How to Create an Employee Relocation Reimbursement Policy

When your company is relocating talent, a well-defined relocation reimbursement policy is essential. Relocation expense reimbursement plays a role in every type of relocation benefit and program. A clear structure for which expenses are covered, how relocation expense reimbursement works, and which tax implications exist is necessary. Otherwise, both the employee and employer risk confusion, inefficiency, and dissatisfaction.

But before you draft your relocation reimbursement policy, it’s worth asking: Is reimbursement the right fit for your relocation goals?

There are multiple ways to support employee moves: relocation reimbursement, lump sum payments, or fully managed relocation services. Each method has its pros and cons, and reimbursement often makes sense for specific company sizes, roles, or move types. While every type of relocation program involves some kind of reimbursement, some relocation benefits rely more heavily on reimbursement than others.

In this article, we’ll help you understand how and when to use relocation reimbursement, and how to create a policy that’s transparent, fair, and aligned with your company’s talent strategy.

Understanding Relocation Reimbursement

What is Relocation Reimbursement?

Relocation reimbursement is when a company agrees to repay employees for some or all of the costs related to their move. Unlike a lump sum or fully managed relocation service, this approach requires the employee to book services and pay upfront. The company reimburses the employee for the actual expenses they paid. The employee usually must provide itemized receipts or invoices to receive reimbursement.

Some companies choose to reimburse all relocation-related expenses. Others use a hybrid model in which the employer provides managed services for major parts of the move (like household goods shipping) and offers moving expense reimbursement for miscellaneous expenses like meals, gas, or supplies.

Which Relocation Expenses Should Be Reimbursed?

There’s no one-size-fits-all list of services to include in a relocation expense reimbursement agreement—it’s up to each company. That said, here are some of the most commonly reimbursed items:

Some companies only reimburse certain categories. Others set limits per category to manage cost exposure. It’s important to specify exactly which relocation expenses are eligible in your policy.

Average Relocation Expense Reimbursement

The average cost of a relocation expense reimbursement agreement depends heavily on factors like company policy, the employee’s role, relocation distance, family size, and especially whether the employee is a renter or homeowner.

For U.S. employee renters, the starting cost of relocation is typically around $30,000. This figure covers standard services such as household goods shipping, temporary housing, and travel allowances. However, average relocation reimbursement amounts vary widely based on the employee’s policy tier, origin and destination locations, and any additional needs.

For U.S. homeowners, costs are significantly higher. Without a home sale benefit like a Buyer Value Option (BVO), the average moving expense reimbursement for a domestic move is about $45,500. This estimate includes the most typical expenses like moving services, temporary housing, and travel, but does not include the cost of assisting with the home sale process.

These averages provide a helpful benchmark as you determine the proper reimbursement levels for your organization’s relocation tiers.

Is Relocation Reimbursement Taxable to the Employee?

Yes, relocation reimbursement is taxable to the employee under current U.S. tax laws. In the past, employees could deduct certain moving expenses, but the 2017 Tax Cuts and Jobs Act eliminated that deduction for most taxpayers. Today, if a company reimburses an employee for relocation expenses, that amount is considered taxable income.

For example, if an employee spends $5,000 on relocation and is reimbursed the same amount by the employer, the employee’s taxable income for the year increases by $5,000. The IRS treats moving expense reimbursement like salary or bonus income and is subject to applicable income and payroll taxes.

Because of this, employers need to clearly explain the taxability of reimbursements upfront. Transparent communication ensures that relocating employees understand their complete financial picture and aren’t surprised by a higher tax bill come filing season.

The Pros and Cons of Relocation Reimbursement

The Benefits of Reimbursement

There are some benefits to a reimbursement-based relocation benefit over managed relocation services and lump sum allowance relocation benefits. Reimbursing relocation expenses might be a good option for employers seeking to minimize management effort while preventing employees from pocketing their relocation benefits.

Employers Pay Actual Costs

The employer only reimburses for what the employee actually spends. This approach mitigates overpaying for relocation or unused funds. Relocation expense reimbursement keeps employers’ budgets aligned with real expenses.

No Relocation Program to Manage

Employers don’t have to oversee moving vendors or coordinate services. Reimbursement saves human resources professionals time and effort while reducing administrative complexity.

The Drawbacks of Reimbursement

Moving expense reimbursement is the relocation benefit most likely to cause confusion and friction between the employer and employee. It also creates the most effort and burden on the employee.

No Control Over Service Quality

The employer also has no control over the quality of the employee-selected moving company. If the employee uses a subpar, or worse, unlicensed moving company, it creates challenges that demand the employee’s time and energy and distracts them from their new role.

A move gone wrong could create additional expenses. Even worse, it creates a negative relocation experience for the employee, which negates the purpose of providing a relocation benefit in the first place.

Lack of Clarity Can Create Conflict

If the relocation reimbursement policy isn’t crystal clear with specific limits and inclusions, employees may misunderstand what’s reimbursable. Denied relocation reimbursements create frustration, friction, and negative feelings towards the employer and the relocation.

Less Appealing to Top Talent

Executives and senior hires expect white-glove support. A-list talent does not have the time to manage their own relocation. Relocation reimbursement alone is not a competitive relocation benefit. Senior talent will choose an employer that demonstrates value of executives to the organization by offering full-service executive relocation.

Alternatives to Relocation Expense Reimbursement

Lump Sum Relocation

A lump sum relocation package is a one-time, fixed payment provided to the employee to cover moving-related expenses. Employees have full control over how to use the funds and which vendors to select, offering maximum flexibility.

Cons vs. Reimbursement:

• No guardrails over how the lump sum is used allows employees to pocket the lump sum, wasting the purpose of the spend
• Puts the burden of coordination entirely on the employee
• Can lead to lost productivity or a poor employee experience

Managed Relocation Services

Managed relocation services outsource the entire employee move process to a relocation provider, who coordinates services like moving, housing, and travel logistics on behalf of the employee and employer.

Cons vs. Reimbursement:

• May require a larger upfront investment
• Less flexibility for employees who want to manage their own move

Creating an Employee Relocation Expenses Reimbursement Policy For Your Company

The Importance of a Relocation Reimbursement Policy

A written relocation reimbursement policy protects your budget and sets clear expectations for employees. The policy prevents misunderstandings about which expenses are covered, standardizes relocation benefits across different roles, and manages cost expectations to avoid over-reimbursement. Therefore, the policy ensures equity of benefits, as well as accurate and on-time reimbursement.

Meeting Your Company’s Relocation Goals

Your relocation expense reimbursement agreement should align with your company’s strategic goals. Consider why the relocation is necessary, the expected return on investment for the move, and the company’s culture around employee care. Define your policy based on the outcomes you want to achieve, not just your budget constraints.

Implementing the Relocation Reimbursement Policy

Moving expense reimbursement should be part of a broader relocation policy that covers all aspects of the move. Communicate the policy clearly and consistently, ideally with the offer letter or relocation assignment letter, during onboarding or pre-move discussions. A dedicated HR contact or relocation consultant should be available to answer questions and guide the employee throughout the process.

Key Components of a Relocation Reimbursement Policy

Employees’ Eligibility For Reimbursement

Your policy should clearly define employee eligibility for relocation reimbursement to ensure fairness and avoid confusion. Eligibility criteria may vary based on several factors. The primary factor is the reason for the relocation, such as a new hire, internal transfer, or promotion. Other factors are the employee’s role or seniority within the organization, their current location, and their family structure (for example, single employees versus those relocating with dependents).

These elements can determine not only who qualifies but also the extent of the offered reimbursement. Depending on the scenario, your company may choose to provide different levels or tiers of relocation benefits. For instance, executives and senior leaders often receive more comprehensive and customized relocation packages to reflect their higher-impact roles and responsibilities.

Reimbursable Relocation Expenses

Your relocation expense reimbursement agreement should define which relocation services are eligible for reimbursement and outline the inclusions within each category. For instance, household goods moving may be reimbursable, but packing services might not.

Similarly, some reimbursement policies may cover closing costs on a home purchase or sale may be covered, while others may not. Set clear reimbursement dollar limits for each service category to manage expectations and control costs.

The Relocation Expenses Reimbursement Process

Your policy should clearly explain how employees should submit their relocation expense claims. Include details specifying the required forms and who to send them to (such as an HR representative or relocation consultant). Cite which supporting documents, like receipts, invoices, or mileage logs, must be included.

Set firm deadlines for submitting expenses to ensure timely processing. Communicate precisely when employees can expect to receive reimbursement. Also, clarify the form of payment, whether through payroll, direct deposit, or a mailed check.

Advisory For Taxable Relocation Expenses

It’s essential to explain that relocation reimbursements are taxable income to the employee under current U.S. tax law. Any reimbursed expenses will be added to the employee’s taxable wages, potentially increasing their tax burden. Tax season surprises lead to financial burden and dissatisfaction for the employee.

If your company offers tax assistance or a relocation gross-up, an additional payment to offset these taxes, explain it in detail. When employees understand how it works, they appreciate the benefit.

Work with NRI Relocation to Create a Relocation Reimbursement Policy

Any relocation benefit structure includes a strong reimbursement policy that ensures clarity, fairness, and financial control. Correctly managing relocation reimbursement takes time, strategy, and compliance know-how.

NRI Relocation helps companies create tailored relocation policies, manage relocation expense reimbursement, and align their programs with recruitment and retention goals.

Let us help you elevate your employee relocation benefits.