GROSS-UP, A CRITICAL RELOCATION BENEFIT
When I talk about gross-up, I get looks of uncertainty. Many have heard the term, but most don’t fully understand the meaning and complexity. I empathize with this uncertainty as gross-up was foreign prior to the start of my relocation career. Now, it is so much a part of my every day life that my dreams often include the word “gross-up”.
The benefit of ‘gross-up’, a.k.a tax assistance is best described as an estimated amount of money added to taxable relocation payments to offset the increased tax burden that results from the addition of said expenses to the employee’s wages. In other words, the reimbursement amount is “upped” so that the employee nets the actual amount of the relocation expenses. The ‘gross-up’ total is typically higher than an employee’s actual tax rate since the gross-up itself is considered taxable and therefore, also grossed up, a.k.a. tax on tax methodology.
The gross-up price tag often surprises corporations as a costly benefit. However, gross-up is a necessary component of any competitive relocation program. Without it; transferring employees would be required to pay the extra taxes that result from taxable relocation expenses added to their income. Consequently, an employee would not net the actual relocation benefit amount and experiences a financial burden as a result of the relocation.
If an employer chooses not to provide gross-up assistance, the result could be the difference between a relocation that is successful from beginning to end and a productive, happy employee or a relocation that becomes burdensome for the employee and family. The cost of the latter being much more substantial than providing the tax assistance benefit and potentially including hidden costs, such as loss of employee productivity, or worse, loss of the employee and the company’s overall investment in that individual.
Conversely, employers who provide gross-up assistance as part of their comprehensive relocation benefits package recognize the importance of providing the appropriate support to relocating families, ensuring a more successful transition. This has a direct impact on employee productivity, return on investment, employee loyalty and performance.
Capital Relocation Services is committed to ensuring our clients get the most out of their relocation policy. I’d love to hear from you regarding the success of your relocation program, or questions you may have regarding gross-up. We are here to help ‘connect the dots’ between relocation policy, corporate strategy and recruiting and retention goals. Write to me at noverholt@caprelo.com.
Nicole Overholt, CRP