How Does Cost Overrun Affect Corporate Employee Relocation

In this article: Cost overruns can have a negative impact on corporate employee relocation. Find out how to prevent overspending through exact planning and budgeting. 

In spite of your best efforts at planning, corporate relocation expenses are variable, they may change and result in greater or lower financial outlay. Moving is one of the most stressful situations to be in, whether you’re moving your home or your business. When it comes to moving your business, you not only have the stress of moving the physical premises but also of relocating your staff to the new location, whether it’s across the city or across the ocean.

The importance of budgeting for corporate relocation

In operations as complicated as relocating your staff members, it’s important to draw up a budget that takes as much of the process into consideration as possible. These are some of the things you may need to factor into your overall budget:

• Travel expenses. Aside from what’s involved in the moving process, your employees may need to travel to the new location a few times to look for accommodations or to get familiar with the area prior to living there.
• Home sale/purchase or lease buyout. If your employee is a homeowner, you may need to assist in the sale of their home. This can be done by covering the sale price at first and then selling the home at a later time. If your employee is a renter, you may need to buy out their lease.
• Packing/moving service. Offering to have a service pack and move your employees is a typical addition to a relocation process. It makes the move go smoother and reduces the stress of the situation.
• Moving insurance. Covering the cost of moving insurance means that your employee gets financial compensation if their belongings are damaged – something that’s always a risk in a move.
• Storage unit. If your employee doesn’t have a home to move into right away, you may need to cover the cost of a storage unit for their belongings.
• Short-term housing. Securing permanent accommodations doesn’t always happen before your employees are relocated, so short-term housing may be needed. This can come in the form of a regular hotel, an extended-stay hotel, or a short-term rental.
• Meals. If you need to house your employee in a short-term situation, coverage for meals may be needed until they have access to proper accommodations and a functional kitchen. You may also need to cover meals during travel time.
• Paid time off. The act of moving a home requires time off to prepare. You’ll need to offer paid time off so your employees can tie up loose ends, pack and unpack, and set up their utilities.
• Tax gross up. The government takes a percentage off lump sum employment relocation package payments in the form of taxes. For example, if your employee’s relocation package includes a lump sum of $10,000, the taxes on that amount are approximately $2,500, meaning your employee would only get a $7,500 benefit without a gross up. A gross up happens when you add funds to the benefit to cover the cost of the taxes so the employee gets the full amount.

While some budget considerations are stable – such as the tax gross up – travel, meal, and accommodation expenses can get out of control if you aren’t careful. There are some steps you can take to keep your corporate relocation expenses from getting the best of you:

• Set spending limits where possible. By setting limits on items like meals and travel expenses, you reduce the possibility of unreasonable spending.
• Plan ahead. Moves conducted on a tight deadline tend to cost more, so take as much time as you can to plan the relocation.
• Look for value in accommodations. While it’s easier to book the first accommodations that fit the bill, shopping around for one that offers better value may lower your overall costs.
• Shop around for relocation services. Conduct a little online research, read customer reviews, and compare costs in order to find the relocation service that offers you the best value for money.

Unfortunately, there aren’t coupons or deals to offset the cost of corporate relocation, but with a little savvy planning and knowledge, it’s possible to keep your overheads down.

Factors that contribute to cost overruns

It’s easy to overspend due to not having expense limits and spending too freely. That said, there are a few other things that can cause cost overruns:

• The distance. The company you hire to conduct the relocation should be able to give you a solid quote. Still, moves conducted over longer distances will naturally cost more than a shorter distance.
• The timeline. If you have a tight deadline, you can expect higher moving costs.
• The labor availability. If you happen to be shorthanded for the actual move, the process could take longer and incur a greater expense.
• Service costs. Without shopping around, you may end up with a relocation service that doesn’t offer the best value for your budget. In this case, it’s definitely a good idea to spend some time making your choice.
• Poor budget estimates. It’s important to set a realistic budget that has a margin to alleviate potential overruns.
• Scope creep. Scope creep will happen if your relocation budget isn’t thorough and clearly defined. You may end up with corporate relocation expenses you didn’t account for.
• Lack of communication. One of the most important parts of maintaining a project is communication. A lack of communication can result in excess spending, which can result in delays and overall dissatisfaction.

How cost overruns impact corporate employee relocation

Cost overruns in an employee relocation may seem like a simple matter of rearranging the budget, but they can actually have a more profound impact. For example, In a tight budget, an overrun in one area results in a shortage elsewhere. If you go over budget in travel coverage, your employee may have to cover some of their meals on their own. The potential impact gets more profound the bigger the overrun is.

Aside from worrying about having to shortchange another area of the budget to compensate for the additional outlay, you’ll need to think about the following:

• Delays. Overruns can result in delayed service, which may cause you to go past your deadline, which will – in turn – impact your employee’s workflow.
• Employee dissatisfaction. Budget shortages may force your employee to cover some corporate relocation expenses on their own in order to keep the relocation process moving forward. Delays can push back the employee’s start date, resulting in a lack of work and potential loss of wages.

How to mitigate the impact of cost overruns on corporate employee relocation

The largest part of mitigating the potential impact of cost overruns is to take steps to prevent it from happening in the first place. Here’s what you can do:

• Set clear expectations. If you’re clear about the budget and what’s expected from all the resources involved in the relocation, there’s less margin for error.
• Don’t underestimate the scope of the project. Always err on the side of caution when it comes to defining the scope and budget for the relocation. It’s easier to manage leftover finances than to account for shortages.
• Make a management plan. By outlining who’s responsible for what task – including its associated expense – you can keep better track of your overall costs.
• Leave a margin for error. By adding extra funds to your budget for miscellaneous expenses, you provide a cushion against potential overruns.
• Split up the process. By splitting the relocation process into phases instead of trying to tackle the whole thing at once, you make the whole thing more manageable.
• Anticipate changes. Your costs will likely change, so prior consideration in this direction goes a long way toward averting problems.

In terms of mitigating the impact of cost overruns after they happen, the best thing you can do is to expand the budget by adding funds where needed. While this is a last resort, it does relieve the pressure of potential shortages in other areas.

During an employee relocation, cost overruns can result from a number of potential scenarios, including poor budgeting, lack of clear expectations, and labor shortages. With thorough planning, you can take steps toward preventing cost overruns and keep your employee relocation running smoothly.