How to pay remote workers

How to pay remote workers

The COVID-19 pandemic has changed the way millions of people report to work. More people than ever are performing their work duties remotely, freeing companies to shrink their office footprint and think strategically about their pay structures.

Some companies are giving permanent remote work a try. Facebook, for instance, has given some employees the option to continue to telecommute even after the pandemic ends. But there’s a caveat: If a worker moves to a less expensive city, Facebook may pay them less. “We pay a market rate, and that varies by location,” Facebook founder and CEO Mark Zuckerberg reportedly said in a press conference on the matter. “We’re going to continue that principle here.”

This is a controversial concept, but one that some companies are pondering as they think about the flexibility of a remote workforce. What’s the best way to handle salary for workers who live in areas with different costs of living? It’s not a slam dunk and hiring experts have some thoughts to help you tackle the question:

Adjusting current salaries is tricky

What Facebook is proposing means that if an employee moves from near the company’s California headquarters to a less expensive city—like Boise, ID, say—the company might decrease their pay accordingly. But tweaking the salary of an employee who already works for your company will likely result in attrition over time. This can save you money eventually, but in the short-term, you could lose your star workers.

“The people who move to Boise who are really good are going to leave,” says Pieter Vanlparen, managing partner at PWV Consultants. “They’re going to get work for a company that’s going to pay city rates, or they’re going to get the highest paying job in Boise.”

Even if the adjustment in pay leaves them in a similar situation in terms of cost of living, it can still feel like an insult. “The work I’m delivering to you hasn’t changed, so you’re devaluing me,” Vanlparen says. “Most of the time, what I’ve seen happen is that within two years, those people are gone.”

Consider the message

At a glance, paying different salaries to people who live in more or less expensive areas seems to make sense. But whether or not they live in New York City or Mississippi, they’re delivering the same work. Are you comfortable paying a programmer in New York City who produces 8,000 lines of code more than a programmer in Mississippi who produces 10,000 lines of code?

“It gets problematic,” says Dave Denaro, vice president of career management firm Keystone Partners.  “Companies usually have a habit of paying more productive people more money, not less. For companies in industries where you need talent that’s in demand, I don’t think you’ll see regional differences.”

Be certain you aren’t discriminating

Paying different employees different salaries to perform the same work must be handled with extreme precision and mindfulness. And even if you’re careful, you could still end up in a difficult situation.

“If a company handled pay regionally, it wouldn’t take too much to produce a report that said, by demographic, by race, by gender, who’s getting paid the most and who’s getting paid the least, and where do they live?” adds Denaro. “For some companies, it could potentially be very awkward to look at that list and say, ‘Isn’t that funny that some people of this gender and this status, we don’t pay them as much as we pay [other employees]?’ There are probably ways to rationalize it, but it’s an area a lot of companies just don’t want to get into.”

One way to handle this is to be sure you’re paying the industry average for roles. If there’s a salary range, you might be able to snag someone at the lower end of the range based on remote work or work-life balance. “But not discriminating based on any protected categories is important,” says Matthew Burr, a human resources consultant in Elmira, NY. “Industry average or professional average is absolutely going to come into play.”

Tweaking your office space may be easier

There are multiple pitfalls to varying your salary offers by market area. You may lose great talent if they don’t feel appreciated, and there’s a chance you could inadvertently discriminate against workers. You may be able to realize the same—or more—cost savings by decreasing your office footprint instead.

“This is very advantageous for a company like Oracle who says, ‘We’re going to move our brand headquarters to Texas and save money that way, and let people work wherever they want,’” Vanlparen says. “I definitely have seen companies that open up to remote work do that. It’s not a bad idea—why are you paying for empty desks?”

Stay on top of the latest compensation strategies

As the shape of the workplace shifts from cubicles and commutes to home offices and everything in between, one thing stays the same: to stay competitive in the hiring space, you’ve got to know how to pay the right wages. Stay on top of compensation news and trends by signing up for Monster Hiring Solutions. We’ll send you monthly updates with Monster’s proprietary data and thought leadership to help you stay ahead.