Lump sum programs have been a staple of corporate domestic U.S. relocation for some time. Especially for early career and new hire moves, the process of handing employees a set amount of money and empowering them to spend it as they deem appropriate allows companies to be more flexible and efficient (when it works right).
But do lump sums work just as well for international assignments?
The short answer is: yes, you can use lump sums for international assignments, but they come with a few more caveats. In our experience, of companies that use lump sums, fewer use them for international assignments (38% according to our research) and permanent one-way moves (34%) than domestic moves.
This makes sense when you consider just how complex international assignments can be. For a US citizen, a domestic relocation from, say, Topeka, KS to Boston, MA can be fairly straightforward. But move that same employee from Topeka to Zurich, and things get more complicated. Suddenly, benefits like cultural training and settling-in services become just as important as home finding and household goods, and they may not be used by an employee receiving a lump sum. If it’s a new hire with no experience in relocating, let alone living abroad, you could be setting him or her up for failure.
Furthermore, you have to consider the tax impact and duty of care concerns that are magnified on international moves.
When lump sums are used for international assignments (over and above a miscellaneous allowance), it’s typically as a partial lump sum to cover expenses like return trips, which can encompass airfare, hotels, meals and transportation, depending on your policy. But even these relatively simple expenses can bring a host of questions. For example, if you cover return trips, when do you provide the allowance to the employee? The employee will, understandably, want to know the amount of the allowance long before he or she schedules travel, but you many not want to disburse all of the funds upfront. For recurring expenses, you may want to provide a portion upfront and make another disbursement at a later stage of the transfer (i.e. one year after the move).
Lump sums work best when they support clearly defined, familiar expenses. This can often be challenging for employees on assignment. But using lump sums for more predictable costs, such as return trips or excess baggage, and providing expert support throughout the process, can go a long way toward empowering your mobile employees and improving their overall experience.