Should Remote Work Change Employee Pay?
As more employees work remotely, some companies are considering whether geography should determine pay.
Mark Zuckerberg made waves earlier this year when he announced his expectation that half of Facebook employees would work remotely in the future — and that remote workers who leave the Bay Area would face a pay cut. Twitter recently announced a similar policy, and employees at VMware report that leaving Silicon Valley could result in a salary reduction of up to 18%.
Remote compensation has been hotly debated since COVID-19 began spreading across the U.S., forcing anyone who could to work remotely. In the past, payment at different locations has been based on a geographic pay differential. But does this method still apply when employees aren't required to work in a specific area?
Changes in remote compensation are primarily occurring in tech companies. But tech companies often set compensation and benefits trends, and it's only a matter of time before other sectors adopt similar practices. Here's what you need to consider when developing your remote work compensation strategy.
Create a Remote Geo-Differential
Geo-differentials account for different levels of demand when employees are required to live in a specific location. But there's currently no structure for a non-landed job, says Dan Walter, a compensation expert and managing consultant at FutureSense, LLC. Companies will need to establish a remote geo-differential.
Companies have to decide what each job is worth in the competitive marketplace. "It becomes sort of the 100th percentile for what pay is for a job," Walter says. "It's what that job is worth to you to be competitive in the marketplace." A remote geo-differential isn't the same thing as a national average, which, when accounting for places without any demand for a specific talent, dilutes its value.
Furthermore, national data could be skewed heavily to a specific area where a geo-differential has already been applied, which could lead to over-indexing the market, says Justin Hampton, president and founder at Compensation Tool. A remote geo-differential bases pay on competitive compensation, regardless of where talent is located.
Expand Your Total Rewards
Just because employees aren't coming to an office anymore doesn't mean you aren't still responsible for their work-related health and wellness, like providing ergonomic office furniture.
"If you're going to create a voluntary work environment and shut down office space because you found that people are more productive that way," Walter says, "Now the question is: Beyond pay, what else comes into their total rewards package?"
Employers are obligated to provide ergonomic furniture in the office, for example, so if organizations require employees to work from home, they may need to include stipends for supplies and other additional benefits. Since Facebook is deciding for employees to work remotely, they are giving each remote worker $1,000 to put toward home office supplies.
Taking this concept further, if you require employees to work remotely and they need to turn a bedroom into an office, is that bundled into their compensation or do they carry the cost of real estate on their own? "Do you offset that person's mortgage? Do you give them a monthly office stipend?" Walter asks. "Some piece of their pay needs to take that into account."
Determine the Scope You Can Cover
While your talent pool is virtually unlimited, the cost of establishing employees in other parts of the state — or even the globe — can become very high. You will need to follow individual state tax laws, register for the authority to do business in that state and register and obtain worker's compensation insurance, among other things.
In many states, the cost of establishing payroll and healthcare is the same whether you're registering one employee or several. And if you're not a publicly-traded company offering equity compensation, states have individual blue sky rules governing that, too. You need to determine the scope of what you can capably cover, Walter says, without cutting corners on compensation or total rewards. Hampton recommends working with a consultant, both on the HR and the tax side, to determine the scope of what is required when hiring employees to work across state lines.
Consider expanding to remote work slowly. "The company really needs to decide the locations that they approve employees to work," Hampton says. If you're a company based in New York, for example, hire remote employees to work from home within that state.
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