Managing temporary relocations: short-term relocations offer many benefits, but watch out for tax liabilities effective after 12 months

HR Magazine, May, 2005 by Martha Frase-Blunt

How does this sound for a new reality TV show? "In this high-stakes game of corporate advancement, contestants must leave behind their family, friends, home and most beloved possessions for up to one year. While away, they must accomplish a series of challenges to meet their employer's goals in an environment devoid of familiar comforts and support."

This isn't a game show, but it is reality for a growing number of employees who must relocate temporarily to accomplish a mission in another part of the country or the world. Until recently, they might have transferred permanently with their families, but today's employers are shifting away from costly relocations and toward temporary assignments.

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In 2003, 70 percent of assignments were scheduled for one year or less, according to the Global Relocation Trends 2003-04 Survey Report sponsored by the Society for Human Resource Management, GMAC Global Relocation Services and the National Foreign Trade Council. That was a significant increase over the historical average of 13 percent in past global relocation surveys. Although these data reflect international assignments only, the trend is mirrored in domestic relocations.

Mobility Services International (MSI) in Newburyport, Mass., has seen a sharp increase in the number of clients looking for help in developing policies and practices for short-term domestic moves, says CEO Timm Runnion. "This trend is clearly the result of today's business drivers. Corporate America wants to reduce costs while increasing productivity around whatever the business initiative is."

The financial incentives are considerable. With a transfer of less than one year, "you'll rarely see the family moving with the employee," says Lina Paskevicius, consulting manager for Cendant Mobility in Chicago. It's more likely that an employee will be put up in furnished corporate housing, paid a carefully budgeted per diem for living expenses and offered a small household goods shipment of just a few hundred pounds. "If the primary residence will be vacated, property management services could be arranged," but there is no need to sell or purchase housing.

Shorter assignments also offer significant tax savings to employers and employees. Relocations of less than one year, in which the employee is expected to return to the original workplace afterward, are typically treated by the company--and the IRS--as a business expense, not a relocation expense, and are deductible.

Traditionally, short-term postings were used mostly in project-oriented fields like construction and engineering, but today they cross the spectrum of industries. "In recent years, companies have faced reductions in available talent, so they have to move it around on short-term assignments to bring expertise to local situations," says Runnion, who adds that more consulting firms and information technology companies in particular are asking for help with these placements. The assignments also serve the purpose of training and developing workers.

A recent uptick in mergers and acquisitions also is fueling the growth in short-term relocations. Susan Wong, VP for global benefits and executive compensation at Avaya, a major provider of Internet-based telecommunications services based in Basking Ridge, N.J., says her firm has been involved in several mergers and buyouts requiring staff to be posted away from home for months at a time. "We need people on-site during the transition period to handle policies, systems, accounts receivable, payroll, inventory, etc.--just pulling everything into alignment."

Alone and Far from Home

Certainly, leaving home, friends and family is a hardship for most people, but it's often the price paid for career advancement. "Experiencing how other parts of the corporation function is often part of the management track," Paskevicius says. To ease separation difficulties, "it's common practice for companies to pay for the employee to travel home for the weekend every few weeks or so."

Moreover, many employers are now bypassing bland corporate lodging in favor of apartments or homes in real neighborhoods. "We circumvent the typical corporate housing arrangement, getting our clients' employees unfurnished apartments which we'll furnish for them," Runnion says.

This approach often is more cost-effective. Nightly lodging costs in Colorado Springs, Colo., for example, average $38.27 for an unfurnished apartment and furniture rental, compared with $81 for a corporate apartment and $128 for a corporate hotel suite, according to travel management consultant Runzheimer International.

Employers who can't make the leasing commitment typically required for an apartment will be happy to note that corporate lodging is changing to make longer stays more comfortable. For example, Oakwood Worldwide, the world's largest corporate housing property management firm, frequently hires social directors for its properties to plan barbecues, holiday parties and other events to ease the isolation of residents.