Paying Remote Workers

The year 2020 has brought many changes to the workplace, not the least of which is a rise in remote work arrangements. According to a survey conducted in October by WorldatWork and Salary.com, prior to the COVID-19 pandemic just 13% of employees worked remotely. By April, as lockdowns became the norm, 67% of employees were working remotely. Even now, with more businesses open than not, 62% continue to work from home. About 9 out of 10 of these are working remotely full time.

As employees and companies adapted to remote working, both began to see the considerable benefits. And today’s technology advances made the adjustment easier. Organizations reconfigured company computer access for off-site staff. Zoom became the most popular platform for team meetings, cross-functional collaboration, and webinars.

The remote work relationship proved to be a win-win for employers and employees alike. Workers recaptured commuting time and costs, enjoyed more flexibility to attend to childcare and other family needs, and this translated into increased productivity. Employers maintained business operations while accommodating remote work.

Once the business disruptions from the pandemic fade, many are predicting remote work will be here to stay.

In fact, a new survey from U.S.-based Enterprise Technology Research (ETR) finds the number of employees permanently working remotely is set to double in 2021 to nearly 35%.

Businesses have many good reasons to support the remote working trend including:

• Lower costs for commercial office space, utilities, and ancillary expenses
• Increased diversity in hiring
• Better employee retention
• A reduced carbon footprint with fewer people commuting
• Expansion of the available talent pool

On this last point, remote work allows companies to recruit from a much larger pool of candidates than they currently do, as most medium and small-sized organizations recruit talent locally. Now organizations can expand their recruiting base to the entire U.S.

One impact of the pandemic has been a reported flight from big cities as professionals seek less crowded urban environments and a significantly lower cost of living (COL). According to a new study by freelancing platform Upwork, 14 million to 23 million Americans intend to relocate to a different city or region because of telework.

If these trends do indeed become reality, employers have a strategic opportunity to reframe their basis for compensation decisions.

Even so, the current question that many employers are asking is this: Should I pay someone who is working remotely in a lower COL city the same as an employee working at our more expensive central business location? The traditional thinking goes like this: built into the corporate salary structure is recognition that larger population areas generally pay more. So, will I be overpaying if I do not reduce remote salaries to reflect these COL differences?

We believe that reducing salary simply based on COL is wrong for several reasons. First, employees will not like having their salaries reduced. How they spend their money is their own business. After all, employers do not care if an employee drives a 10-year-old Chevy or a Mercedes. So, why should they care what street the employee lives on? Second, paying less than the broader market rate increases the risk employees will be recruited away. Finally, administering and communicating separate pay programs for remote employees with multiple pay arrangements can be an organizational burden.

A better approach is to define a larger geographic area and set compensation competitiveness targets for that area, then administer pay to one set of parameters. So, instead of using competitiveness survey information for the company’s immediate surrounding geography, expand the territory that is used to determine competitiveness.

For example, if you are recruiting from a Midwest talent pool, you may want to examine salary data for Wisconsin, Iowa, Michigan, Minnesota, Illinois, Ohio, and Indiana. Both state-level data and regional data can be used to determine pay ranges for each position or job level. If you are recruiting from coast-to-coast, you can use a national median. This can offer a great advantage to organizations with a highly distributed workforce.

In any case, it is important to weigh the benefits and risks for your remote workforce and to consider how pay may vary depending on the industry, occupation and skillset required. Using a broad geographic approach for your competitive salary information is easy to administer and avoids confronting employees with a pay reduction.

About Lappley & Associates

Lappley & Associates is a management consulting firm that specializes in the development and implementation of compensation programs for clients. We primarily consult with manufacturing, service, utilities, and not-for-profit organizations for medium and small-sized businesses.

Contact Us

If you would like to discuss pay of remote employees, contact Neil Lappley at (847) 921-2812 or nlappley@lappley.com.