Hidden costs of relocation

Relocating employees is never easy, and HR must consider a range of factors that can affect the process. HRM reveals the hidden costs of relocation and how to avoid them.

Relocating employees can be a complicated and lengthy process. Organisations need to consider various factors including costs, compliance and tax policies, and whether the employee wants to move with their family.

Mobility studies indicate that the top priority for most organisations arranging corporate relocations is controlling costs. These can be both actual costs and costs that cannot be discounted, such as losses in employee productivity (the risk of a stressed out employee from a poorly handled relocation move).

Experts say that to mitigate costs, hidden or otherwise, organisations should have up-to date relocation and compliance policies and choose a high quality relocation provider that can help them in all stages of an employee’s relocation.

Consider hidden costs

Companies need to consider a whole range of costs including those associated with the relocation policy employed.

Kenneth Kwek, Senior Vice President and General Manager, Cartus Asia-Pacific, says data from Cartus’ Biggest Challenges in Global Relocation survey indicates that controlling costs is rated as the number one challenge in managing relocation today – 77% of respondents cited cost as their greatest challenge.

“Costs that can catch HR managers or organisations by surprise include both higher than anticipated actual costs, like those associated with household goods shipments, housing, compliance and policy exceptions, as well as costs that are harder to quantify like those associated typically with lost employee productivity during a relocation, and the costs incurred in a failed assignment,” explains Kwek.

He adds that shipping costs are dependent on several external factors, such as freight charges and customs and port clearance times, that can make the actual costs deviate from the budgeted costs.

Compliance costs are another aspect that organisations need to consider, says Kwek. These include those costs incurred in ensuring proper governance (auditing, tax compliance, and even fines and penalties incurred). “Dealing with exceptions to policy can incur both the cost of the actual exception (because the needs of the employee and family fall outside normal policy parameters) and the lost time cost of HR team members who are managing each individual exception process.”

Gareth Leow, Relocation Service Manager, GMS, Santa Fe Relocation Services, gives a few examples of hidden costs that can be found with corporate relocations. He says they it could be from a delay in shipment delivery, resulting in extra temporary living costs. Also, shipping contraband items that are not addressed in the client’s policy could result in extra costs from unexpected duties and taxes.

“Engaging unprofessional home search agents that are unable to meet the demands and expectations of assignees may cause the home search process to drag, thus increasing temporary living costs,” explains Leow.

He adds that companies should also consider the costs of repatriating an employee before their lease term ends, as this can result in breaking lease payments.

What steps can companies take?

Industry professionals say that organisations can take certain steps to help prevent from incurring hidden costs during corporate relocations. As a start, reviewing their relocation policies and partnering with a good relocation or mobility provider are vital strategies.

Leow explains that companies can consider conducting a benchmarking exercise for their mobility policies against competitors, or talk to their relocation provider about the best practices for different types of services. “Set expectations with employees on what to expect in their relocation upfront. (They should know) what is provided and what is not in their package, so as to prevent exceptions down the road,” he says.

He adds that the biggest hidden and unknown cost actually occurs if the relocating employee fails in their international assignment. This ‘cost’ will far outweigh all other elements of the relocation. “Therefore, selecting the correct candidate for assignment is the most critical factor which any HR and line manager should consider,” states Leow.

Kwek says that organisations need to have a successful relocation programme. He says it is important for companies to design and create policies and support elements that do not just focus on cost containment. “A successful relocation programme should be one that is in line with industry norms and supports the culture and overall business goals of the organisation,” he explains.

He mentions that companies should actively engage with relocating employees throughout the assignment period, so that issues and concerns can be noticed at an early stage.

Having a good working relationship with a relocation provider is also essential to mitigate potential hidden costs, says Kwek. “It is vital that companies work closely in partnership with an experienced mobility provider who can advise and support in all areas of relocation policy and programme management.” He states this can include cost projection analyses, such as optimal relocation costs and maximum relocation costs. These can occur before candidates are selected and the relocation even begins.

Working together with HR

Corporate relocation requires a good mobility provider and organisations need to consider a few factors when choosing the right partner. These include the role the relocation company plays in the relocation process, and how it manages its own service providers.

Relocation companies also need to ensure that they have a good working relationship with HR and their organisations so that the relocation process goes well for all parties involved. Industry experts say that relocation companies can do this by setting clear expectations on their services.

Leow explains that Santa Fe sets expectations from the start, defining roles and responsibilities, and what clients can expect from the company in relation to the services offered. “Similarly, we will counsel clients on their customised policies and act as a gatekeeper to these policies, so as to ensure there will be no exceptions,” he says.

Kwek says that Cartus Relocation connects closely with its clients at all stages of the relocation process including the pre-assignment stage. The company partners with HR, line managers, business owners and cost centre managers to conduct cost projections, review total compensation packages, and assess the best assignment options.

“Clients particularly value our collaborative approach to their policy design and cost containment initiatives which can include looking at total mobility programme spend to determine the size of the opportunity for each relocation element and the potential for cost-savings,” he adds.

 

Top destinations for relocating employees in 2014

  • US
  • China
  • UK
  • Singapore
  • Hong Kong

Global Mobility Policy Practices Survey, 2014

 

Trends in global mobility

 

  • 24.8% of organisations worldwide have reported an increase in assignment activity
  • 92.8% of employers say they are committed to cost containment in relocations
  • 53.5% of employers feel “under significant pressure” to reduce the overall cost of their programmes

Source: Global Mobility Survey 2015

 

Companies tackle mobility issues

 

Responses from 172 mobility managers across the globe Cartus’ Trends in Global Relation: 2014  Global Mobility Policy Practices Survey, showed the following:

  • 75% of respondents said cost control was ranked as the top global mobility challenge in terms of future impact on organisations
  • Overall compliance and immigration were considered part of the top three organisational challenges by respondents
  • The number of respondents who said family members were allowed to accompany them on long-term assignments has dropped from 90% to 76%. This could be due to concerns relating to emerging markets that can be unsuitable for families or high costs at traditional locations
  • Respondents indicated changing business conditions (63%) and inability of the family to adjust (61%) as the top reasons for assignment failure
  • Three major areas that organisations are interested in improving are upfront assignment planning (55%), cost containment (46%) and candidate assessment and selection (44%)

 

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Sandeep Aggarwal, Chief Financial Officer of Aon-Hewitt Asia-Pacific, shares his thoughts on the Workday finance and HR analytics platform. He says the cloud-based system is intuitive and easy-to-use, but still provides powerful insights across the functions.

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