In response to the growing demand for global workers, employers are increasingly considering the inclusion of hardship payments or similar provisions in their mobility packages. Picture yourself moving to a foreign country for a job opportunity, only to face challenges such as inadequate healthcare or potential safety risks. These additional benefits, often referred to as mobility allowances, hardship premiums, or hardship allowances, aim to address such difficulties. In this article, we will explore the concept of hardship allowances, how they differ from relocation bonuses, and weigh the advantages and disadvantages they bring.
What Is a Hardship Allowance?
A hardship allowance is an additional payment provided to employees, alongside their salary and cost-of-living adjustment (COLA), specifically for assignments in locations deemed challenging or difficult for various reasons. These factors may encompass the potential for turbulence, unfriendliness from the local population, disease prevalence, access to medical facilities and services, the nature of the physical environment, geographic isolation, cultural or psychological isolation, the availability and standard of housing, communal and recreational amenities, and the quality and accessibility of goods and services.
While some companies may offer a relocation bonus, a hardship payment is a distinct type of bonus that can be utilized by the employee as they see fit. It serves as a gesture of appreciation from the employer, acknowledging the difficulties associated with the employee’s commitment to remain with the company despite facing challenges during the relocation or change. It is important to note that a hardship allowance, relocation bonus, and relocation reimbursement are not interchangeable terms, and each carries its own unique meaning and purpose, which we will delve into further below.
Hardship Allowance Vs. Relocation Bonus
Distinctions exist between hardship allowances and relocation bonuses. While a hardship allowance is separate from a relocation bonus, the latter is intended to cover the costs associated with the actual move and is often provided as a one-time lump sum payment. Relocation bonuses are usually subject to taxation.
The advantage of a relocation bonus is that it provides clear financial assistance for the employee’s relocation expenses. However, the downside is that it may not address ongoing challenges or hardships faced by the employee in the new location. On the other hand, a hardship allowance, or hardship pay, acknowledges and compensates for the difficulties or adverse conditions the employee may encounter in the new assignment location.
Hardship Allowance Vs. Relocation Reimbursement
When comparing a hardship allowance to relocation reimbursement, it is important to note that relocation reimbursement primarily focuses on repaying the employee for the expenses incurred during the relocation process. This includes costs such as moving services, transportation, and temporary housing. The employer takes on the responsibility of covering these expenses, providing the employee with financial relief and peace of mind. The terms of relocation reimbursement, along with any additional benefits, are typically negotiated and outlined in the employee’s mobility package.
Relocation reimbursements, including bonuses and employer-paid moving expenses, are considered taxable income for employees. As a result, employers are required to withhold and pay standard payroll taxes such as Federal, State, and FICA. This taxation aspect should be taken into account by both the employer and the employee when considering the financial implications of relocation reimbursements. Hardship payments are often negotiated separately from relocation reimbursements and may not be subject to the same tax considerations.
Hardship Allowance Vs. Hardship Points
Hardship points serve as a metric used by employers to quantify the disparity between an employee’s current home country and the prospective assignment country. Various factors, such as quality of life, security, healthcare, infrastructure, and cultural differences, are taken into consideration to assess the hardship level. Employers assign scores to different hardship factors and create an overall score out of 100, reflecting the level of hardship in the new location.
This scoring system helps paint a comprehensive picture of the challenges and difficulties employees may face during their assignments. Based on the accumulated points, employers then calculate a hardship or location allowance. This allowance can be added to the employee’s salary incrementally over time, typically ranging from 5% to 30% or more, providing additional compensation for enduring the hardships associated with the assignment location.
By utilizing hardship points and calculating corresponding allowances, employers aim to recognize and compensate employees for the unique challenges they may encounter while working in a different country or location. The specific percentage increase in salary depends on the employer’s policies and the severity of the identified hardship factors.
Why Should Your Company Offer Hardship Payments?
Incorporating hardship payments into your mobility package can have several benefits, including:
- Hardship payments can act as an incentive
- Hardship pay can boost morale and provide support for assignments in challenging regions
- Hardship pay can assist in assignment acceptance rates for regions that may be more difficult to attract and retain talent
- Hardship allowances can foster care and commitment to the employee and their well-being
- Hardship payments create a positive work atmosphere, boosting productivity and driving organizational success
Do You Need a Relocation Program?
Ready to make your company’s mobility process smooth and hassle-free? At CapRelo, we pride ourselves on being an extension of your HR team, offering a range of relocation packages tailored to your needs, whether you’re relocating within the United States or internationally. Leave the logistics to us as we handle all the details and provide seamless transfer operations.
Take advantage of CapRelo’s team of global mobility experts and gain peace of mind knowing that your mobility program is in proven hands. Contact our highly qualified team at CapRelo today and let us simplify your relocation process from start to finish.