Certified Relocation Professional (CRP) Practice Exam

What is the primary purpose of a domestic cost of living allowance?

1. Financially reward the employees performance at the new location

2. Eliminate the need for companies to provide tax gross ups on moving expenses

3. Overcome the employee's reluctance to relocate

4. Allow the spouse a longer time to become re-employed

The correct answer is: Overcome the employee's reluctance to relocate

The primary purpose of a domestic cost of living allowance is to overcome the employee's reluctance to relocate. This type of allowance is designed to address the potential financial challenges that employees might face when moving to a new location with a different cost of living. By providing this allowance, employers help ensure that employees can maintain their standard of living despite any increases in expenses they may encounter in a new city or region. When employees are considering a relocation, they may have concerns about how their purchasing power will change based on local prices for housing, groceries, transportation, and other necessities. A cost of living allowance mitigates these worries by providing additional financial support specifically meant to cover the difference in living costs. This encouragement can make the idea of relocating feel more manageable, thus increasing the likelihood that the employee will accept the transfer. Other options mentioned do not align with the primary motivation behind a cost of living allowance. For instance, while it may be beneficial to reward an employee’s performance or to facilitate a spouse's job search, these aspects are not the core purpose of a cost of living allowance, which is fundamentally about financial adjustments related to living expenses.