When a Miscellaneous Allowance Creates the Wrong Incentive

Consider an employee relocating to Canada who discovers that obtaining a provincial driver’s licence requires a certified translation of their driving history and related documentation.

The cost is $600.

The employee has received a $3,000 miscellaneous relocation allowance and is told that the translation should be paid from it.

The reaction is understandable: That’s 20% of my allowance. Surely there must be another way.

The employee may delay obtaining the translation, search for a cheaper alternative or question whether it is necessary at all.

From the employer’s perspective, the expense is a relatively minor but necessary part of the relocation. From the employee’s perspective, $600 of what they consider their money is about to disappear.
Both perspectives make sense.

And therein lies a problem with how some relocation policies have evolved.

The original bargain

Miscellaneous relocation allowances were an elegant solution to an administrative problem.

Traditional relocation programs were often built around relatively generous defined benefits. The employer paid for household goods transportation, home-sale assistance, temporary accommodation, travel and other significant relocation expenses.

The miscellaneous allowance sat alongside those benefits, sometimes calculated as a month’s salary.

Its purpose was to cover the countless smaller expenses that inevitably accompany a move but are difficult, and frankly tedious, to administer individually.

Rather than submit receipts for every minor household purchase, employees received an allowance and the discretion to spend it. HR was spared the task of determining whether a new shower curtain was a legitimate consequence of moving to Winnipeg.

The employer avoided processing dozens of small claims. The employee gained flexibility.

A perfectly sensible arrangement.

Importantly, the miscellaneous allowance was not generally expected to finance the essential machinery of the relocation. Most of that was already covered elsewhere in the policy.

Then the bargain began to change

Over time, cost pressures reshaped many relocation programs.

Defined benefits were reduced, capped or eliminated. Expenses previously covered individually migrated into miscellaneous allowances. Meanwhile, allowances themselves often became smaller, fixed-dollar amounts rather than generous salary-based payments.

There was nothing inherently unreasonable about these changes. Employers wanted more predictable relocation costs, less administration and greater employee flexibility.

But something important happened along the way.

The miscellaneous allowance retained its original purpose while gradually being asked to pay for things that were no longer particularly miscellaneous.

What began as money for the odds and ends of relocation was now being asked to pay for some of the relocation itself. The miscellaneous allowance had quietly acquired a second job, without the corresponding increase in salary.

An allowance originally intended to cover incidental expenses was increasingly expected to absorb costs associated with necessary relocation activities.

And as the allowance became smaller relative to those obligations, employees understandably became more protective of it.

A $600 translation that might once have been an unremarkable expense now represents a substantial portion of the employee’s available funds.

The allowance, in a sense, broke its own rule.

When discretion becomes the problem

The defining feature of a miscellaneous allowance is employee discretion.

That is precisely what makes it useful.

An employee can economize on some purchases, spend more on others or decide that certain expenses are unnecessary. The employer has effectively delegated a collection of small spending decisions to the employee.

But what happens when the expense isn’t really discretionary?

Consider our driver’s licence translation.

If obtaining the licence is essential to the employee’s assignment or to establishing a workable life in the destination, the employer has a strong interest in seeing the process completed promptly and correctly.

Yet by placing the expense inside the miscellaneous allowance, the employer has created a financial incentive for the employee to avoid it.

The employee is behaving rationally. So is the employer, which wanted to control costs and simplify administration.

Unfortunately, their incentives are no longer aligned.

A benefit designed to eliminate unnecessary administration may now generate additional questions, delays and interventions, potentially costing more than the expense the employee was reluctant to incur.

Not every small expense is miscellaneous

The distinction should not be based solely on the dollar amount.

A $150 mandatory document fee may warrant direct employer coverage, while a $1,000 discretionary household purchase may belong perfectly well within a miscellaneous allowance.

The more useful question is whether the employer wants the employee to exercise discretion over the expense.

Consider a few examples:

There will be grey areas.

A driver’s licence may be essential for an employee relocating to a smaller community with limited public transportation, but considerably less important for someone moving to downtown Toronto.

The expense is the same. Its importance to the relocation is not.

This is where thoughtful policy design matters more than an exhaustive catalogue of reimbursable expenses.

The answer is not to reimburse everything

There is a danger in taking this argument too far.

If every minor expense becomes a defined benefit, employers could find themselves rebuilding the very administrative machinery that miscellaneous allowances were created to replace.

Nobody particularly wants HR reviewing receipts for shower curtains again.

Miscellaneous allowances remain valuable. They provide flexibility, predictability and administrative simplicity. They recognize that employees have different needs and that not every expense requires an employer’s judgment.

The issue is not whether miscellaneous allowances should exist.

It is whether they are being used for the right purposes.

When reviewing a relocation policy, organizations should consider which expenses genuinely benefit from employee discretion and which are necessary to achieve the intended relocation outcome.

This may require moving a small number of expenses back into defined benefits. It may also require recognizing that some costs, although modest, carry consequences well beyond their price.

And there may be tax considerations. Cash allowances and specific employer-paid relocation expenses can receive different tax treatment depending on the circumstances, adding another reason not to assume the two approaches are financially interchangeable.

Remember what the allowance was supposed to do

The original logic of the miscellaneous allowance was sound.

Give employees flexibility over incidental spending. Reduce administration. Avoid writing policy provisions for every small expense imaginable.

But when necessary relocation expenses migrate into that allowance, the employer may inadvertently encourage employees to avoid spending money on activities the employer actually needs completed.

That is not a failure of employee judgment.

It is a failure to distinguish between two fundamentally different types of spending.

Not every expense that is small is miscellaneous.

And the principle for policy design is relatively simple:

Use miscellaneous allowances for expenses where employee discretion is desirable. Use defined benefits for expenses where the employer needs a particular outcome.

The miscellaneous allowance was created to make relocation simpler.

It should not make necessary parts of the relocation optional.