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Unfortunately, our Annual Mobility Survey revealed that only 37% of companies have a formal policy in place to manage short-term assignments. The danger here is that managing domestic temporary relocations on an ad-hoc basis exposes your company to increased compliance risks because you’re less likely to accurately track the employee’s time in the destination location or withhold appropriate taxes for that time period.

So a domestic temporary assignment policy is a good idea. But what benefits do you offer?

My recommendation is to include temporary living, return trips, travel expenses, tax gross-up and miscellaneous allowances. To enhance tax compliance, many policies state that employees are expected to maintain housing in the home location and it is assumed that the employee will be returning to the original location at the end of the assignment. If the employee does not maintain a home location residence, the company may regard the move as permanent from a tax perspective.

Most companies structure temporary assignments based on the duration of the assignment and the family status (accompanied or unaccompanied). These aspects are closely united because families are not typically willing to be separated for long-term assignments (more than 12 months). In addition, the longer the duration, the more likely assignment costs might approach those of a permanent relocation.

For that reason, it’s common to have one policy for short-term assignments and one for “long-term” assignments from one to three years in duration with family status (accompanied or unaccompanied) driving the benefits offered. One of these long-term policies may address accompanying family costs or the costs of property management/homesale. Since reimbursements for assignments over one year are considered taxable income to the employee, some companies align provisions with their domestic move policy.

In the host location, you may want to consider a longer-term leased apartment in the same location as the employee’s assignment; this will avoid the premiums paid on month-to-month leases. Also, since meals can impact the cost of a temporary assignment, housing with cooking facilities is recommended.

The prevalent trend is to pay expenses on a per diem basis with frequent return trips, depending on the distance and duration of the assignment. The majority of provisions are directly covered/ reimbursed during a domestic temporary assignment with the exception of living expenses. Forty-eight percent of companies provide a per diem for certain living expenses: meals (85%), laundry (56%), lodging (42%), telephone (35%), internet (31%), and transportation (29%).

Best Practices

While a temporary assignment policy should reflect an organization’s unique culture and objectives, the following serve as good guidelines for policy development:

• Document benefits in policies and ensure that policies reflect lengths of assignments, family accompaniment and homeowner status.
• Require employees to sign a repayment agreement.
• Offer pre-decision program/services to help candidates assess the financial impact of their moves. Include spouse employment counseling for long-term temporary assignments.
• Provide paid rental-finding services that will secure lower costs for temporary/rental housing at the assignment site and expedite the sourcing of appropriate housing.
• Provide interim insurance coverage (many policies don’t cover the employee or their belongings while on assignment).
• Opt for direct reimbursement or per diem to cover assignment costs. Lump sums can be difficult for employees to manage for a temporary assignment, particularly if the employee’s attention is divided among their family/home residence and the demands of their position in the host location.
• Anticipate assignments that may extend beyond the one-year tax time frame and implement forward-thinking policies. Will permanent relocation benefits be extended?

This post is taken from our research paper Understanding Domestic Temporary Assignments. If you’d like a copy, email us.