There are various reasons why a business may need to move or relocate its staff. Perhaps more suitable premises are required, the business is opening in a new location, there has been a merger with another business or it needs to reduce costs. Employee relocation projects are fraught with risk and challenges for employers. Among the demands on HR is the need to maintain control of relocation costs while ensuring all relocating employees are given the support and information they need throughout the process.
Supporting employees with relocation costs
There are no obligations on employers to support employees who are relocating for work, unless the employee’s contract of employment states otherwise. However, opting to provide support is generally regarded as best practice for a number of reasons.
Relocation can be a stressful and emotional time for employers and employees alike.
Employees may have a number of concerns about relocating. These could relate to the impact on their family, lifestyle and their own career progression.
As with any form of change in the workplace, there is considerable potential for adverse impact on workforce morale and productivity if the process is not managed effectively and affected employees are not adequately supported at all stages of the transition – before, during and after the move.
Providing financial support for a relocation can go a long way in incentivising employees to agree to the relocation on positive terms.
From an employer’s perspective, it can also be more time and cost-effective to offer a relocation package to avoid a potential redundancy procedure or negotiated exit where an employee objects to the relocation. Statutory and possibly, enhanced, redundancy payments are likely as well as the expense of hiring and then training new employees. When coupled with the man-hours these processes take, encouraging and incentivising existing employees to relocate may be a much cheaper and efficient option.
Relocation allowance
A relocation allowance is a sum of money an employer is prepared to pay to an employee to cover, or contribute towards, certain relocation costs. The amount offered and the relocation costs to be covered are at the employer’s discretion.
The allowance could include:
- Home move and sale assistance: Help with the cost of finding a new place to live, such as hotel and transport costs; the costs involved in selling the employee’s house and buying another, such as legal and estate agency fees; rent or hotel costs if the employee is having a trial relocation period or cannot buy a property in the timeframe; and moving costs, such as a removal van and packing and unpacking costs.
- Visit to find accommodation: Particularly where a relocation involves considerable distance for the employee, employers would usually consider covering costs relating to a brief visit to the local area for the purposes of finding a new home or place to live. The costs could include travel, accommodation meals and in some cases, childcare to allow the employee and their spouse to have a focused and productive trip.
- Temporary accommodation: Depending on the outcome and status of the house hunting, employers may need to look at funding temporary accommodation for the employee for an initial period of the relocation, to ease with the transition and alleviate financial pressures on the employee and their family. There may also be a requirement for storage while the employee finds a permanent base.
- Travel: Relocation packages involving greater distances also typically cover the cost of transportation for the employee and their family to the new location.
- Miscellaneous: In addition to the core costs relating to relocation, there will inevitably be other expenses and costs that will arise during the process such as professional cleaning of the temporary accommodation. Some employers will set a cap on expenses and unplanned fees to try to manage the unexpected.
Employers may also factor in allowing the employee time off work to make any necessary arrangements relating to the relocation, such as visiting new schools or for local orientation.
Traditionally, relocation packages were offered primarily to senior-level employees and directors, but given the shift in international assignments and the appetite and willingness among more junior (millennial) employees for international experience, relocations are now being opened to a broader range of employees. For HR, this can mean handling a more varied range of needs for relocating employees, and it will be important to have clarity from the outset as to what you can offer, and what you are obliged to offer under contract, to manage expectations in terms of financial support.
Also be mindful that if several employees are relocating at the same time, it is advisable that either each employee receives the same amount, or that there is acceptable justification for certain employees receiving different amounts.
What are the tax implications of a relocation allowance?
An employer’s contribution to an employee’s relocation costs can result in tax, national insurance and reporting obligations on the employer. Some costs are tax exempt up to £8,000. These are known as ‘qualifying costs’ and include:
- the costs of selling and/or buying a property
- the costs of the actual move
- the costs of transport
- money spent on purchasing items for the new home
- bridging loans, which is where the employee needs a loan to help pay for a new property where the sale of their current property has not yet completed.
You do not need to notify of qualifying costs up to £8,000. To fall within the exemption, the employee has to move their main residence as a result of the relocation, whether or not they sell their current house and the new residence must be within reasonable travelling distance of their new place of work, whereas their current residence must not.
There are several ways you can provide financial support for relocation costs, which will have implications on the tax liabilities, for example by direct supplier payment, reimbursement or as a lump sum.
Where an employer reimburses the employee for relocation costs, the costs are to be added to the employee’s earnings and become tax-deductible in the usual way for PAYE tax and Class 1 National Insurance.
Can an employer insist on the relocation of an employee?
Whether an employer can insist that an employee relocates will depend on the terms of the relevant employee’s contract of employment. Some contracts of employment include a mobility clause, which provides that the employee will relocate, within the terms of the clause, if requested to do so by the employer. So, for example, the clause may stipulate that the employee is required to relocate to new premises, provided that such premises are no more than 20 miles from the current premises.
Notwithstanding the above, employers should seriously consider whether insisting on an employee’s relocation against their wishes is advisable. Doing so is likely to sour relations with that employee and could be bad for morale generally within the workplace. No-one wants to have begrudging or discontented employees.
Careful consideration of the employee’s personal circumstances should also be undertaken. Failure to do so, or insisting on an unfair relocation, could be deemed a breach of trust and confidence, which may result in the employee resigning and bringing a constructive dismissal claim against their employer.
If the contract of employment does not include a mobility clause, the employer is unlikely to be able to insist on the employee’s relocating. (Arguments could be made that the ability to relocate employees is an implied term of the contract of employment, but it is not advisable to rely on these). However, even without a mobility clause, it is possible that an employee will still agree to relocate and as such, it is advisable to discuss the situation with the employee and explain the reasoning behind the move and what their position is.
What happens if an employee refuses to relocate?
In addition, employees could argue that their employer’s actions in relation to a relocation are in breach of the mutual duty of trust and confidence between an employer and employee and so bring an employment claim. It is therefore advisable that employers seriously consider whether there are any steps they can take to help ease the transition and encourage employees to readily agree to the change.
Even if an employee’s contract of employment includes a mobility clause, they may be able to refuse to relocate if the request to do so is not reasonable. There is no legal definition of what is reasonable or not in these circumstances, but a tribunal will take into account the business reasons for the relocation and the employee’s personal circumstances. It will consider matters such as, the time allowed for the move, the associated cost to the employee, the distance of the move and the extent of any disruption to the employee’s family life. Insisting that an employee relocates within 24 hours, for example, will almost certainly be classified as unreasonable.
If an employee with a mobility clause in their contract of employment reasonably refuses to relocate, a redundancy situation may arise and the employee may be entitled to a redundancy payment.
If, however, such an employee unreasonably refuses to move, then they could be dismissed for misconduct because they have refused to follow a lawful order. That said, unless it is absolutely certain that they have acted completely unreasonably, bringing a claim against such an employee is unlikely to benefit anyone.
Finally, if an employee without a mobility clause refuses to relocate, a redundancy situation is likely to arise. Alternatively, there is a risk that the affected employee could resign and then bring a claim for constructive dismissal against the employer, on the basis that the employer is in breach of the contract of employment.
What support can an employer give to employees relocating for work?
Employers have a wide scope as to the type and extent of support that they can give to relocating employees. Giving employees mental and emotional support through the relocation period can be extremely helpful in maintaining a good relationship with them, as can keeping them informed and undertaking a consultation exercise with them about the relocation. Employers should encourage employees to voice their objections and concerns to the relocation as it may be possible to overcome these and will help both parties in the long-term.
The most usual support that an employer can give to employees who are relocating for work is financial. Often an employer will pay for specific relocation costs or may choose to provide a relocation allowance to the employee to help cover relocation costs. In some cases, employers may agree to pay for the entire cost of the move.
If the move is to another country, providing or arranging cultural awareness and/or language training, can be hugely beneficial to employees. Other non-financial support could include, help in finding a new school for their children or employment for a spouse or arranging for them to receive mortgage advice.
If an employee is concerned or unsure about the move, a trial relocation period could be offered to allow the employee time to try out the new area and decide whether they are happy to move there permanently. Trial relocation periods should be carefully considered before being offered to employees however, especially if large numbers of employees are relocating.
It is important that the level of support to be provided is set out in writing and agreed between the employer and employee to avoid any potential dispute in the future.
Ideally, the relocation package should be finalised before it is shown to employees, particularly where a number of employees are relocating to the same place, at the same time. The entire relocation package should be clearly set out in writing and include details on matters such as, who is responsible for paying the relevant third party, the reimbursement process if the employee pays and whether there are any upper limits on the amount that the employer is willing to pay.
Need assistance?
Relocations raise many questions for employers. Can an employer require employees to relocate with the business? What rights do employees have in relation to a relocation? Who bears the responsibility for relocation costs and how an employer is best dealing with relocation issues with employees?
Critical to the success of any relocation will be the relocation package and managing relocation costs, while ensuring employees are supported and engaged throughout the process.
DavidsonMorris’ specialist HR consultants provide expert guidance to employers on all aspects of relocations, whether local, national or international. We work with senior management teams, HR and mobility professionals to develop strategies that ensure effective compliance risk management while supporting cost-certain delivery of the organisation’s commercial objectives. For advice on employee relocations, speak to us.
Relocation Costs FAQs
What are typical relocation costs for employers?
Typical relocation costs may include expenses such as moving services, temporary accommodation, travel costs, and storage fees. Employers might also cover costs related to settling-in services, visa applications, and family relocation support.
Are relocation costs taxable in the UK?
Relocation costs can be taxable in the UK. However, certain costs are exempt from tax under HMRC guidelines, provided they meet specific criteria and are within the £8,000 limit. It’s important for employers to keep detailed records of all relocation expenses to ensure compliance. Take advice from a tax professional to ensure compliance.
How can employers budget effectively for relocation?
Employers can budget effectively by creating a detailed relocation policy that outlines what expenses are covered, setting a clear budget limit, and using tools such as relocation cost calculators. Regularly reviewing and adjusting the budget based on past experiences and current market conditions is also advisable.
What support should employers offer to relocating employees?
Support can vary depending on the employee’s needs but typically includes assistance with finding housing, providing information on local amenities, offering financial support for relocation costs, and providing counselling or integration services to help them settle into their new environment.
Can employers reclaim VAT on relocation expenses?
Employers can reclaim VAT on certain relocation expenses, such as removal costs, provided they are incurred as part of the business’s operations. However, VAT recovery rules can be complex, so it’s advisable to consult with a tax professional.
What happens if an employee leaves shortly after relocating?
Employers should have a clear policy in place regarding the repayment of relocation costs if an employee leaves the company within a certain period after relocating. This policy should be communicated to the employee before the relocation occurs and may include a sliding scale of repayment depending on the time elapsed.
Are there regional differences in relocation costs across the UK?
There are significant regional differences in relocation costs across the UK. For example, relocating to London or the South East is generally more expensive due to higher housing and living costs compared to other regions like the North East or Wales.
How can employers ensure a smooth relocation process?
To ensure a smooth relocation process, employers should plan thoroughly, communicate clearly with the employee throughout the process, and provide comprehensive support. Having a dedicated relocation coordinator or working with a professional relocation service can also help manage the logistics effectively.
Glossary
| Term | Definition |
|---|---|
| Relocation Costs | The expenses incurred by employers when moving an employee to a new location for work purposes. |
| HMRC | Her Majesty’s Revenue and Customs, the UK government department responsible for tax collection. |
| Temporary Accommodation | Short-term housing provided to employees during their transition to a new location. |
| Tax Exemption | A reduction or elimination of taxes on certain expenses, under specific conditions as per HMRC rules. |
| Settling-in Services | Support services provided to help employees adjust to their new location, including finding housing and schools. |
| Visa Application Fees | Costs associated with applying for a visa, particularly relevant for international relocations. |
| VAT (Value Added Tax) | A consumption tax levied on goods and services in the UK, which can sometimes be reclaimed by businesses. |
| Relocation Policy | A company’s formal guidelines outlining the types of relocation support provided to employees. |
| Budget Limit | The maximum amount of money an employer is willing to spend on an employee’s relocation. |
| Cost Calculator | A tool used to estimate the total expenses involved in relocating an employee. |
| Storage Fees | Charges for storing an employee’s belongings temporarily during the relocation process. |
| Family Relocation Support | Assistance provided to help an employee’s family move and settle into the new location. |
| Regional Differences | Variations in relocation costs depending on the specific area within the UK. |
| Sliding Scale of Repayment | A policy where the amount an employee must repay for relocation costs decreases over time. |
| Relocation Coordinator | An individual responsible for managing and overseeing the relocation process for an employee. |
| Professional Relocation Service | A third-party company that specialises in managing the logistics of employee relocations. |
Author
Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.
She is a recognised by Legal 500 and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.
Anne is an active public speaker, immigration commentator, and immigration policy contributor and regularly hosts training sessions for employers and HR professionals
