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

Among the questions Runnion and his team might probe with the HR executive are:

* Is the assignment realistically intended to last less than one year?

* Is the company aware of different housing options and their costs in the temporary location?

* Is the short-term assignment likely to create family hardship, and has the company factored return visits into the cost of the assignment?

* Is the company's policy for assignees competitive, and does the company have the ability to administer all of the arrangements necessary to keep the employee productive on the assignment?

* For relocations within the United States, is the company aware of state personal income tax policies for temporary residents, and has any cost been included in the budgeted cost of the assignment?

Many states have reciprocal agreements that allow income to be taxed in the state of permanent residence rather than the state where the income is earned. When dual tax returns are required, a credit is usually given by the resident state on taxes paid to the other state. If the employee ends up paying more, however, the employer often reimburses for the additional taxes--a practice called "grossing up."

"But because this reimbursement counts as taxable income, the employer is put in the position of 'grossing up the gross-up,'" explains Arouh, "and this requires a formula to figure out the right amount." Therefore, he advises, "in any situation like this, since particular facts and circumstances are so important, it's always advisable to consult your counsel before making any decision that could potentially create a problem for you."

Short-Term Policies Less Defined

The short-term assignment phenomenon "is still evolving and in flux," says Runnion. In most instances, companies have an overarching general policy, but take a case-by-case approach.

At Avaya, "We use a lot of common sense, rather than strict, one-size-fits-all policies," Wong says. "For example, we allow our staff on assignment to come home at least once a month if the project is to last three months or more. But if the family situation requires more visits, we try to make that easy for them." Typically, the employee's supervisor approves the benefit, since it comes out of the department's business travel budget. "We tell supervisors what the norm is, but it's up to them. We advise them not to promise too much, but to also keep extenuating circumstances in mind."

Clearly, there are unique factors that guide each individual relocation, "and policies are less defined around temporary assignments than permanent relocations, which have become very sophisticated, with multitiered, closely defined benefits," says Runnion. He explains that in a typical client consultation, the goal is to find the level of benefit the client wants to provide to balance cost savings with employee productivity. "Cost is always paramount, but talent is key, too; it's a balancing act to make sure the employee can stay productive under these sometimes difficult circumstances."