Relocation allowance: Overview, definition, and example
What is a relocation allowance?
A relocation allowance is a financial benefit provided by an employer to an employee who is required to move to a new location for work purposes. This allowance is typically intended to help cover the costs associated with the move, such as transportation, temporary housing, moving services, and other related expenses. The relocation allowance is often offered as part of a job offer or transfer agreement and is designed to make the process of relocating more manageable and less financially burdensome for the employee.
Why is a relocation allowance important?
A relocation allowance is important because it provides financial support to employees who must move for their job. Relocating can be an expensive and stressful process, so the allowance helps reduce the financial strain associated with the move. For employers, offering a relocation allowance can be a useful tool for attracting top talent, especially when the job requires the employee to move a significant distance. It can also help ensure a smooth transition, allowing employees to focus on their new role without worrying about the logistical and financial challenges of moving.
Understanding relocation allowance through an example
Imagine a company hires a software engineer for a position based in a new office located in another city. To help the employee cover the costs of moving, the company offers a relocation allowance of $5,000. The employee uses this money to cover moving expenses, such as hiring a moving company, paying for temporary housing, and purchasing new furniture for their new home. The relocation allowance makes the move more affordable and helps the employee settle into their new position with less financial worry.
In another example, a company offers a senior executive a relocation allowance as part of a promotion to a higher-level position in a different location. The allowance helps the executive pay for the costs of moving, including airfare for family members, the cost of shipping personal belongings, and deposits for a new rental home. The allowance ensures that the executive can focus on their new responsibilities without being distracted by the financial burdens of the move.
An example of a relocation allowance clause
Here’s how a clause about a relocation allowance might appear in a contract:
"The Company will provide the Employee with a relocation allowance of up to $5,000 to cover reasonable expenses associated with moving to the new office location. The allowance may be used for moving expenses, temporary housing, transportation, and other related costs. Any unused portion of the allowance shall be returned to the Company within 30 days of the relocation."
Conclusion
A relocation allowance is a financial benefit designed to help employees cover the costs of moving for work. By offering this benefit, employers can attract and retain talent, particularly when the job requires the employee to relocate. For employees, a relocation allowance makes the transition to a new location more affordable and less stressful. Clearly outlining the terms of the allowance in an employment contract ensures that both parties understand the support provided during the relocation process.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.