Compensating Remote Workers

One of the many lasting cultural shifts to come from the COVID-19 pandemic is the flexibility for many employees to work remotely. What once was thought to be a temporary assignment, now appears to be here to stay. 

The next question comes, how will you compensate those employees located in different areas? According to a recent study completed by Payscale, 81% of organizations don’t have a compensation strategy for remote work. 

If you haven’t already, now is the time to really consider how you will approach this shift. Each organization will need to consider what will work best for them when it comes to a remote work compensation strategy. Below are a few common options to consider:

1. Central Location-Based Pay - Set all employee compensation based on the headquartered location. This may mean no change to current pay practices if employees were all coming into the office previously. This may work well if employees still live relatively close to the central location and you don’t plan to hire outside of it. This may also work especially well for remote/office hybrid roles.

2. Location-Based Pay - Set all employee compensation based on their work/home location. This can potentially decrease employee compensation if they move to somewhere where cost of labor is less expensive, or increase compensation if they move to somewhere where the cost of labor is higher. It’s important to note the difference in cost of living vs. cost of labor and typically cost of labor is the best data point to use for location-based compensation. Many organizations will still create their base compensation structure around their headquartered location and then apply geographical differentials to that structure to create ranges for additional locations.

3. National Average Pay - Set all employee compensation based on national average wages. This can be a disadvantage if most employees live and work in a higher than the national average location.

Current remote workers may not be the only ones you need to consider, but also potentially new hires in remote locations if the work allows. Many organizations have realized efficiencies in remote work and have even expanded their candidate pools when hiring, which can help greatly in a difficult recruiting market. 

Organizations should revisit their compensation philosophy and strategy to document their strategic decision to determine how pay levels by location should be set. Take into account the need for attracting, motivating and retaining key employees. Organizations should also develop a clear remote pay policy that best supports their business, making sure it is documented and applied consistently.  

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