Dear Evil HR Lady,
We have a new employee who we gave $3000 up front for a relocation package. Since then, their receipts have been turned in and the receipts only total $1980. Can the company require the unused money be returned to the company? If the employee does not comply, may we deduct the amount from their paycheck?
Depends on the contract you signed. (If you had no contract for a relocation, then that was a mistake.)
But really? Don’t do this. Things like this is what make people hate HR/Management. It’s $1000 and will alienate your brand new employee. $3000 is chump change when it comes to re location. (Our last relo cost the company more than $60,000 by the time you considered closing costs, ocean shipments, etc, etc.) This person probably skimped and saved on his relo so that he could have a little bit of money for things like buying new garbage cans, deposits on apartments and window treatments.
Guaranteed he packed his own boxes (or he and his friends did) and drove his own truck. Don’t punish frugality.
If you want to only pay for specific items, you need to spell that out clearly in the paperwork. Don’t give cash up front, just reimburse when presented with receipts. But, don’t be surprised when you implement this that everyone manages to spend every penny.
If it’s going to affect your accounting procedures, let the guy know you need $3000 worth of receipts and you’ll be happy to consider first month’s rent, car registration fees or dinners out while waiting for a new refrigerator to be delivered as relocation costs.
What does everyone else think? Should this guy either present receipts or return the money?
My first thought when reading this is taxes. If receipts aren’t provided then I would think you would have to add the amount to taxable income (at least in the U.S.), and that could be a hassle from an accounting perspective.
This was my first reaction too.
It is an IRS rule; not a company policy that determines if the money is reimbursement or if it is taxable income.
Although I’m not a tax lawyer or any such thing here’s my understanding of this type of situation for lump sum relocation expenses:
Scenario one: Employer gives lump sum to employee for relocation expenses. Employee’s relocation/moving expenses are more than amount given. Ask employer to cover the extra amount or deduct the extra amount from taxes when filing at the end of the tax year. (The IRS actually might have a cap on how much they can reimburse so maybe they cannot get the extra from the employer)
Scenario two: Employer gives lump sum to employee for relocation expenses; But, the employee doesn’t use it all. The amount unused is considered by the IRS to be TAXABLE income!
So, I would suggest that the OP contact a lawyer or an accountant to see what needs to be done. Yes, it is only $1,000 but if it should be taxable then letting the employee “keep it” might not be worth the IRS headaches for the company or the employee if the proper tax is not paid.
DISCLAIMER: Of course, I’m not a tax lawyer or an acountant so I may (or is it “most likely”?) be wrong on this. I would certainly want to check with a tax expert on this.
Honestly, even if it is taxable, it’s not that much of a burden or hassle on anyone. Unless they’re back in the stone age and running payroll manually with papers and a calculator, they can easily just say “Keep the rest, we’ll call it a bonus.”
We had to pay taxes on a good portion of the amount the company reimbursed us for relocation. And we had receipts for everything.
I’m not an accountant, though.
You are correct, I believe. It’s all taxable as income regardless of how the payment is spent.
The only part or a move that is NOT taxable is the actual cost to move the family and belongings (including vehicles) anything else, including meals are taxable. Most companies will give the relocation lump sum and gross up for taxes at the beginning and tell the employee they are responsible to claim any non-taxable against their tax return.
If the receipts are for non-taxable reimbursements, than the company only has to show the difference as taxable to the employee by imputing the amount and having the taxes come from the employee’s regular pay.
Woo-hoo, an expert chimed in. So, on the company side, you just mark everything except for actual moving expenses as taxable. No receipt=taxable.
This is my understanding. Then the employee can turn around and claim the moving expenses as a deduction (it’s its own line on the 1040, no need to itemize in order to claim them). So if the amount you receive from the employer (and they declare as income on your W-2) exactly tallies to the amount you spent (and claim as a deduction on the 1040), you’ll net out to no extra tax. If you were given more than it cost, you’ll net out to owing a bit more taxes than you would have. And if you spent more than you received, you’ll get a little benefit on your taxes.
It puzzles me a bit that this guy apparently knew he had to retain and turn in his receipts, yet still wasn’t prepared to hand back the surplus money.
I don’t have a qualified opinion on whether the company should pay actual expenses based on receipts or just shell out a lump sum — but the employee’s expectation that it would be half of one half the other (turn in receipts but don’t provide an actual accounting for the money given him) sounds weird.
My guess is that the company said, “Here’s $3000 for moving expenses. Give us your receipts.” And the guy thought it was his money to do with as he pleased and so he provided the receipts that he had, but wasn’t very worried about it.
If the guy only had $2000 in moving expenses, he’s very likely a new grad who moved in a friend’s truck or something and has no idea how the grown up world worked.
I still place fault on the company for not being crystal clear about their expectations.
If the company chose to pay a flat dollar amount and not just do reimbursements (or provide a company credit card for expenses), the employee should get to keep the rest of the money. There may be other expenses that come up that he needs those funds for (replacing broken items during the move, trash cans like you mentioned, etc.).
I totally agree with this. If they weren’t specific, (We will pay the cost of a moving truck…) they don’t get to choose.
New drivers license – you don’t get a receipt for that, but you have to pay and you have to waste half a day getting it.
I couldn’t agree with this more! This is a horrible idea.
When I was relocated, I was given a flat sum. I hired my younger brother and out-of-work friend to do the moving, and used what was left-over to buy a new kitchen table and a desk for my home-office. (The latter was especially important for me because I was working from home in this new job.)
By providing the $$ upfront I assumed that it was mine to spend as I saw fit. If the company had come and asked for it back, without having been clear up front, I would have been incredibly offended and put in a very uncomfortable spot financially.
This is a sure-fire way to make your employees hate working for you.
If it is lump sum, why submit receipts? If reimbursement only, why was a lump sum paid in advance? This definitely feels like no contract. And again, how much value do you place on goodwill? Taxes, whatever. Figure it out, but the administration of recovering the money can’t be that much less complex – if it even is…..
Giving a lump sum and then asking for it back will destroy goodwill. That’s the last thing you want to do with a brand new employee.
Correct. You get what you negotiate –and record.
Oh definitely don’t request for it back. He may have some unexpected costs come up or whatever, and end up using the money. Besides what Suzanne mentioned already…it’s bad form and will likely cause the employee to view his new employers as penny-pinching micromanagers, and then he will start working on his plan to get out of there.
Must be nice to get money for relocation. I can’t find a job here and my petty admin crap doesn’t pay for relocation, even for federal jobs.
I agree with Suzanne, though. If they didn’t specify it up front, then they shouldn’t ask for it back. It would be nice to help the person figure out the tax thing, if they are perplexed about it. I know I would be.
Guarantee you this guy will end up needing/using the rest of that money for relo expenses eventually. Even if he didn’t use it “right away,” stuff always comes up – anytime I’ve moved I’ve lost things, or split stuff with an ex and then needed to replace it (incidentally, you don’t realize that you really do need that pizza cutter til you go to look for it and curse yourself for leaving it with your roommate!) – so even if the employee hasn’t used the entire $3000 yet, he probably will. If I were the company exec making this decision, I’d just let it go. If you could afford to give him the money for relo and you didn’t say you wanted the excess back, then it’s probably not going to break your bank.
I completely concur with this. If they weren’t precise, (We will pay the charge of a moving means of transportation)
It seems a little odd to me that this wouldn’t already have been considered, given that the person asking is receiving receipts from the relocating employee. If I was paid $3k to relocate and then instructed to turn over my receipts I’d definitely have it in my mind that my new employer probably wants all the cash back or accounted for.
The company should consider the remaining $1000 as a signing bonus.
The company budgeted the $3k for moving expenses. The employee should offer to return the excess and the company should decline to accept it back.
The company will (have to) add the $3,000 to his W-2 form as taxable wages. Since it doesn’t appear that they grossed it up, then he will have to pay taxes on $3,000. 5.65% FICA, 25% federal (if he makes over about $42,000 a year, and if not why would they bother to pay relocation) and whatever state tax – whichever way you look at it that’s 33% or more – voila – $1,000 out of his $3,000!
This employer needs to get a lawyer to write up a relocation agreement template, and ask nicely for the 6th-grade level training on how to use it.
unless it was clearly mandated up front that receipts must be turned in AND only UP TO $3K would be covered, it is patently stupid, offensive, and petty penny pinching on the part of the company to ask for a dime of that money back.
imagine you’re the new employee hoping for a fresh start at what you hope turns out to be a great company. you submit your relo paperwork to HR, whereupon the news is dropped on you that all the scrimping and saving you did on relo expenses, and all the extra work you did YOURSELF rather than hiring movers was for naught because the company would rather have $1K back from you than employee good will. with such a demonstration that good will is of such little value to the company, I would take that as a serious red flag and would immediately begin job searching on principle alone.
asking for relo money back from an employee disincentivizes the employee to save the company’s money. a smarter approach would be to tell the employee, “You’ll get up to $3K of relo expenses. Receipts must be turned in. Any amount leftover below the $3K cap will be split 50/50 between the employee and the company.” This way, not only is everything clear up front, but the company’s incentives and the employees incentives are aligned.
Depends on the contract you signed….ezmove.in
We were given an 8k relocation CHECK lump sum in July for our move and relo. The only language was in the offer letter that stated should my husband leave before a year up we would owe back the money. No contracts or stipulations were put on the money. We used every dime for boxes, packing, movers, trucks and 5 months of storage fees while we tried to find a suitable home for a long term lease (not buying as his kind of work moves him somewhat often) We used the money for 1st and part of security as our 3 storage units cost us most of the money. I kept everything on an excel sheet and have receipts for every dime spent only on the move. Nothing extra!! Now after turning it all in for reconciliation in Jan, they are stating we owe them back 2000.00. That the money is not allowed to be used for secuirty deposit. They have witheld now normal expense reimbursements for travel that he submits and today they have threatened to withold his paychecks to pay it back. Can they do this? There were no contracts or stipulations for the money and proof that all the money was used purely for the move/relo?
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given that the person asking is receiving receipts from the relocating employee…….
We will pay the cost of a moving truck..