Updated: Sep 12
A 2021 survey by the consulting agency beqom found that 80% of U.S. workers expect their employers to let them work remotely multiple days per week. Most respondents, 65%, also said they would accept a pay cut to work remotely.
Additionally, a 2021 survey by PayScale revealed that 65% of employers are permitting employees to work from home as needed. However, 81% of employers do not have a pay strategy for remote workers.
According to PayScale, most employers "consider work done from home to be as valuable as work performed in an office, and 69% say they will not be lowering pay for remote workers." Most of the remainder are still making up their minds about whether to create a separate pay scale for work-from-homers.
Nonetheless, industry experts say that employers should adopt a pay strategy for their remote workers, especially since location-based compensation strategies are growing in popularity. The key is to ensure that the remote-work pay strategy is fair, consistent and competitive.
Traditionally, employers take the following into consideration when setting salaries:
While all these factors are still relevant today, location is under increased scrutiny because remote employees often don't live in the same areas.
Newport Retirement Services, an advisory firm, offers three approaches to setting pay for remote employees in different locations:
Paying salaries based on headquarters location: Set pay rates based on the location of your main office or regional offices. You can also assign pay ranges according to the office that's closest to your remote employees' locations. Paying all employees a standardized salary rate based on the pay scales in the company headquarters location could mean losing the competitive advantage of lower labor costs abroad, but is aimed at pay equity. However, it may still be perceived as unfair by employees in regions or countries where salaries are normally higher.
Paying localized salaries: Set pay rates based on the employee's remote-work or residential location. For example, if an employee lives in a labor market with above-average salaries, you may need to adjust their salary accordingly in order to keep them from being tempted away. Paying employees localized salaries based on the local market rates in their geographic location takes into account varying costs of living across different countries. However, this may be perceived as unfair by employees in lower cost areas compared to higher cost of living areas. It also presents challenges in adjusting salaries for employee relocations.
Paying a global or national median: Set pay rates based on the U.S. national level, and raise them as needed. This option may be appropriate for employers in locations with moderate labor costs. But if you relocate an employee to an area with a much higher cost of living, then you can adjust the employee's pay upward to account for their higher cost of living. On the other hand, if you relocate an employee to an area with a much lower cost of living and their job description has not changed, then no location pay adjustment is needed. Calculating the median salary rate across all employee locations and paying that standard rate to all employees regardless of location eliminates geographic pay differences but may still be seen as unfair by some employees. This strategy also lacks competitiveness in attracting top talent, and the median will need recalculating as the team expands to new locations.
When building a pay strategy for remote employees, it's important to:
Follow applicable federal, state and local equal pay laws.
Avoid discriminatory pay practices.
Confer with legal counsel to ensure the strategy is clear and legally sound.
Incorporate the remote-work pay policies into your employee handbook.
Communicate the policies to your hiring managers and remote employees.
Tips for making equal pay a reality
Tips for implementing equal pay strategies include:
Consider long-term impact on compensation strategy.
Focus on performance over location.
Openly communicate strategy.
Align strategy with company goals.
Check local compensation laws.
Don't be afraid of radical changes.
Recognize there is no one-size-fits-all solution.
FIC Human Resource Partners' Nuance Workforce Solutions can help ensure that the remote-work pay strategy utilized by your organization is enforced in a fair, consistent and equitable manner.