Due to the high cost of relocating an employee, repayment agreements have become a common and necessary part of the relocation equation. Repayment agreements are legal agreements between the company and the transferring employee that require an employee to repay the cost of their relocation if they decide to leave the company within a specified time period.
So the employee fully understands the terms of the relocation package prior to formally accepting the position/ relocation, the repayment agreement should be a part of the relocation policy and included with the employment offer letter. It is also important to hold off on initiating any relocation services until the signed agreement is received by the corporation.
Repayment agreements are good for the company in that they help to make employees aware of the fiscal commitment the company is making toward the employee and the assignment. Such agreements also demonstrate a shared responsibility over assignment costs between the employee and the company. Some companies prorate the repayment amount based on when the employee leaves the company. For example, 100% of expenses if termination occurs within the first year of the assignment and 50% if termination occurs within the second year. Some companies simply require a repayment of 100% within the first year, and do not enforce any repayment of expenses after the first year of the assignment has been completed.
More recently many clients are revising the terms of the repayment agreement, by extending the time frame from 12 to 24 months. In the past the typical repayment period was 12 months. I suspect that what is driving this change is the state of the real estate market and the increase in days on market for transferee homes. Another revision to the typical repayment agreement has been that more clients are including termination in the terms of repayment.
The enforceability of repayment agreements depends on local law but are “generally enforceable” according to Peter Scott, tax counsel to Worldwide ERC. Relocation America recommends that companies consult with their internal counsel or legal partners before developing or acting on a payback agreement to ensure it is enforceable, is drafted correctly and meets the company’s needs.
For more information, please contact Relocation America thru their website at www.relocationamerica.com