How to Pay Employees in a Remote Work Arrangement
As more and more companies shift to remote work, the inevitable restructuring of a company’s compensation strategy becomes an important topic of discussion. With employees working in different geographic regions, factors like varying taxation rules, the different average cost of living rates, as well as diverse job market values, will play a significant role in strategizing remote work pay.
While it would be easier to make the adjustments for onboarding new employees, this may not be the case for current employees that have, for one reason or another, transitioned from working in an office to working from home. If they move to a more affordable area of the country, should you cut a specific percentage of their remote work pay? How will employees react to these changes? Will new benefits be provided in place of those that will be taken away?
Companies will need to answer these questions as they hone in on a new remote work pay structure that will best benefit both the business and employees.
Salary based on Headquarter Location
The type of remote work pay arrangement that requires the least change, is when the company decides to use the business address as the market base. This means salaries are based on the prevailing wage rates for the headquarters’ location, regardless of where the employees are working from.
This strategy may be perceived as a fair choice, since all employees, regardless of location, will be paid based on a singular factor. Take, for instance, a business headquartered in San Francisco. Workers staying in the vicinity of the office or relocating to a spot with a similarly expensive cost of living, such as Seattle, can take comfort in knowing their financial situation has not changed. Employees who’ve moved to a more affordable market, like Cleveland, would delight in making a significant amount higher than the local prevailing wage.
As your organization formalizes remote work, and especially if you’re tracking towards being a remote-first company, this type of arrangement may be a good approach to retaining talented employees. Workers may feel slighted to have their pay docked, especially if they’ve proven in the meantime, that they’re just as productive working remotely as they were in the office.
But what about your compensation strategy for new hires? Read on for some more items to consider, but in this particular instance, the downside is that this approach leads to difficulty in hiring potential employees living in cities more expensive than yours, in a way, limiting your talent pool. Tying your compensation strategy to your HQ may also result in your organization paying a higher wage than is necessary.
Salary based on an Employee’s Location
As opposed to the first option, this salary structure bases its rates on the geographic location of your employees. This strategy highly benefits businesses while ensuring that employees are paid fairly, in consideration of all compensation factors. For instance, a New York-based employer would be able to pay a reduced salary for workers in areas with lower costs of living, such as Arkansas, resulting in decreased labor expenses for the company, while still ensuring that the employee receives a living wage.
In addition, this strategy helps increase talent pool options, since you can offer remote jobs at a rate that will be favorable for your target hires.
On the other hand, it could also be tricky, especially when addressing the question of paying the same job roles with different salaries, just because they live in different cities. It is possible for employees living in less expensive cities to feel undervalued, which could lead to poor performance. This may be especially true if your company is a more transparent organization, where salary information is openly available to the workforce.
Employees’ feelings of worth and importance to an organization are often tied to their compensation; these considerations are especially pertinent for those employers who are seeking to formalize their remote workplace strategy and settle their approach to compensation with existing employees who may have been working in an informal remote setting.
Your organization will also need to consider the scenario of an employee who is paid higher for a job role with lesser function than one that is living in a different city, all because they are in a location with a high cost of living.
As such, it is important to carefully consider a lot of factors when deciding to choose this approach to remote worker compensation. Zoning the areas is a crucial part, as well as planning which job roles to hire in which cities. This is why, while it is the most favorable strategy for businesses, it is also one that requires plenty of planning. It requires businesses to spend time curating rates individually, geared with tools and updated research involving important compensation factors.
Salary based on Job Role’s Market Value
This is one of the more common strategies used by companies, wherein the location is not much of a factor, as much as the value of the job role of the employee. This strategy falls right into the context of “paying for value” in regards to the type of work an employee provides for the business.
This strategy avoids the issues raised by the first two strategies, since everyone with the same job roles is (initially) paid the same salary, regardless of location. This puts the focus on the capacity, attitude, ethics, and performance of the employee, over any other factor.
It is also fairly straightforward to plan out since a standard rate can be set for a particular job role. Hence, fewer resources will be spent on creating individualized rates. All employers need to do is to stay updated on the market value of a particular job role, so they are informed on how much an employee should be paid — Accountants, Marketers, and Operations team members will all have different salary rates based on how the market values these roles.
Salary based on Multiple Structure Pay Strategies
With how each pay strategy has its pros and cons, the option to combine these methods can also be used. One can combine location with a job’s market value in determining compensation. This will maximize the benefits of each strategy and is an ideal way to address questions and issues that arise from sticking to just a specific pay structure. For one, it avoids overcompensation for employees living in more expensive cities as the market value will be taken into consideration.
Benefits and Perks to Consider Providing to Your Remote Employees
Once your company has decided to treat remote work as the “new normal”, you will also want to give some thought as to how employee benefits and perks may need to evolve moving forward.
Perks such as free on-site lunches or snacks, shuttle services that employees ride for free to get to work, and many other in-office bonuses, will no longer be enticing to remote workers. Instead, perks that are useful for ensuring a conducive home office should be given priority, as well as benefits that can help maintain a positive and happier work lifestyle for employees.
Remote Work Stipend
Depending on how your company plans it out, offering a remote work stipend would definitely excite employees and encourage them to perform better even when working from home. The stipend can be given as a one-time bonus, either upon the onboarding of a remote employee, or when they are sent to transition from in-office and into a work from home setup. If the job requires it, and the company is able to provide it, then the stipend can also come as an annual bonus.
The stipend can be used by the employee to purchase home-office essentials — ergonomic chairs and spacious desks, printers, extra monitors, and noise-canceling headphones–a great solution for those contending with kids and other familial distractions at home. This stipend is also helpful for defraying costs such as subscription fees for an internet provider or for programs and tools either needed for work or just ones that make the remote employee experience more pleasant, such as a Spotify subscription.
From our observations of client best practices in this area, most organizations who do offer a stipend will offer a larger one-time amount to employees upon formally enrolling in the organization’s remote work program, and then a smaller annual stipend moving forward if anything is to be given beyond the initial payment.
Depending upon your comfort level and financial situation, we’ve seen this initial stipend range from $100 to $1250 per employee. This number can even go higher in the event of using this as almost a signing bonus for a key employee an organization is looking to retain. From a budgeting standpoint, these funds are often shifted around with the notion that the organization stands to benefit greatly from potentially reducing its real estate footprint and associated office costs.
Conversely, there are many employers who take the posture that nothing should be provided to employees, as they are saving on transportation costs and, importantly, given back extra personal time by eliminating their daily commute.
Ultimately, each company must decide the best approach for their specific challenges. As a consulting firm that helps clients with these very challenges, Stegmeier Consulting Group never seeks to advocate for one specific solution, but rather endeavors to learn your goals and objectives and facilitate a process that allows you to arrive at the right solution for your company’s unique scenario.
In some remote work setup, there are many challenges shouldered by employees. However, your company can differentiate itself as an employer of choice by offering a remote work stipend. This is an enticing benefit sought by many remote workers, therefore making it an advantageous tool in your hiring process.
Plus, as a business, especially for those that originally have an in-office setting, or are working under a hybrid setup (where some employees are still reporting in the office while others are tasked to work at home), employees may come to expect similar equipment and comfort level when remote as that they would get when they’re in the office. This will create a sense of belongingness between your employees, regardless of location.
Health and Wellbeing Perks
There are a lot of positive aspects of remote working for employees — better productivity, higher retention rates, safer environments, and even more meaningful collaborations since there is more value and purpose whenever employees connect with each other. However, this does not mean that a telework arrangement does not take a toll on employees. Just like in an office, remote workers are also faced with various forms of stressors that can still cause burnout, mental issues, and feelings of fear and insecurity.
This is why, as a business, you should be able to provide your employees with the same mental and physical care that you provide office workers.
Some companies are getting creative as to how they can tap into this perk and provide it wholeheartedly for their employees. With the desire to stay connected and provide a sense of normalcy, businesses send out food deliveries to employees, and even still offer employee-exclusive memberships and access to gyms, online recreational classes, and webinars for professional growth. These perks would be highly appreciated, as it helps them create a routine outside of work. Physical activities and movement are lessened when working from home since there is not much to do but sit in front of a computer. This could cause a strain on the physical health of employees who have been used to moving around in an office for meetings and fieldwork or to simply chat with a coworker.
It is important to check on your remote workers often, not just for work-related reasons, but also to gain feedback from them as to how you can improve your remote work policies based on their experiences. This attention is especially helpful for those employees who had to cope with the changes of having to stay at home for work, rather than going to an office. They are the ones who would most likely miss the concept of working in an office and would be more mentally and emotionally affected by the changes brought about by having to work from home. Thus, focusing on their well-being will help them appreciate remote work and gradually accept and come to terms with the setup.
Determining the Right Remote Work Pay Strategy for your Company
Have you honed in on your remote work pay strategy? If you’re struggling to figure this out, we can help facilitate that exploration, as well as the many other aspects of remote work you’re likely considering.
And once you’ve got a direction, you’re then faced with the task to implement the changes. This means relaying the news to your employees, and explaining to them how it would be beneficial for them. Discussions on salaries are sensitive topics, and learning how to guide your teams throughout these changes is crucial in achieving success.
Learning the sentiments of your workforce about these strategies, and helping them throughout these changes when it gets implemented, is essential in achieving success for your company. Allow SCG to help you through all these adjustments. Fill out the form below to get in touch with us to learn more about how we can help you.
