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Interactive Exercise
Now it’s time to get hands-on experience creating an employee relocation report in order to determine fair relocation allowances.
To do this, we will utilize ERI's Relocation Assessor (RA) tool, a detailed cost-of-living calculator that compares living costs in any of over 10,000 areas worldwide.
This tool enables users to customize cost-of-living calculations by:
- earnings/spending levels
- home size
- family size
- number of automobiles owned, their value, and miles driven
Here's an example...
Michael is transferring to the Seattle office. He can review the housing prices of areas within an acceptable commute to downtown Seattle. A Relocation Assessor comparison between Seattle and areas nearby to the north and south shows a $200,000 to $300,000 difference in housing costs.
Ownership vs. rental
The Relocation Assessor compares rental vs. ownership. This change may alter or even reverse area cost relationships.
An expensive home provides its owner with a high mortgage interest rate deduction that serves to lower the cost of living, both overall, and in comparison to cities with lower housing prices.
Cities may be compared individually or grouped to create a user-defined average of likely suburbs or living areas.
Let’s look at an example…
Problem Statement
You are planning a relocation package for a managerial level employee, Amanda Stephens. Amanda currently resides in Alexandria, Virginia, but will be moving west with her husband and young son to Pomona, CA. You need a cost-of-living comparison between these two cities to determine if your company needs to offer her a cost-of-living allowance.
Her compensation package includes a base salary of $120,000 per year. You know that Amanda is a homeowner who will need to sell her 2,100-square-foot house. She is hoping to buy a home of similar size in Pomona.
Company policy dictates that you make cost-of-living comparisons for management employees based upon a 2-car household, where the cars are worth $45,000 (combined) and are together driven 30,000 miles per year.
Using these criteria, we’ll research how much Amanda’s cost-of-living can be expected to rise or fall, and why.
Instructions
Select the Load Step-by-Step button to follow along with this analysis.
After you have read this PDF, click on the Next button to try your hand at using this research tool to calculate a relocation allowance.