C O A L I T I O N Corner Coalition Corner: Business training tools for HR staff, real estate licensees and other service professionals in the relocation and real estate industries Payback Agreements Worldwide ERC ® /Coalition Washington, DC © 2005, Employee Relocation Council/Worldwide ERC ® Coalition

C O A L I T I O N Corner Program objectives: This program supplements an editorial feature in Worldwide ERC ® ’s Mobility magazine This segment will: - Discuss the use of payback agreements in relocation policies.

C O A L I T I O N Corner What are payback agreements? Payback agreements are clauses inserted in relocations polices that specify a period of time after the completion of a relocation during which an employee will be required to pay back some or all of their relocation expenses. Payback agreements can apply to both new hires and current employees. The specified periods of time will vary from company to company, but most payback agreement time frames average between one and two years.

C O A L I T I O N Corner According to Worldwide ERC®’s 2002 New Hire Survey How Many companies Use Payback agreements? 75 percent of survey respondents use payback agreements for all of their new hires, while 8 percent use them with some new hires. Of the 75 percent, 47 percent require the employee to return all of the expenses, while 45 percent opt for a pro-rated portion to be paid back. A small portion, only 3 percent, require specific, itemized compensated expenses to be paid back. 17 percent of companies do not use them at all.

C O A L I T I O N Corner Most companies with payback agreements structure them as binding legal documents, drawn up by corporate legal counsel. While numerous tax and legal questions and implications cannot be addressed with the scope of this segment, below are some of the key areas of consideration: Enforceability The Sarbanes-Oxley Act of 2002 (SOX) Timing Tax Consequences Deductions Some of the Tax and Legal Implications

C O A L I T I O N Corner Enforceability : Enforceability, depending, among other things, on such issues as how the agreement is drawn up, at what stage in the process enforcement becomes necessary and state and local laws.

C O A L I T I O N Corner The Sarbanes-Oxley Act of 2002: The Sarbanes-Oxley Act of 2002 (SOX) and whether there are any requirements/Implications, relating to SOX.

C O A L I T I O N Corner Timing: Timing, including When to report moving expenses as income by the employee, and if/when employers can take deductions.

C O A L I T I O N Corner Tax Consequences: Tax Consequences such as the implications, if any, of the periodic reductions in liability in pro-rated agreements, employer forgiveness of repayment, or repayments being made on behalf of the employee by his/her new employer.

C O A L I T I O N Corner Deductions: Deductions, including whether or not an employee would be able to take any for the repayment if he/she does not fulfill the employment terms connected to the payback agreement, and the type/timing of any such deductions.

C O A L I T I O N Corner The Tax and Legal consequences of payback agreements are complex, and may vary depending on the structure of the agreement and the type of expenses involved. Companies contemplating implication of payback agreements should consult with their tax and legal counsel for specific guidance and advice. Conclusion: A more detailed analysis of the tax implications of payback agreements is available to subscribers to the Worldwide Erc®’s Coalition’s Tax and Legal MasterSource at Find this Column’s text and PowerPoint slides at