Remote Workers: How Should You Determine Their Compensation?

8.21.2020 | Recently Facebook announced that many of its employees can work from home permanently and live wherever they want, but their salaries may be adjusted based on the employee’s location.

In other words, if a Facebook software engineer moves from Menlo Park, CA to a small town in Alabama, they can’t take their Silicon Valley salary with them.

Other companies are likely to follow suit. According to a Gartner survey, 47% of company leaders intend to allow some employees to work remotely full time. So how should employers determine compensation for remote workers? Should it be based on the employee’s location, like Facebook?

Compensation Options

Employee compensation is a company’s largest operational expense – up to 70% of total business costs, which means reworking your compensation model may significantly impact your bottom line.

Salaries for remote workers are typically based on one of the following:

  • The employer’s location
  • The employee’s location
  • A national median by industry & occupation

Which should you choose? There’s no clear answer for every employer and every situation, but think about the following.

Consider Your Why

The approach you take should factor in your why: Why are you shifting employees to remote work? Is it to reduce costs associated with renting/owning and maintaining physical office space? Or to expand your candidate pool by removing geographical barriers? It could be a myriad of reasons, but don’t lose sight of them as you formulate your approach.

Be Aware of All Costs

Shifting employees to remote work can be attractive from a financial perspective. It eliminates costs across the spectrum – from high-rent office space to commuting allowances to break-room snacks. However, remote employees need the proper tools to effectively work from home.

For example, you may need to reimburse employees for internet service and office furniture, and purchase updated computers and monitors. Additionally, you should invest in cloud-based technologies that facilitate team collaboration and allow you to monitor staff productivity.

Understand Talent & Location Dynamics

A graphic designer in St. Louis may be just as talented and skilled as one in Los Angeles. However, their salary requirements are probably very different. In cases like this, you could reduce operating costs without compromising quality. On the other hand, for in-demand and hard-to-find candidates, you should expect to pay competitively and not necessarily factor in a candidate’s location.

If you decide to use the national median and pay the same rate across the country, an employee in a less expensive area may benefit greatly while their counterpart in a major metropolitan area struggles to cover living expenses. Therefore, it’s important to consider various scenarios and use current and/or projected employee data to understand the implications.

Remote work has been trending up in recent years, but the pandemic has accelerated its adoption. If some, most, or all of your employees will be working from home permanently, take the time to devise a compensation plan that benefits them and your organization.

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