The business case for furniture allowances

Krzysztof Matysiak, Mercer

Global mobility teams often face the challenge of providing suitable arrangements for relocated employees, while balancing costs, sustainability and other corporate goals. Traditionally, the shipment of assignees’ household goods has been a common element of relocation packages, but for myriad reasons, many organizations have started exploring alternative approaches, such as furnished accommodation, furniture rental or cash allowances to support furniture purchases. The recent pandemic brought shipment disruptions, temporarily increasing costs and causing significant delays in shipment processing times. One natural solution to these challenges is to provide a furniture allowance, although this option should not be confused with general relocation allowances intended to support other miscellaneous costs. In this article, we will explore the pros and cons of offering furniture allowances, as well as typical motivations that might influence a mobility manager’s decision to add it to the list of available relocation support provisions for both international and domestic moves.

Nearly 30% of organizations participating in Mercer’s 2023 Worldwide International Assignments Policies and Practices survey offers furniture allowance in lieu of household goods shipment, as a way to address environmental concerns (up from 14% back in 2020). In addition to that, over 22% of organizations surveyed let the employee chose between shipment, furniture rental and a cash furniture allowance. These statistics are likely to increase along with program size and maturity, with bigger programs more likely to offer this allowance. This shift aims to not only address high costs and cumbersome logistics, but may also support important organizational agendas, such as supporting broader ESG considerations. In addition, flexibility of choice often helps create a more appealing experience for relocating employees. In fact, a group of Mercer clients who participated in our recent spot poll on this topic, ranked the top reasons for offering furniture allowances as follows:

1. Package flexibility, employee satisfaction and diversity considerations
2. Cost savings and control
3. Shipment time/delays; damage risks
4. Environmental concerns/alignment with ESG agenda

Increased flexibility and support for diverse employee populations

By offering a furniture allowance, companies can address the varying needs and preferences of their diverse employee population. This alternative approach makes the relocation benefit offering more attractive to a larger group of employees and the choice increases the likelihood of assignee satisfaction. You can still provide support that aligns with your pay philosophy and mobility program goals, for example: a core-level furniture allowance may be offered as a default option to junior employees, and as an enhanced optional selection for senior roles, providing flexibility and promoting inclusivity in the relocation process.

Cost savings and control

One of the significant advantages of providing a furniture allowance is cost efficiency. Compared to the increasing costs of shipments and insurances, or even long-term furniture rentals, a one-time furniture allowance offers significant savings opportunities for organizations. These are particularly evident if we compare the total long-term furniture rental cost (which increases with every month) with a fixed one- time allowance: that is, the longer the assignment, the amortized allowance costs per month decrease. It is fair to say that offering this allowance would have a positive impact on the total assignment cost and play a key role in simplifying the budgeting process. It usually also lowers the cost of temporary housing, by reducing its length significantly. That being said, furniture rental can be a better option for shorter assignments, when the combined rental costs will not exceed purchase costs.

Addressing global shipment delays and damage risks

International shipment delays happen all too often, causing frustration and inconvenience for employees and their families. Not having furniture stops employee from settling in their newly rented property, often resulting in costly temporary accommodation extensions. By offering a furniture allowance, companies can bypass these delays altogether and minimize the risk of potential damage and lengthy insurance claims. Employees can quickly purchase furniture locally in their new destination, as and when they need it, ensuring a smoother transition and minimizing disruptions to their personal and professional lives. Another consideration is the common mismatch between accommodation size in different countries. Furniture that suits a spacious house in one place may not all fit into a modestly sized apartment elsewhere. There may be certain locations where this type of mismatch will be more common and assignees would prefer to rent or purchase more appropriate furniture.

Supporting an organization's ESG agenda

Providing a furniture allowance may align with an organization's Environmental, Social, and Governance (ESG) agenda in multiple ways. First, it contributes to the reduction of carbon emissions by eliminating the need for high-volume furniture shipments across long distances. Even bigger reductions can be achieved with furniture rental, given that the same furniture can be reused at a later date. Such a visible commitment to sustainability can be attractive not only to employees, but also customers and investors.

Employees may also have the option to donate their furniture at the end of their assignment, supporting local charities and communities in the host location. Some retailers may also provide buyback and resell options, extending the life of furniture items beyond just one owner.

Offering alternative approaches like furniture allowance supports the needs of diverse employee groups, including those who for various reasons cannot ship furniture or whose family or partner cannot join them on assignment (example: same-sex couples where their relationship would not be recognized in the host location, or employees from multi-generational household cultures).

Financial windfall for employee

Employees who opt for a furniture allowance can decide to resell their furniture at the end of their assignment, gaining additional budget to offset the miscellaneous costs that might arise during their repatriation and reintegration in their home location, therefore decreasing the need for exceptions or helping reduce the miscellaneous relocation allowance paid upon repatriation. This extra financial boost can ease the transition back to their home country and help them settle in more quickly.

Other considerations

• In some locations, it may be difficult to find and purchase suitable furniture locally. This can be especially challenging for employees who have specific preferences or requirements for their furniture, including employees with disabilities. In these cases, organizations may need to consider duty of care principles and offer alternatives that address or minimize these challenges for assignees.
• Letting employees keep their home residence furnished better supports their having a comfortable base during home leave and might reduce the need to cover accommodation costs during those visits.
• It is important to distinguish between a miscellaneous relocation allowance and furniture allowance. One is intended to cover incidental costs related to relocation (e.g. excess baggage, cleaning fees, connecting utilities, buying low-cost but essential items such as light bulbs and converters), while the other covers furniture and household items. Some respondents to our recent spot poll revealed their employees can purchase furniture using this budget, but if your organization offers a relocation allowance to cover both, it is important to ensure that the amount offered reflects the various types of expenses it is intended to cover. An accurate estimation of furniture budget is essential.
• Some organizations apply a flat furniture allowance amount globally, based on family size and/or employee job level. The risk of such an approach is that this value may purchase more in low-cost locations, but allow only for partial purchases in expensive ones. It is reasonable to provide differentiated amounts — per country or tiered regionally — to ensure the benefit is fair for all employees.
• Accurate and comparable furniture allowance data may not be available in all locations, due to the difficulty in finding reliable data sources for items of specific quality. Mercer can help gather data in these scenarios or recommend a realistic proxy location with comparable costs.

Mercer’s furniture allowance calculator is a flexible Excel-based tool that can help you define accurate furniture budgets based on specific calculation parameters. Our current coverage includes 50 countries, with an option to expand to other locations upon request. You can choose to include furniture and household items as well as large appliances, home office items or even broadband and utility costs. For more information, please reach out to your Mercer consultant or visit the furniture allowance calculator page.