How to check whether your relocation allowance is large enough

Sending employees to an office located abroad can be a savvy practice, particularly for companies looking to expand their area of operations. It’s essential to secure willing participation from the most suitable candidates, which often requires employers to open their chequebooks and hand out relocation allowances to cover for the extra costs of living in a foreign city. The main question is – how much exactly should be added on top of their salaries?

When a company first expands into a foreign market and starts sending employees on international assignments, it faces a new set of challenges. One of the biggest concerns is ensuring fair treatment of the people tasked with getting the new office off the ground, especially in financial terms. Since most companies tend to enter markets with strong economies (and consequently, high retail prices), the employees who agree to secondment are likely to see their basic costs of living drastically enlarged. At the same time, the dislocation from home might also cause them to spend on things they normally wouldn’t have to worry about, like carry out food and Laundromats.

It’s obvious that employers have to reimburse this group of employees in some way, but deciding exactly how much to offer can be less than obvious. In this article, we answer some of the basic questions about this issue to help companies find the right balance.

What is a relocation allowance?

This term is commonly used in business literature to describe the increase in total pay associated with employee relocation to a foreign market. It’s conceived more as a reimbursement for the actual difference in expenses than a reward for an important mission, so it should be regarded separately from any bonuses. This financial tool is typically used when there is a large discrepancy between projected expenses and worker’s current earnings, so it can be omitted (or kept small) when the worker is relocated to a country with a similar level of economic power. Other factors may contribute to the decision about total amount of relocation allowance – the need to pay for accommodations or hire vehicles, presence of family members, expected volume of local meetings, etc.

What is the proper way to fund global mobility of workers?

There is no exact number that can be added on top of salaries of employees being relocated. Every relocation case is different, depending on several factors. Most international companies adopt official policies regulating global mobility, but the size of the allowance must be determined on a case-by-case basis. The guiding principle is that the employee shouldn’t be expected to shoulder increased expenses when accepting overseas positions since this would be detrimental to morale and loyalty and inherently unfair. To properly evaluate realistic needs for increased funding, it’s typically necessary to collect up-to-date information about the prices of real-estate, dining, and shopping, to name just a few essential items. It’s not about matching the monetary value, more about providing the employees with the same level of comfort they are used to.

When in doubt, contact a global mobility specialist 

It is understandable that business managers are struggling to come up with relocation allowance policies that keep both sides happy. That’s much easier to do when you have direct insight into the world’s most attractive markets. It is important to take into account the market you want to enter and other relevant factors to be able to come up with the right relocation allowance in every particular case. Working with a global mobility company can help business managers smoothen out the process. 

At Brunel we offer customisable, digital and flexible mobility services to ensure the best possible service. We offer the right solutions and support for your company as well as your employees, every step of the way. 

Apart from a relocation allowance, there are many other factors that have to be taken into consideration when relocation an employee. Is your company exploring employee relocation to foreign markets for the first time? Read our series on what should be included in an international relocation package to get useful insights.