Relocation can be an incredibly exciting opportunity for the rising talent with your organization. Enthusiasm can dampen, however, if the cost of living in the destination location is higher than in their current home base. Business may be booming in hot housing markets like San Francisco, New York, LA and Boston, but asking employees to make a move that impacts their bottom line can prove a burden to yours.
Offering COLA (cost of living assistance) to talent considering assignment can offset increased living expenses that relocating employees incur when they make a move from a low cost area to a high cost one. There are a host of options to employ.
Here are 5 simple tips to avoid problems.
1. Use pre-decision services
It’s easy to make the right decision when you’re fully informed. A pre-decision service is a wise investment to help employees understand the ins and outs of the new location. Housing options, commute times and local/state tax issues can all influence an employee’s decision to take a move or go on assignment. Homework done ahead of time can go a long way to saving costs affiliated with a failed relocation.
2. Base eligibility on location or threshold
You can limit the cost of living provision by considering a minimum differential that triggers the benefit. This enables you to contain costs while providing assistance to employees impacted by the greatest difference in costs. Differentials are usually 5% or 10% and very few companies exceed 15%. Homeowners and renters are typically treated identically. If you are asking a reluctant family to move from Des Moines to New York, this tactic may be to your best advantage.
3. Cap maximums and tax assistance
Whether or not allowances are capped or salary amounts are considered varies from industry to industry. The majority of companies don’t cap the allowance or use a maximum salary in their COLA allowance calculation. Just over a third of organizations provide tax protection on COLA.
4. Create a transparent payment schedule
Paying a large COLA up front introduces risk for an organization. Most programs provide assistance over a 3 year period on a declining basis. Including a payment with each pay period is the most common method. Some companies make annual, semi-annual or quarterly payments. Whatever your method, be sure to have clear and explicit language written into the agreement so there’s no surprises on either end and no litigation drama.
5. Implement declining scale allowances
Provide allowances on a sliding scale as employees become used to their new home area and what it costs to maintain their lifestyle in the new locale. Time periods can range from 3 to 5 years. Lump sums are ideal for renters who need help with one-time expenses such as security deposit.
Deploying critical talent to high cost markets can be a hard sell but it’s not impossible. Showing your employees that you understand their point of view and can provide reasonable solutions through the judicious use of COLA can mobilize your staff to sign on to assignment.
For more information on COLA best practices, request a copy of our latest COLA whitepaper.