As companies strive for greater flexibility to respond to the increasing speed of business and broader range of opportunities, temporary domestic assignments have grown in popularity.
In fact, according to the results of our 2014 Workforce Mobility Survey, more than half of companies now offer such assignments.
As their usage becomes more widespread, so have some myths concerning temporary domestic assignments. In this article, I’ll address and debunk them.
While the majority of organizations use domestic temporary assignments for project work-based needs, our survey revealed that a growing number of companies in the U.S. and Canada use them to develop future leaders and high potentials. In fact, high growth companies (companies with revenue growth of more than 5% over the past year) tend to use fewer short term assignments for “project work” and instead rely on these programs for career development purposes.
This is a common misconception. For short-term assignments, the vast majority of costs are typically covered by the company, including housing. While there is a favorable tax impact, companies are experiencing an increase among assignments that extend beyond one year. Not only does this increase the costs, it may affect the taxability of the provisions.
Prolonged family separation and other personal issues that arise over time could lead to more return trips home, dependent visits or time away from the project or assignment to tend to family issues. The costs involved in a permanent move may be comparable to the costs of a long-term assignment (greater than 12 months) when tax consequences are taken into account.
Separation from family was cited as one of the top obstacles in using temporary assignments and can have a negative impact on productivity as the employee attempts to manage their home from the assignment location and connect with family. This can ultimately lead to higher turnover and retention issues and subsequently increasing recruiting and staffing costs.
Many companies structure temporary assignments based on the duration of the assignment and the family status (accompanied or unaccompanied). These aspects are closely aligned because not many families are willing to be separated for long-term assignments (more than 12 months). In addition, the longer the anticipated assignment length, it’s more common to develop a long-term policy that addresses accompanying family costs or the costs of property management.
Our survey indicates that more companies are extending the length of temporary assignments or transitioning them into permanent moves. This is not without tax consequences.
Therefore, when planning a temporary move, certain things need to be considered:
For example, if your company has an employee nine months into a 12 month assignment and a decision is made to extend that assignment beyond the 12 month limit, any reimbursements made after that nine month point are considered taxable income to the employee. Likewise, if an assignment has not surpassed the one-year limitation, yet the assignment was expected to last one year or more, the IRS considers this a taxable event. At the point that an assignment is believed to be greater than one year, the taxability of the reimbursed expenses begins.
Lump sums can be difficult for employees to manage for a temporary assignment, particularly if their attention is divided among their family/home residence and the demands of their position in the new location. If the funds are not managed closely, this can negatively impact the employee’s productivity and can lead to subsequent requests for additional funds. If using a lump sum, the simple (but costly) solution is to consider all lump sum allowances as income and tax protect those payments.