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Should Remote Workers Get a Raise or a Pay Cut?

  • Several companies have reduced salaries of certain remote workers due to the lower cost of living in the place of their residence
  • Others suggest that remote workers should receive higher compensation due to greater expenses in maintaining a home office
  • Factors companies should consider in making their determination

Summary by Dirk Langeveld

Many businesses have had at least some of their workers operating remotely for more than a year now as a safety measure during the COVID-19 pandemic. Employees have remained efficient during this time, eliminating a previous stigma that people working from home might be more prone to slacking on the job. And there is growing support for a transition to a hybrid work model, where employees who are able to work from home do so at least one or two days a week.

This scenario also raises a potential dilemma for employers, however. Should remote work result in a lower salary, especially if the employee resides in an area with a considerably lower cost of living than the place where the company is located? Or does remote work actually justify higher earnings?

Traditionally, remote workers have enjoyed higher pay than non-remote workers, although this trend is most pronounced in certain fields such as media and publishing, marketing and advertising, sales, and information technology. The compensation software company Payscale says this is a result of remote workers being high earners who won enough trust at their company to be able to work from home. Payscale expects that the difference between remote and non-remote compensation will shrink as hybrid models become more common.

Recent research by Harvard University Professor Christopher Stanton found that remote workers tend to incur greater personal expenses than employees who continue to work in an office environment. He said this was due to remote workers typically renting or buying larger homes to accommodate home offices.

Payscale suggests that while remote work alone does not lead to considerable savings for companies, it can result in lower costs elsewhere such as the ability to lease a smaller commercial space. Stanton says that since companies risk losing talent if they don’t offer adequate compensation to remote workers, they might pass on some of these savings as a premium to people working from home.

Many companies are instead running counter to these recommendations and reducing the salaries of people working remotely. Businesses reason that it’s not equitable to pay an employee a salary that accounts for the higher cost of living in the metro area where the company is located if the worker has moved to a community with a significantly lower cost of living. As a result, some companies have started taking an employees’ remote work location into account and adjusting their salary accordingly.

This trend may only apply to a small share of newly remote workers; one recent analysis found that the vast majority of people who moved during the pandemic stayed within the same metro area. And a survey of 30,000 workers found that most employees were willing to accept a pay cut to work from home at least part of the week.

Employers must determine their own framework on how they’ll set salaries, although geography and cost of living should only play a partial role in this determination. Other factors may include an employees’ skills and experience as well as the national median wage for their role. Companies may also opt to offer relocation assistance to retain an employee set to work remotely but lower their salary if necessary to reflect a lower cost of living.

Retaining a higher compensation regardless of whether or not an employee is remote can help a company attract and retain talent. Stanton says remote work premiums may also be reserved for workers in higher-cost areas as well as employees who aren’t in the top 20 percent of the company’s earners.

Companies should also consider whether to assist with certain remote work expenses that would normally be provided in an office environment. These could include covering the cost of a computer and home office furniture as well as stipends for costs such as internet and air conditioning.

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