Paying offshore hires a cash allowance to cover relocation costs doesn’t deliver best value for employers or employees.
Thanks to KMPG tax experts Rebecca Armour and Katie Hayward-Wu for sharing this tip at last week’s Global Mobility Roundtable. Read here to understand why, and what to do about it.
Cash is taxable
Giving people cash is administratively simple and flexible. But there is a downside. The employee must pay up to 1/3 of that sum as income tax.
So a $12,000 relocation payment could be worth only $8,000 of services.
Employers and employees lose out
For employees that missing $4000 can have a big practical and financial impact. It represents the cost of shipping a 20ft container from Sydney or airfares for a family to travel here from London.
For employers it undermines the value of their offer, and the newcomer’s employee experience. A well-funded and managed relocation means people hit the ground running in New Zealand. This has a direct impact on their productivity at work. However, if new arrivals are worrying about finances or feeling short-changed, that is not a positive start. Nor does it reflect an employer’s intention in providing relocation funding in the first place.
Maximising the full value of relocation spend can be as simple as restructuring the way employers deliver the benefit to an employee.
An amount paid by an employer to specifically cover allowable employee expenses in connection with a work-relocated relocation to New Zealand is treated as exempt from tax.
The list of eligible tax-exempt relocation costs is quite extensive, covering everything from shipping to resettlement services to temporary accommodation. Read the complete list here.
Employers need to either:
- reimburse employees for these specific costs
- pay suppliers directly on the employee’s behalf
So a simple process change can effectively gain more relocation funding for transferring employees. And it also means that employers will deliver the full value their relocation spend was designed to achieve.