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Important Questions for Companies Considering Cost of Living Assistance 02.5.2016 | Jennifer Connell

I’m always on the lookout for signs of an improved real estate market within mobility programs. And while there are certain areas where selling homes is still difficult, Weichert’s recent research shows an overall decline in the need for loss-on-sale in the departure location for mobile employees and that many companies are finding a healthy and stable rate of home sales.

In fact, more than half of the companies participating in our 2015 Workforce Mobility Survey reported that they provided loss-on-sale assistance to less than 10% of their home-owning transferees.

It’s great to see mobile employees (and their companies) enjoying the advantages of an up market with a low number of homes going into inventory, increased payout of home sale bonuses (due to properties not going into inventory) and low interest rates that make purchasing a new home attractive. That said, there are still instances where home prices in the destination location exceed what an employee can reasonably afford. When this happens, there are signs that mobility professionals must look for:

  • Are recruiters voicing concerns that they can’t get people to accept positions in certain areas?
  • Are homeowners being forced to rent in the new location, in hopes that they will buy later on?
  • Are employees able to afford to purchase or rent in the new location? If not, is this preventing the company from filling talent gaps?
  • Have post-move retention rates declined?

If you answer yes to most (or all) of the above, it may be time to put greater focus on rising home values in the destination locations. For companies that are having trouble filling talent gaps, particularly in major cities in which high cost areas are cited as a major challenge by recruiters and talent development professionals, there is a growing need for cost of living assistance. The results of our 2015 survey indicate that 49% of companies provide cost-of-living assistance to at least some of their employees; we expect this to increase over the next year.

Here are what I consider the most common questions and considerations for companies pondering cost of living assistance:

Why provide cost of living assistance? We pay our employees based on standards for that particular city/area.

When an employee relocates, pay scales may or may not reflect local living costs in U.S. locations; therefore COLA is designed to build in an adjustment to local standards of living.

Is this offered to all employees?

The following chart shows that nearly all participants will extend eligibility for assistance to current employee homeowners. Current employees are more likely to be eligible for assistance than new hires, and homeowners are more likely to receive assistance than renters; however, we are seeing the gap closing, as the profile of mobile demographics evolves. There are a growing number of millennials who are renting and eventually want to own a home in the new location and new hires are viewed with many of the same critical skills as current employees.

How is the amount of cost of living assistance calculated?

Despite the popularity of online (free) cost of living calculators, 62% of companies use an independent, fee-based service provider that specializes in this information to determine the cost differences. This maintains consistency and objectivity along with providing a defensible position. Weichert’s survey noted that only several participants calculate the allowance internally. The majority of companies will also require a minimum differential (e.g. 5% increase from the old to the new location) in order for the benefit to apply.

Is this a one-time payment or do companies provide different amounts over time?

The majority of companies decrease the payment over time, and the most common duration for homeowners is three years (58% in our survey). No companies reported offering the differential for an indefinite period.

Can I cap this assistance? 

The majority of companies will not cap the amount of the assistance either by capping the amount or the salary used in the calculation. However, this varies significantly by industry (the manufacturing, construction, and engineering industries are least likely to cap the amount (84%) as well as financial services (71%).

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Written by Jennifer Connell

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Jennifer Connell, SCRP, SGMS-T, is a Practice Leader with Weichert’s Advisory Services group. She has over 25 years of experience in the workforce mobility and employee benefits industries and received Worldwide ERC’s Distinguished Service Award in 2017. She has also spoken on workforce mobility topics at industry conferences throughout North America.

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