Should Pay Be Locally Adjusted For Remote Workers?

In 2019 only 3.6% of employees worked from home, 50% of the time. At the end of 2021, about 30% of the workforce worked at home at least a few days a week. As the remote work trend becomes more permanent, employers have been asking themselves and SevenStar HR about salary ranges: “Should I pay a remote salesperson in Boston the same as one who lives in Idaho?”

Because of the recent labor shortage, recruiting remote workers has become a potential means to an end, bringing the question of pay further to the forefront. The median pay for a software developer in San Francisco is $120,000 but drops to $87,000 in Minneapolis.

Here are three options for setting remote pay:

Base pay on employer location

With this traditional office-centric approach, regardless of where they live employee salaries are based on the market salaries of the company’s headquarters location. This makes sense for smaller companies with a few remote positions or those who want to simplify their company’s compensation strategy. If some remote workers are in a high-priced market, the company can give a location bonus to keep a few valuable remoter workers, while retaining equalization across the team and making salary reviews less complicated.

Base pay on employee location

This policy is more accurate but also more complicated. It is common with positions that are highly regulated, and which must comply with local wage laws. The difficulty also increases based on the number of remote locations and positions, if you want to do an annual wage analysis to ensure you are keeping up with each location’s salary pay scale changes. If your headquarters is in a high salary area like San Francisco or New York City, and your remote employees are in lower-cost areas, this might be the most cost-effective solution, especially if you have many remote workers in these lower-cost areas.

Base pay on the national or regional median

This method is advantageous to larger organizations with highly distributed workforces, especially for non-competitive roles. As long as you do not have to compete with others to get employees, a national or regional approach can save the company money if they headquarter in a high-priced area. Larger companies also have the HR support to ensure the salary research needed to keep up national and regional areas.

If you are going to institute one of these plans, change the pay range for the job but not the actual pay for your employees to prevent a backlash with increased turnover. You can then reset expectations on pay increase eligibility and freeze pay in certain locations.

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