No matter the size of your company, employees move. And moving can have a large impact on an employee’s position within an organization. Some may prefer to work remotely, and moving will have little impact on their role. Others may look for new jobs in the city of their new home. So what is a COLA compensation? And when should a company offer it to moving employees?
COLA compensation, or cost-of-living allowance compensation, is a stipend that helps moving employees adjust to life in a place where costs are higher than their previous location. Say, for example, an employee living in Augusta, Georgia moved to Los Angeles, California. Many prices—housing, food, utilities—would be more expensive in their new location than what they were used to. Using a two-location comparison, a company could then provide an accurate COLA compensation to help them adjust their lifestyle and spending patterns to the new location without breaking the bank.
The use of COLA compensation is completely at the discretion of the company. That being said, certain circumstances may draw more reason than others.
When a company promotes an employee to a position in a different location, a move is a big deal. Certain factors compound that. The employee may have a spouse with a regionally specific job. The employee may also have children. Regardless, moving requires organization and effort. Relocating an employee to a higher cost location without COLA compensation will have a negative impact on them. In all likelihood, they will turn down the move or look for positions elsewhere before incurring greater costs in a new location.
A majority of employees are comfortable working remotely. Some industries and specific companies continue to require in-person workers. Bringing new talent to a company that requires in-person work may also require the benefit of COLA compensation. Without it, top potential candidates are likely to look elsewhere.
A company may also simply shuffle talent. This does not change the impact of the move on the individual and those who may be moving with them. COLA compensations should be a benefit extended to anyone moving to a higher cost location. When it isn’t offered, it may foster resentment in employees and encourage them to seek work elsewhere.
Employees may move to another location, but it may not have a higher cost of living than they’re accustomed to. In a reverse of the previous example, say an employee from Los Angeles, CA moves to Augusta, GA. Prices that employee is accustomed to being much higher—again, housing, utilities, food—are now considerably less expensive. The employee may benefit from a lump sum allowance to help them cover the cost of their move, but COLA compensation would not be necessary.
Other forms of relocation aid may better benefit moving employees. If a company is looking to encourage workers to move from a more expensive area to a less expensive one, they may provide them with a delocation allowance. This can be tailored specifically to their destination, regardless of the difference in cost-of-living.
There are plenty of ways to calculate cost-of-living differences between two cities. However, the most economical approach is often the least likely to provide accurate information. Free options found by a quick Google search are often outdated or exclude critical components, such as income tax, and may end up costing your company more money in the long run. Put your trust in a platform that accurately calculates rates based on thousands of data points. Learn more about how Motus can help you implement fair and accurate COLAs as part of your compensation strategy today.