identifying the resources you will need. Consider all the internal departments that need to be involved or will be impacted by the move. Evaluate if you need to bring in outside resources to assist you in managing the move.

Too often people underestimate the complexity of a group move and the critical need to have the time to properly prepare for the move prior to it being announced. For those employees who are moving, as well as those employees who are not going to move, you or someone on the team need to have the answers to a number of critical questions such as:

Questions that need to be answered for employees who are moving:

What organizational units and types of jobs will be involved?
How many jobs will be moved? From where? To where?
Has selection criteria been established? Will the criteria be publicized?
How will transferees be selected and invited? What will be the administrative process for job offer and acceptance?
Will transferees’ departure-area jobs be re-filled? If so, how?
How many job openings in the new facility will be filled locally?
Will there be new-hires to be relocated?
Will group move relocation benefits expire at a certain point in time?

Questions that need to be answered for employees who are not moving:

Why wasn’t I asked to move?
Will I be offered a new job?
Do I need to apply for it?
When will my current job end?
Will there be a stay or retention bonus?
Is there a severance package?
If a job opens up at the new location, can I apply for it?
Can I apply for a job at another location?

To learn more, visit the SIRVA Resource Library

Insiders Tips on Reducing Relocation Costs

Thursday, December 4, 2008 by Paul Klemme

With today’s business focus on managing costs, there may be an opportunity for you to do a review of your corporate relocation spend.

Closing costs on the purchase of a home by the transferee in the new location are nine percent of the total relocation cost, averaging over $8,000. Your results may differ depending on your move patterns, demographics and relocation reimbursement policy.

Home purchase reimbursement policies can be categorized into four styles:

1. Full reimbursement
2. Capped reimbursement
3. Lump sum
4. No reimbursement

The first thing to consider, when reviewing home purchase costs, is the company’s philosophy toward corporate relocation benefits. Are you part of a company that desires to reimburse all expenses or is the idea to assist with the costs associated with the move? The answer will certainly impact the relocation policy language and the expense associated with each move.

Preferred relocation lenders that are partnered with you will assist in controlling your costs. Preferred lenders will have negotiated lender fees and will not engage in fee add-ons. Higher fees from outside lenders can cost the company or the transferee hundreds or even thousands of dollars more.

One of the most costly line items in home purchase is points, also known as origination or discount points (fees). These can vary depending on the loan amount. Each point is one percent of the loan amount and typically can reduce the interest rate by a quarter of one percent (.25). Many companies that had reimbursed two points have dropped down to reimbursing one point, while others have reduced one point to zero points. In today’s low interest rate environment, a reduction may be an opportunity to reduce costs without disturbing reasonable benefit levels.

With FHA loans becoming more prevalent, reimbursement of the Mortgage Insurance Premium (MIP) should be avoided. Like the VA funding fee or Private Mortgage Insurance (PMI) these are buyer paid costs that should not be company paid.

Construction loans can also be a costly expense. Many construction loans have two closings, one for the construction and one for the end or permanent loan. Best practice is to pay for only one of the closings, not both.

A general inspection can be a good way to improve the quality of a home purchase and increase home eligibility in the event of another move. These inspections should be capped at $500 to limit the company’s exposure to unnecessary inspections.

Many policies include the reimbursement of home purchase closing costs for current renters. Elimination of this benefit can produce cost savings—however this should be aligned with your company’s philosophy concerning the level of financial support offered during the relocation process.

Also be aware that sellers, and many builders, can try to push their closing costs onto the buyer, especially when relocating buyers are not familiar with local customs. To reduce the company’s exposure, your policy should indicate reimbursement of normal and customary buyer closing costs. SIRVA is available to review your relocation policy to ensure you are using best practices to safeguard your costs. David Barlow, SIRVA’s senior consultant and author of Navigating Today’s Real Estate Market, has done extensive benchmarking on relocation policy components. He is a great resource to call upon as you examine your policy,

SIRVA Mortgage also provides a free consultation with any transferee to compare Good Faith Estimates (GFE). The consultation will ensure the transferee has “apples to apples” comparison and that the fees are in line with the relocation policy. Oftentimes, we see an estimate that has a lower interest rate that is offset by increased fees. These situations are discussed and reviewed to determine the best option for the transferee.

For more information visit http://www.sirva.com/CorpRelo_Mortgage_Landing.aspx

How SIRVA Can Assist With Group Moves

Tuesday, September 30, 2008 by SIRVA Relopinion

If you have a group move to manage and are seeking assistance, SIRVA Relocation is able to provide the following services:

Defining Objectives
SIRVA works closely with your Company’s management team to define the overall objectives of the move and ensure their implementation during the move process. As a part of our consultation, we will discuss the Company’s business and human resources goals and objectives, policy issues, the group move timeline, and factors to consider in the cost analysis and process development.

Relocation Cost Analysis
We provide expertise in analyzing the total cost of a group move by detailing the cost impact of policy decisions and local market conditions on both the Company and the employee.

Policy Design
SIRVA can incorporate your business objectives into an appropriate group move policy. A key component of policy design is the solicitation, review and analysis of your employees’ input via the employee survey that we will design to meet the needs of your employee population and the constraints your management has placed on the process. This information, along with policy and benefit guidelines, will result in a Group Move Policy Handbook detailing the corporate relocation program for your employees.

Employee Presentations
We have the depth of experience to assist the Company in securing the employee’s enthusiastic commitment to the move through a carefully planned and professionally presented program for the entire family. This program includes a complete overview of the new destination city and state, plus the ability for employees to ask questions and address concerns about the move. In short, we bring the experts in each resource area to the transferee.

Relocation Resource Center
SIRVA can prepare an on-site, on-going “Relocation Resource Center” for employees and their families, which provides information about the destination city’s schools, housing options, medical facilities, etc.

Information Kit
Each employee will receive a complete package of information about the destination city including, if appropriate, a video about the city. Employees will be assigned a personal relocation counselor who is available to answer questions, research any specific needs they or their family members may have, and arrange for individual home finding trips to the new city (if included in the plan).

Area Tours
SIRVA can organize area tours guaranteed to satisfy your employees’ questions about their new city.

Other services include:
• Home Marketing Assistance
• Home Purchase Assistance
• Home Finding Assistance
• Temporary Housing Assistance
• Spouse Job-Finding Assistance
• Employee Expense Tracking Administration and Tax Calculation Capabilities
• Mortgage Assistance
• Vendor Selection and Management
• Training Material and Programs

Corporate Immigration Compliance: Stealth Expats

Monday, September 29, 2008 by SIRVA Relopinion

As trends of short-term assignments have increased, a new category of worker has emerged, “stealth expatriates” (expats). This term is used to describe employees who work in another country outside of the country’s official international assignment program— often without the knowledge of Human Resources. These stealth expats originate from a number of different sources: employees or short-term assignees who have extended their planned overseas visit due to business reasons: foreign nationals who have been hired locally but on a semi-expatriate package; cross-border commuters whose job responsibilities have been extended; employees who are sent on assignment by business leaders who do not understand company procedures.

Flying under the radar, stealth expats inadvertently increase the risk of noncompliance for themselves and for their employer in the areas of tax, immigration and employment laws. Consulting companies in particular are caught in the dilemma of balancing contract deadlines to avoid penalties with lengthy work permit application requirements in the host country. It has become the job of Human Resources to educate the stakeholders on the options available to transfer assignees into the host country as quickly and efficiently as possible. This is often accomplished by taking advantage of special immigration legislation aimed at allowing people with special skills to work in host countries. Human Resources also are responsible for the corporate governance requirements of their companies to build processes that bring stealth expats into their companies’ processes and mitigate risk.

Companies that consult on global relocation are now developing sophisticated tools and processes to help organizations identify and track stealth expats and bring them back into company processes while not disrupting the stealth expats’ valuable contribution to their organizations’ international businesses.

For more information, visit our resource library

International Relocation: Cross Cultural Awareness

Friday, August 15, 2008 by SIRVA Relopinion

Here are a few things to remember when instituting a cross-cultural awareness program into your corporate relocation program. For a full account of information regarding this service visit our resource library.

Don't forget the family
Just as spouses should be involved in the assignment selection process, they should be involved in training for global assignments. Some experts estimate that nearly 80 percent of all failed global (international) assignments can be linked to the spouse's inability to adjust to the new environment. Each member of the family faces special issues in the expatriate environment that should be addressed.

Other cultural resources
Organizations should consider utilizing their returning expatriates for help with cultural awareness initiatives. Employees who have already completed similar assignments can act as subject matter experts (SMEs) to help new expatriates learn business customs and how to navigate foreign business circles. SMEs can also prove invaluable in helping new expatriates learn the hierarchy in companies with which they will be dealing. It's important to note, however, that companies should not rely solely on employees to provide guidance to new expatriates. Relying exclusively on veteran expatriates can be problematic if the guidance reinforces cultural stereotypes or results in the new expatriate adopting the predecessor's bad habits. While other international assignees have a role to play in helping newcomers adjust, they should not replace professional consultants/trainers.

Alternative views
Although cross-cultural awareness is important, some might argue that its importance is just a hyped up myth. In actuality, on average only 30 percent of American managers sent on international assignment lasting from one to five years receive any cross-cultural training. It can be argued that managing is simply "managing," so where it is done is irrelevant. Another point of view is that any type of short-term cultural training would be ineffective because people can't learn to work and live in a foreign culture after only a few days (or even a few weeks) of training. Others argue that an understanding of a country's culture is something people assimilate over many years based on personal experiences in that specific culture. Others will say that corporate culture takes precedence over country culture. For example, a local employee working for a "bullish" American firm in Thailand might show traits of aggressiveness and conflict, which are not traits normally associated with the Thai culture. These traits, however, may be common in the corporate company culture of the employee's organization, causing the Thai employee to act outside his or her normal cultural dimensions.

Nevertheless, in order to be successful, an expatriate must be comfortable with his or her staff, colleagues, clients and business atmosphere--regardless of location. Cultural specialists also agree that to be successful in dealing with people from other cultures, expatriates need knowledge about the cultural differences (and the similarities) among work locations. The global employee of today's business world can only benefit from gaining cultural awareness, either through direct training or personal experience, which would lead to greater professional effectiveness and company performance. Read more

If you would like more information about cross-cultural education and how it can be added to your international relocation package/program, please contact our corporate relocation consulting team.

Relocation Policy Tip: Short Distance Group Moves

Wednesday, July 16, 2008 by SIRVA Relopinion

Group moves occur for a variety of reasons and in most cases can be treated (relative to the IRS rules) exactly as other non-group moves. A group move, however, may not meet the IRS 50-mile test. In that case, consideration should be given to providing a short distance group move policy. The IRS 50-mile test generally requires that in order for certain costs associated with a relocation to be excludable from income, the distance between an employee's old residence and the new work location must be 50 miles greater than the distance between the employee's old residence and the old work location.

It is not uncommon for companies to change office locations, or have multiple facilities in the same geographic area, where the distance between an employee's old and new work location may or may not meet the IRS 50-mile test. For example, in larger cities, where a move may be from one side of a metropolitan area to the other, it is likely that the IRS test will not be met. These "short distance" office relocations, however, can significantly impact the commuting patterns of employees. It is highly unlikely that employees impacted by an office move, where their commute could be increase by up to 49 miles, will simply accept an "IRS explanation" as to why they are not entitled to relocation benefits. Employees will often make their feelings known and ask management to consider providing some or all of the relocation benefits provided in a standard regular or "long distance" employee transfer.

The relative distance that a short distance group move involves, necessitates a closer look at the specific features provided in a company's relocation policy to see if benefits should be offered for a short distance group move. Properly structured, short distance group move programs reduce absenteeism, attrition and administrative time, and are often far less costly than a normal relocation program.

For more information about short distance relocation packages, visit our relocation resource library and view our white paper.

Your Relocation Policy Requirements are Key to Controlling Costs

Tuesday, May 20, 2008 by David Barlow

The continued weakness in many real estate markets has resulted in many companies spending more for relocation than anticipated. The cost of home loss-on-sale programs, extensions to temporary living benefits and the cost of inventory homes (in non-fixed fee programs) are three areas that are frequently cited by companies as being sources of concern.

None of us can control our real estate markets but we can manage our company’s relocation policy. We need to start with the realization that relocation (like other company benefits) comes with requirements of participation and the company (as the bill payer) has every right to set the rules. Transferees may want to use any agent or appraiser they wish but, like the medical plan they chose, they need to recognize that eligibility for relocation benefits requires that they chose from an approved list of service providers. Network real estate agents are critical in today’s market where they reduce the probability of inflated home values which lead to high listing prices and the increased probability of the home going into inventory.

The other critical control is the listing price. The relocation industry has long recommended that this be 105% of the average of the two MPSP’s (Most Probable Sale Price) and this has been widely adopted. Now more and more companies are going to 104% and 103%. Nothing is more critical in relocation cost control than seeing that a realistic listing price is set. No transferee should have the right to over list their property when it is their company (and not them) who will bear the unnecessary cost of such an action such as increased temporary living and the cost of a home that falls into inventory.

The New Shape of Relocation: SIRVA University 2008 Re-Cap

Tuesday, April 8, 2008 by David Barlow

This March SIRVA University, SIRVA Relocation’s annual conference exploring corporate relocation industry trends and professional development, played host to 150 of the nation’s top relocation industry executives. The event, which was held at the Westin Kierland Resort in Scottsdale, Ariz., provided an exclusive forum for industry insiders to discuss vital, ongoing and emerging relocation industry issues with experts and colleagues.

Attendees included representatives from human resources, domestic relocation, global mobility, and procurement and supply chain departments from more than 75 different companies.

This year, conference roundtables and educational sessions covered topics ranging from promoting corporate relocation programs, home loss-on-sale assistance, developing employee relocation packages for global mobility and relocation trends in China. Additional sessions addressed relocation fundamentals, such as policy trends and best practices, and provided a comprehensive history of the industry—on both a domestic and global scale.

SIRVA University Presentations Available Online

Those who were unable to attend this year’s event can download SIRVA University presentations and event images at www.sirvauniversity.com/agenda.asp. Individuals can also download audio recordings of the various sessions to hear them as they were presented, including question-and-answer sessions. Individuals seeking more information on SIRVA University 2008 can e-mail sirvau@sirva.com.

Do today’s real estate markets result in employees being more reluctant to relocate?

Thursday, February 21, 2008 by David Barlow

Thankfully long gone are the “olden days” when employees were told “your paycheck will be in Wichita, so be there next week.” However, the state of residential real estate markets does appear to have raised the likelihood that employees are more reluctant to move and there are some very good reasons why they have every right to feel as they do.

Consider the employee who took a transfer two years ago and followed all the company rules in the purchase of his/her home—in short they did not overpay for the property. Now two years later the home is worth less than the employee paid for it and the company says we want to move you again. Who should eat the loss on that home—the transferee or the company? The transferee has every right to look to the company to cover that loss on the sale of his/her property in whole or in part and, if they do not, no one should be surprised if the employee says, “no thanks, I’ll wait until the market recovers.”

Home Sale Loss Programs, while admittedly costly are clearly a legitimate and needed relocation benefit in today’s real estate market.