Remote work pay strategies that account for geographic differences

Recognizing that costs of living and labor differ depending on location

Mar 07, 2023

Key takeaways

Remote work pay policies should be clear and concise and align with the company’s compensation philosophy.

When employers communicate their pay practices to employees, it increases employees’ perception of fairness. 

The compensation philosophy and pay strategy approach works best when it supports business goals and objectives consistently.

Labor and workforce Business tax Employee benefits Compensation & benefits

Remote work arrangements extend employers’ geographic reach, enabling them to attract skilled talent from locations outside of their home office area. This work model, which appeals to workers because of the flexibility it allows them, also introduces questions for recruiters, such as how to adjust compensation for workers who may have very different costs of living in their separate geographies.

Given the permanence of remote work options at many companies, employers need to understand how this geographic expansion affects employee compensation. Ultimately, how should employers think about the future of their pay strategies if they have a number of employees in remote work arrangements?

Starting points: Costs of labor and living

The factors that most influence strategies for remote work and geographic pay are cost of labor and cost of living. With that in mind, companies are revising their previous determinations of how competitive pay levels should be set. Compensation must be balanced within the labor market to attract, motivate and retain employees—but where the eligible hiring pool may be spread over a broader area, a company may have to consider a broader approach.

Factors to consider in your strategy are:

  • Effects of local, state and federal regulations on setting remote worker pay
  • Job groups that may be affected (exempt vs. nonexempt)
  • Administration of employment matters, such as the location attached to an employee (e.g., their residence, the hiring office, the employee’s reporting location, or a nearby company location)
  • Metrics to set pay rates, such as a U.S. national average or an average in a specific city/metropolitan area
  • Pay adjustment strategies for employee relocation (i.e., an employee relocates to an area with a different cost of living than their original location)
  • Timing for implementing strategies
  • Differences between options for current employees and new hires

Transparency and benchmarking

Upon finalizing your revised compensation philosophy and strategy, you should clearly and effectively communicate the changes to your employees. Transparency in outlining pay policies and compensation strategies for remote workers helps to set expectations and desired outcomes for both the employer and the employee. When pay practices are communicated, transparent, and consistent, employees have a greater understanding of how their employers make pay decisions, which increases their awareness and perception of fairness. 

Companies generally begin a new strategy by performing a benchmarking exercise to determine effects on employee pay and to support any corresponding initiative necessary to mitigate that impact. Benchmarking may show that your pay scale is above or below the market, or it may show that some employees are above market while others are below. Consider what to do if an employee’s compensation is misaligned with the market.

More than cash

Remember, cash compensation is only one component of your overall compensation philosophy. Other benefits can be effective in recruiting and retaining workers; however, employees in certain geographic areas may value benefits that are not useful in others—such as transit passes, which are valuable only in places with public transit.

Develop a remote pay policy that is clear and concise and builds in enforcement as needed. Communicate the policy and include it in the employee handbook to ensure consistency.

Consider whether employees are performing up to certain levels based on their skills and background. This may require additional training to get some employees up to a level where they can be trusted to work remotely. If an employee’s remote performance is not meeting expectations, you may need to require them to work in the office.

Performance considerations also may depend on segments of a company’s workforce and the respective job requirements. Employers should consider what approach best supports their distinct teams, in addition to their overall business strategy, goals, and objectives. Companies then need to follow the communicated approaches consistently but be ready to reconsider if one portion of the approach is not working.

Overall, being thoughtful about compensation for remote workers across various locations will strengthen the competitiveness of your recruiting efforts. Being as transparent as possible with employees about those strategies will foster a collective understanding and promote a culture that thrives on the flexibility of remote work options, supporting your company’s overall objectives.

RSM contributors

  • Mark Ritter
    Senior Director
  • Antoinita Thompson

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