Working from home was once considered a luxury for many white collar workers, but now it is commonplace. Some companies are trying out full telecommunication for certain employees, even after the pandemic ends; but what if those employees live in less expensive areas? Should they be paid less than those who live in expensive cities? From a company standpoint, it does make sense to pay the market rate because why would you pay someone a salary that is adjusted to the cost of living for your headquarters when they live in an entirely different place? However, from the perspective of talent, they can always work for a company that pays city rates or look for a higher paying job in their city. Is there a clear answer to this question?
Bottom line: salaries and wages that are based on location make sense from a company’s point of view. The money saved from the reduced wages can go towards research and development as well as other projects which will strengthen the company. Employees who are fully remote will save money by not having to commute and can live in a more affordable place. In a recent study by Forbes, approximately 44% of respondents said they would take a pay cut if they were able to permanently telecommute. There are a lot of people out there who are willing to reduce their salary for the luxury of working from home; however, the possibility of taking a pay cut versus the action of taking a pay cut is much different and employees may be singing a different tune when the pay cut happens.
Considering The Employee’s Perspective
Although it may not be your intention, paying a lower wage for the same work potentially sends a message to employees that you do not value their work as highly. Employees can take this as an insult and become less loyal to the company resulting in the possibility of them leaving for another job that will pay them their previous salary Additionally, take into consideration the complexity of their role into their salary. If you are headquartered in San Francisco and pay an entry-level marketing employee $60k but pay a marketing manager who moved to Columbia, Missouri $70k, it will make the marketing manager feel underappreciated. Yes, the person living in San Francisco will not be living in luxury while the person living in Columbia is well off in comparison, but it is the principle of barely being paid more than an entry-level worker that can be considered offensive for some employers.
This is why it is recommended that you do not change the wages of current employees, but adjust salaries and wages of future employees. Current employees who receive a pay cut feel like they are being treated unfairly, especially since this is a newer policy. Additionally, hard-to-find talent should not have their wages cut because of the scarcity of their role. For example, high quality software developers are in high demand, so they will be going for the company that gives them the best salary. There are many factors that go into a salary, so explore all avenues before making a decision.
The Middle Ground
A policy you could introduce is a “premium income” for those who live in expensive cities. Clearly state on your job posting that the salary for those living in, for example, San Francisco or New York City you will receive a salary of $XXX,XXX but if you live in an inexpensive city your salary will be $XX,XXX. If an employee moves away from an expensive city to a more affordable city, the premium income will be taken away and the salary will be adjusted to the city they live in. Be transparent and forward with potential talent and current employees to avoid begrudging feelings towards your company.
Reducing wages depending on location may help with the decongestion of cities and create more equity in America due to the spread of wealth. People will not have to congregate in cities in the hopes of having a bigger salary but can stay in their preferred towns or homebase. Companies can also widen their talent pool because they are not limited by location and can save money by downsizing their offices. There is no right or wrong answer if remote employees should be paid differently, only in how you communicate your plan.
What you should do depends on what your employees want and what will benefit your company. Have an open dialogue with your employees about their desires and how they would react to pay cuts due to them moving. These new changes also bring about new challenges employers may see in the future. Since employees who live in affordable places will be paid less, what is stopping companies from preferring candidates that live in smaller cities or towns? This brings up potential location discrimination in the future where a company values talent from small cities and towns rather than people in the city.
Situations You May Have to Navigate
- You’re a small employer in Houston and should pay Houston salaries. If an employee wants to wear Pjs and stay home to work, why should they be paid what the in-office co-worker gets with the 1 hour commute?
- Your office space does not need to be what it was before; you can save $300 a month in office space per person if you downsize. Should you put that $ towards employee’s salary or the bottom line thus allowing you to use funds toward new product development or shareholders?
- If the job pays $50k and will be remote, why should the company care about your cost of living?
- Candidate lives in NYC and wants to apply for a company across the country to work remotely. The company has 5 excellent candidates to consider. In the hiring selection, they fear that the NYC candidate will always feel they are not getting enough money and the Missouri candidate will be content with the pay, stay longer and contribute more. They may select the candidate with the better “return” for that reason.