Many business owners are trying to determine how to pay remote workers, specifically whether they should make salary adjustments for employees and candidates based on where they live. The practice of setting salaries based partly on location isn’t new, but it’s typically based on how expensive it is to live where the office is located.
Now as remote work is becoming more common, many business owners are debating whether they should make these cost-of-living adjustments (COLA) based on how expensive it is to live where the remote worker chooses to reside. It’s a difficult decision, so we’ve rounded up the most common options for setting salaries, how they could impact your remote workers, and how to start the process.
The Most Common Strategies for Setting Salaries
There are two main options for setting salaries. You could set a global salary or make local salary adjustments. If you choose a global salary, you’d pay employees in the same role and seniority level the same salary no matter where they live. Alternatively, if you make local adjustments, you’d pay employees different amounts based on where they work, based on a COLA.
Here are the three main strategies for setting salaries:
1. National Median
If you use this strategy, you’d base the salary on the national average salary for a specific role. In the United States, the Bureau of Labor Statistics (BLS) collects salary data from employers in every state, including metropolitan and nonmetropolitan areas, and publishes the median salary. Their data also includes the average hourly rate and a range from the tenth to the ninetieth percentile.
2. Employer Location
With this strategy, you’d set the salary based on the median rate for the position and the city where your office is located. There are a lot of helpful salary tools that you can use to find the median salary for the city. Some include the low and high end of the range so you can adjust based on the person’s skills, experience, and other performance-based factors.
3. Employee Location
If you choose to make salary adjustments for remote workers who live in a different city, you’d use this strategy. Like with the other methods, you’d use a salary tool to find the median salary for the role and the city where the person lives.
The Possible Impacts of Making Salary Adjustments
If you choose to adjust salaries for remote workers, it could have an impact on retention and recruitment. Here are some of the main considerations:
If you make adjustments for current employees because they choose to work remotely from another city, they might be resentful about taking a pay cut when you’d previously budgeted for their higher salary. If employees in the same role and seniority level find out that they are making substantially less for the same work, they could become less motivated, productive, and committed.
Before deciding to decrease salaries for remote workers, consider the money you may be saving by having all or some of your employees be remote. For example, you’re likely saving money on rent and utilities, office supplies, and commuter benefits. Some employees are more productive and perform better when they work from home, so you might be getting better output.
Salary adjustments for remote workers could lead to decreased employee morale and engagement which could be detrimental for company performance because of a number of factors, including lower-quality work, decreased productivity, and higher turnover.
The increased turnover can be a major expense because, in addition to losing top performers, it is expensive and time-consuming to hire and train new employees. Although it might seem like you would cut costs by making salary cuts, you could end up losing money.
The U.S. Equal Employment Opportunity Commission (EEOC) enforces federal anti-discrimination laws that prohibit discriminating against candidates and employees based on their: race, color, religion, sex (including gender identity, sexual orientation, and pregnancy), nationality, age (over 40), disability, or genetic information.
Even if it’s unintentional, if your policies disproportionately impact a protected group, you could be liable for discrimination under what’s called “disparate impact.” If mostly women or older employees, for example, decide to work from home and are paid less, they can file a claim with the appropriate federal or state agency and in some cases file a lawsuit.
There will be increasing competition as more companies, including large corporations that can pay high salaries, hire remote workers. One of the main benefits of hiring remote workers is that you have access to a larger pool of qualified candidates.
However, to attract top talent, you may need to pay more. This is especially true if your headquarters is in a less expensive city, and you want to recruit remote workers who live in more expensive locations.
How to Start the Process
Here are some steps you can take as you consider whether you should make salary adjustments for your remote workers.
1. Communicate With Your Employees
Use an employee survey to find out your team members’ preference for remote work. Ask if they’d prefer a totally remote, in-person, or hybrid model. Additionally, find out if they would prefer to work remotely at a lower salary depending on where they live. This will help you make a decision a majority of your employees support and make your employees feel included in the decision-making process.
2. Give Employees the Option
If you choose to make adjustments for remote workers and retain your office or a co-working space, give them the choice of keeping the higher salary by working in the office. Let them know the salary adjustment for their location to help them make a decision that works for themselves and their families.
3. Consider Alternatives
Instead of making salary cuts, you may want to implement a salary freeze. If you need to decrease salaries, consider perks you can offer like home office equipment and internet and phone bill stipends.
4. Seek Out Advice From HR and Legal
It’s possible that changes to your compensation strategy could violate contractual or employment obligations. Before making any decisions, reach out to lawyers and HR experts for advice.
Considering Changes for Your Workforce? Get the Latest HR Best Practices Today
As you’re deciding to pay remote workers, there are more decisions than whether you should make salary adjustments. Whether you move to a completely remote or hybrid workplace, it will impact whether you need offices, how you maintain your company culture, the technology you use for collaboration, and how you structure your remote hiring process. Learn how to recruit and retain a talented team by signing up to receive expert hiring advice, news, and data from Monster.
Legal Disclaimer: This article is not intended as a substitute for professional legal advice. Always seek the advice of an attorney regarding any legal questions you may have.