Should your salary depend on where you live or based on your job responsibilities when working remotely? It depends on the nature of the job, and more importantly, the organization system. For example, half of the employers in a Gartner survey from 2020 announced to now allow their employees to work remotely, full-time on an ongoing basis.
According to Upwork’s Future Workforce Pulse Report, over 36 million people in the U.S. will be working remotely by 2025. The report indicates an 87% increase from pre-pandemic levels and accounts for 22% of the national workforce. This results in an intriguing possibility for employees: should they take their current salary, which was previously attached to a location with a high cost of living, and relocate to a less expensive place? This allows their salaries to stretch further and possibly find a higher quality of life.
For Reddit employees, the answer to relocating was a resounding yes. The social content company declared an end to geographic compensation zones in the U.S. ─ according to an October 2020 blog post. It implies that employees can work anywhere they want in the country but still earn compensation associated with the pay ranges of high-cost cities such as New York and San Francisco.
On the other hand, a different approach is taken by other employers like Facebook. They allow employees to telecommute but adjust salary to conform with the cost of living in employees’ new locations.
Should location-based salary and decentralized pay measures be the norm for remote workers? To answer this question, employees need to understand the organization where they work, its policies, and how the job can be done remotely.
Remote Pay Options
Most work had to be done on-site before the arrival of the internet and mobile technology. Early adopters of remote work would typically offer salaries that were lower than the market rate since they had a distinct advantage or offering work from anywhere. Today, companies’ options for remote salaries depend on criteria like company location, employee’s location, and national median wages for that role or industry.
- Pay based on company location: Let’s say, for instance, you are a software developer currently living in San Francisco. According to PayScale, the average annual salary for your job title in San Francisco is $105,898.
- Pay based on employee’s location: As a software developer in San Francisco, if you take your skill and experience and relocate to Tulsa (Oklahoma), the average salary for this same role would be $64,297 per annum. Well, it’s not as bad as it sounds. The cost of living in Tulsa is 49% cheaper, and housing is 80% less expensive than in San Francisco.
- Pay based on national median: The Bureau of Labor Statistics (BLS) states that the median annual salary for software developers was $110,140 in 2020. So that’s what you would’ve obtained if you were paid based on the national median.
How Should Remote Workers Be Paid?
According to estimates compiled by a research-based consulting organization, Global Workplace Analytics (GWA), 56% of U.S. workers have a job related to part-time remote work. As a result of the coronavirus pandemic, GWA forecasts that 25-30% of the U.S. workforce will telecommute multiple days a week by the end of 2021. It may later transform into full-time remote work from anywhere in the country.
The increase in remote work has made compensation measures complicated for most employers. Should workers who live in a different location get paid based on the cost of living in their city? Maybe the pay scales should be on a company-wide basis?
Many employers pay local rates of compensation based on the cost of the job. The job is also a factor, especially in occupations with high demand. Using the BLS estimation as an example, the number of software developer jobs will increase much faster than the average increase for all occupations by 22% between 2019 and 2029.
Tech companies are willing to pay highly for employees with hard-to-find tech skills and an increased job outlook.
Employers are struggling with issues concerning pay for remote employees today. According to the Society for Human Resources Management (SHRM), employers face the burden of deciding whether to continue paying higher wages based on the company’s location and the employee’s current salary or adjust compensation in line with the local cost of labor.
Pros and Cons of Decentralized Salary
Decentralizing salaries would be a definite win from a worker’s perspective. But there are pros and cons to working remotely for both employers and employees while still maintaining HQ-level pay.
- Flexibility and control over time
- Higher salaries for employees
- Increased worker loyalty
- Easier to attract top talent
- Salaries may flatten with time
- Tough hiring competition for small businesses
- Tax implications
- Employees may end up feeling trapped
- Difficult to maintain culture
Pros of Decentralized Salary Explained
- Flexibility: As an employee, you can make a trip to see relatives or work from a vacation destination without needing to justify it. You’ll also get more time back in your day from not commuting.
- Higher pay for employees: Employees maintain a high salary even if they move to a lower cost of living location.
- Increased worker loyalty: If employers allow workers to live anywhere and keep their salaries, they’ll have considerably longer employee tenure. Apart from enhancing job satisfaction, workers wouldn’t like to change jobs in their new location if they’re getting higher pay.
- Easier to attract top talent: Employers could appeal to candidates that meet their job requirements without adding a dollar to their budget thanks to working from anywhere.
Cons of Decentralized Salary Explained
- Salaries may flatten with time: That bonus may fade over time even if most employers who go remote allow their employees to take their salaries with them. Employees may find themselves competing with other talented workers if permanent remote work-from-anywhere is the norm in an organization. Some may be located in countries where the cost of living is cheaper than in the U.S.
- Tough hiring competition for small businesses: Small businesses may find themselves competing for skilled candidates with global enterprises. For example, the software developers in Tulsa won’t accept a $64,000 annual wage if they can earn six figures from a nationally remote company based out of San Francisco.
- Tax implications: When an organization is in one state and its workers are in another, income tax, payroll, and benefits may become complicated. The reason is that every state has different guidelines for taxes, unemployment insurance, and workers’ compensation, which is the responsibility of employers.
- Employees may later end up feeling trapped: Implementing location-agnostic salary scales may soon become a widespread trend. If some employers do so, employees are more likely to end up unwilling to give up the remote job even if it’s time to move on.
- Difficult to maintain culture: It’s tough to argue against the value of having face time with colleagues and managers. With no or little in-person time, it’s difficult for leaders and HR to keep a strong sense of company culture.
Tips for Salary Negotiation
Though you can’t negotiate a decentralized salary, this idea can help you get a higher salary.
To start, scan job advertisements. You will find those employers that offer tech-hub pay for remote positions easily. They might even disclose it as an employee benefit.
If you haven’t found job listings that offer location-independent pay, check other pay factors that influence salary ranges. Check if employers are demanding certain skills, experience, or certifications so that you can mention them in your resume, cover letter, and during interviews. Find a way to add the qualifications you’re missing if you don’t have them.
- Many companies allow their employees to work remotely from anywhere around the globe. As some adjust pay based on location, others allow workers to keep their salaries from cities with a higher cost of living.
- Decentralized pay has many benefits including higher salaries for employees and a well-developed employer brand for companies.
- Ultimately, the decentralized pay trend may flatten salaries with time. It can also make the demand for talent for both employers and workers more competitive.