Remote work is becoming a permanent fixture at many companies in the wake of COVID-19, leaving many wondering how to pay remote employees. And the sooner they can figure it out, the better—many workers are already considering relocating to areas with lower costs of living. If your company might reduce pay in those circumstances, you should let employees know before they make those decisions.
It’s important to be clear and consistent around how you pay employees, and a formal compensation strategy with pay ranges can help. But what market will dictate the upper and lower end of those pay ranges? Begin by considering these basic approaches to remote compensation:
There are pros and cons to each remote compensation strategy. Here are some things to consider as you make the choice for your company:
This is a pivotal time in remote work, making it the ideal opportunity to set your long-term remote compensation strategy. While you can certainly change your strategy in the future, it will likely be more challenging than doing it at this current turning point.
Some companies have good reasons for choosing a global rate or zones, but most companies have used local market compensation to manage multiple locations even before the shift to remote. Those companies are typically expanding that approach as more employees shift to remote work. Local market compensation is the most precise way to pay employees, and ensures that you’re using your compensation budget strategically.
Local market compensation was relatively straightforward to do when employees were associated with an office location, but it becomes more complex to manage as employees transition to remote work.
There are two main ways companies approach local-market compensation:
Compensation is highly personal, and there are a lot of opinions about potential pay cuts employees would face if they relocated somewhere with a lower cost of living. Understandably, employers are worried about losing the teams they’ve worked so hard to build.
But one study showed that 32 percent of working professionals would consider relocating with a paycut, if given the opportunity to work remotely as much as they would like. Another study showed that 24 percent of US employees would take a pay cut of up to 10 percent to work remotely. Many employees would have no problem with a pay adjustment related to relocation, and many others simply wouldn’t relocate if a change in salary were on the table. Still, there are some ways you could mitigate other downsides to switching to local market compensation:
Compensation in itself is complex, but remote compensation can bring added challenges. You may have to set up new tax IDs and become familiar with new state and local laws, among other things. You can better manage the complexities of remote compensation by:
There has been some negative press around companies adjusting to local market pay as employees relocate—but that’s the way things have always been done. Companies don’t pay the same for an employee at the San Francisco office as they do for an employee in the Atlanta office—even if they have the same role. When employees relocate to another office, their pay is adjusted to the local cost of market. Now we’re applying that concept to remote employees.
It’s ultimately up to you to decide how to pay remote employees, and it should be left to the employee to decide if they want to relocate. But make sure they have the facts they need to make an informed decision. Communication is key to any compensation strategy.