work from home compensation

Should Remote Work Pay Be Based On Location?

Multiple factors impact salaries for remote workers, and one of them is the cost of living. If you are working in an area that has high living expenses, then your wage ideally would be higher to compensate for your costs.

Whether or not companies adjust salaries for employees working remotely varies from company to company. Some companies will adjust based on location and some will not. Many of them do this because of income equality. This way, they’re creating an equal playing field for remote employees from all around the globe.

Are you one of those remote workers? Is your salary based on location?

How Firms Factor in Geography

No matter the location, your job is to do what you are expected to do, right? Whether you’re in a small office with a couple of other people or working from home, you’re doing the same work.

It’s like a workout. If you work out at home and get the same results as if you were going to the gym, does that mean you should get paid less? No. However, in reality, the situation is often different.

Keep in mind that many companies cut the salaries of workers moving to new locations. Pay can be cut over 15 percent depending upon relocation. The take-home pay is almost the same for workers in the same position. This ensures that pay is equitable.

Factors to Consider

It can be very complicated to determine location-based salaries because companies have to create customized formulas for their employees. During this process, they take into account everything from market rates and local expenses to the experience and skills of employees.

Here are the key factors businesses consider when calculating location-based salaries:

  • Employee’s skills and education
  • The amount of time spent in a particular position
  • Income tax rates
  • Cost of living index
  • Market rates

Work From Home Compensation

The COVID-19 pandemic has caused the number of remote employees to be on the rise around the world. They want to know if there’s any federal law that protects the safety and health of people working from home. Also, they want to know how to determine expenses that should be paid by their employers. In reality, it’s not that simple.

Federal laws generally do not force employers to pay for job-related costs incurred by remote workers. Nevertheless, state laws often do this by requiring reimbursement for different work-related expenses, including office equipment and supplies. This is where compensation comes in.

Compensation Packages

One may ask: How do large companies deal with compensation? Generally speaking, location is still one of the main reasons why compensation packages are different today.

For instance, Google’s salaries vary widely by location. If you’re wondering which of their locations pay the most, Mountain View, CA is the leader with an hourly rate of nearly $70. Likewise, the location plays a vital role in determining their compensation packages.

The good news is that more and more businesses take a location-based approach when determining the salary of their employees. One of them is Reddit.

To support U.S. workers, this company has eliminated geographic compensation zones. They believe that no matter where remote employees live, compensation should be aimed at tying pay ranges to the most expensive areas (like New York and San Francisco).

The compensation packages that Zillow provides to employees are tied to their performance, role, and responsibilities. According to this company, the earning potential of their workers is not limited by where they live but it depends on how they perform.

Cost of Living Calculators

Before you choose to work for a fully remote company, be sure to consider the cost of living indexes for that area. There are different cost of living calculators to use before getting hired no matter how your employers pay for work.

They allow remote workers to quickly compare the living expenses in a new place to those in their current location. This helps one gauge what it costs to work and live in their dream city by receiving a comparison of local salaries and costs.

In addition to salary differentials, these calculators use CPI (Consumer Price Index) for cities across the state. For example, in the United States, San Francisco and New York are two of the most expensive places to be in the US. Most calculations are based on transportation, housing, healthcare, food, and costs of energy sources.

The Bottom Line

Remote working has greatly increased in popularity during the pandemic. Many full-time employees who have been working remotely for several months are concerned about when they’ll return to the office. They are also concerned about things that impact location-based salaries.

As you can see, there’s a range of factors that cause salaries to differ based on region, including the cost of living, work-related expenses, skill levels, and work arrangement. While location is still one of the deciding factors in determining salaries, an increasing number of businesses turn to a location-based pay model.

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