Fixed: assumes some expenses are the same, regardless of position within organization (ex: moving). Employee spends the funds as they see fit, and can keep any excess.
Variable: takes into consideration salary, position within organization, homeowner vs renter (ie: will there be closing costs?), distance of relocation, size of employee’s family (ex: larger temporary accommodation would be needed), etc. This can be highly tailored. The lump sum given depends on key variables.
Partial: as the name suggests, only part of the relocation package is lump sum. Some of the expenses fall under lump sum, while others will be handled in a different way.
Managed: this one has conditions and limits in place, and the employee submits receipts for reimbursement, within those set parameters. It may also include a relocation coordinator to assist with the process, and potentially prevent over-spending on some services. Also often referred to as a “Capped Move” (making it the least like lump sum of all the types). If the employee does not reach the maximums/limits, they do not get to keep the excess funds (unlike fixed).
PROs of Lump Sums:
- Lots of flexibility for the employee, removing need to ask for special exceptions
- Employee receives funds upfront, eliminating the financial burden of paying upfront
- Can move things along faster (for all parties)
- Excellent option for young employees/recent university graduates whom might still be renters
- Easier for the employer to budget and control costs
- prevent expenses from ballooning
- prevent abuse of services
- Easier for the employer to administer
CONs of Lump Sums:
- Ultimately, your top employee may decline the relocation
- It may not be sufficient to cover all the costs of the move
- Leaves all the responsibility with the employee
- Employee may not know what steps to take, or what documents to have in place at what time
- If the real estate market is challenging in either city, this is a heavy burden on the employee
- Can easily stress out an employee during an already stressful time in their lives, which could lead to bitterness toward their employer down the road
- Employee may spend funds frivolously (either intentionally or unintentionally), and be left in a tight spot
- May create a tax burden situation for the employee
- Not easy for employer to track actual costs of services
Simply put, lump sums can be very successful… for the right person and situation. Lump sum policies need to be very specific, detailed and clear, and employers need to understand the needs of the employee to see if this type of policy would be a good fit.
Interested in buying real estate in Toronto & the GTA, or perhaps investing in Toronto real estate? First time home buyer? Moving to Toronto? Are you part of a Toronto relocation with your employer? We can help you with all steps of the process, from finding a new home, temporary accommodations in the meantime, destination services, settling in services, move management, and so much more. So many steps of the move can be handled in advance, so when you arrive we can get you settled much faster. When moving to Toronto, we can help with all aspects of the relocation.
We’d love to hear from you, so call us today to book your complimentary private consultation.
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