Distributed Workforces – When Location Influences Pay

COVID made a significant, far-reaching impact on many aspects of how we live and work in the modern age. Within this era of disruption, more and more companies are choosing or resorting to hiring employees who don’t come into an office, whether regularly or even at all.

Remotely located employees and distributed workforces have existed for decades, while admittedly, not previously at the rates we now see post-COVID.

Historically, only organizations with multiple worksites needed to contend with geographical differences in costs of labor for setting employee pay ranges. In the “war for talent” era, this has changed.

Remote work—and its prevalence and effectiveness—rose meteorically over the past three years. Most recently, the variance of preference between onsite, hybrid, and remote positions has plateaued but there is still a mismatch between the desire for remote work and the availability of these roles. This is where you come in, employers!

For our shared understanding, we’ll define distributed work as: work performed or completed in more than one physical location away from an employer’s site, such as from home. Distributed work applies to both hybrid positions and fully remote positions.

Prevalence of 100% Remote Jobs

From LinkedIn’s research, “just 10% of U.S. job postings on LinkedIn in December were for remote jobs — and those postings received 46% of all applications.” Wow!

While this is eye-opening and helpful to know, it’s also important to note that not all workers want to work remotely 100% of the time. We can see in the graph that it’s a somewhat even split amongst all categories when not controlling for demographics.

Indeed’s Hiring Lab has recently offered trends and data on the distribution of work location based on how job postings are categorized on their career site. As of March 31, 2024, Indeed reported an overall 8.4% of job postings on their site were for a remote or hybrid role.

This is down from a peak of 10.4% in February 2022, but is still significantly higher than the 2.2% reported rate of remote/hybrid job postings in pre-COVID, April 2019. Indeed and LinkedIn’s reporting of roughly 10% of job postings on their sites listed as remote shows there is still a limited supply of fully remote positions.

Aren’t We All Going Back Onsite?

The short answer is no. A small percentage of CEOs are driving a full return of employees to physical offices or downwardly adjusting the amount of remote work an organization may allow in a hybrid work agreement. Nike is a local and recent example, moving from 4-days in-office to a full 5-days once more. UPS made a similar decision in February of this year. Some additional research has been done on the effects of returning workers to the office and effects on morale, productivity, and firm valuations.

If some organizations are choosing to return to a centralized location, there are also some organizations who are doing the opposite and intend to distribute their workforce, whether for the first time or to expand what they started during COVID. Productivity, cost reductions, employee preferences, expanding opportunities for hiring great talent, reducing commuting demands, providing greater work-life flexibility and many other reasons may all be motivators for distributing work and hiring employees in new locations.

Expanding to a “Workforce Without Borders”

Some employers have deemed specific positions can be just as effective done away from a physical office location. If you aren’t managing a distributed workforce yet, but are planning to change up where work is performed for your organization, here are a few scenarios to consider:

• From one state to two states
• From one state to multiple states
• From one city to multiple cities in one state
• From one city to multiple cities in multiple states

Each of these moves will require strategic preparation at different levels of the organization. Most importantly – how will these future employees be paid?

Will you use the same pay ranges for all positions regardless of location, or will you differentiate geographically? At the state level? Local? Will you have different pay ranges for different cities in the same state? Additionally, if a worker moves from one location to another, what pay actions will you take? These are serious questions to consider and answer prior to hiring employees and creating potential risks and legal consequences for your organization.

Do you have a compensation structure to help you manage these decisions? At a minimum, consider if there is a need for a structure to administer fair pay and comply with regulatory obligations, along with creating a process to scale your pay practices as the organization grows.

Pay transparency trackers at WorldAtWork, Payscale and HR Dive are regularly updated with relevant legislation for employers. A great place to start would be identifying the location(s) you are considering for determining what additional resources and/or policies are needed before your first remote or distributed employee is hired.

It’s imperative to know your responsibilities as an employer to avoid lawsuits, such as class actions, and set your organization up for success. Spend your time and money on creating and maintaining defensible, equitable pay practices which will drive a higher ROI for your business and support your brand instead of on settlements or penalties.

Final Thoughts

Ultimately, distributing work (or not) should be viewed as a business decision dependent on the desired outcomes an organization is seeking. Whether you plan to offer a hybrid work situation or determine fully remote roles, providing the option to employees to conduct their work with more location flexibility can be a strategic advantage for you as an employer and support your retention efforts. Studies continue to show real, significant benefits to considering alternatives to onsite work.

If your organization could use some help setting location-based pay ranges or assessing the competitiveness of your compensation ranges for future hiring, please reach out to our compensation team for support.