Originally written for Nixa.io
In the future, more employees will work from home. That was a certainty before 2020, as remote work opportunities had been trending for years. However, as the Covid-19 crisis accelerates the future of distributed work, employers seem determined to make such opportunities permanent.
Of course, not every position is viable for remote work. But, where businesses were once reluctant to offer remote work, many are now adopting it for a variety of strategic reasons. Some hope to attract top talent with flexible work opportunities. Others view remote work as a potential cost savings mechanism. Still others hope to tap into a workforce they previously could not consider.
As the ripple effects of workforce changes are enormous, we aim to understand what a remote workforce means for compensation. Firstly, we are going to look at the compensation challenges surrounding remote work. Secondly, we will explore the key business benefits behind offering remote work options. Finally, we will discuss the two main strategies for remote workforce compensation.
Let’s start with the compensation challenges.
Salaries for conventional positions, requiring a physical presence in an office, are usually decided after companies study stockpiles of data. One of the most important factors analysed is how much similarly qualified and experienced professionals are paid in the company’s region. Location is a big deal, because the cost of living differs from place to place. However, as traditional work patterns are being replaced by remote jobs, new metrics are also expected to begin replacing old ones.
The best talent will continue to set a high bar for employers and compensation is intrinsically tied to how employees feel they are valued. Although some may take a pay cut for the convenience of working from home, others may feel that they deserve to be paid based on the value of their work, regardless of their personal expenses. As an employer, it is essential to make sure that remote workers are compensated fairly without spending more than necessary.
Let’s look at the key business benefits of the shift to a remote work strategy, to decide if this is for you.
You can attract top talent. The opportunity to work from home can be an attractive incentive to top talent for many reasons, such as removing the need to commute, more flexibility to manage both work and life outside of work, and increased productivity through the elimination of office distractions. In addition, remote work allows for more choices in how –and where – one wants to live.
Remote work therefore expands the workforce pool for you. If employees can work from anywhere, you can source the very best candidates regardless of where they live. You also open up opportunities to talented candidates who can’t commute to an office, including people who must remain home to care for family members and people with medical conditions that make working in an office difficult.
You can save money. Consider the potential of hiring more employees that live in less expensive locations, adjusting the salaries of current employees who live in less expensive locations, or simply reducing costly office expenses, catered meals, commuter benefits, and other such programs. Of course, there may be other expenses associated with supporting remote work.
To take advantage of cost savings associated with remote work, you must usually invest in laptops, licenses for cloud computing and collaboration software, and enhance IT security measures and training. Overall, though, the cost savings associated with remote work strategies are quite large, especially if your company has already undergone significant digital transformation.
You can increase diversity. Remote work opens up options and allows companies to hire talent from anywhere, which eliminates the restriction of a lack of diversity in the available local talent pool. Companies headquartered in locations with smaller populations of racial minority groups, for example, can expand their talent search to areas with more diverse talent.
Women who must leave the workforce to raise children may be inclined to return to work with the flexibility and work-life balance offered by remote work. People with disabilities, who find an in-office environment challenging, may make excellent team members if able to work from home. Adding diversity to the workforce should also lead to closing the racial and the gender pay gap.
Sound good? Then let’s review the two main compensation strategies for remote work.
Basing pay on employer location. With this approach, aligning to an office-centric and traditional approach to compensation, everyone is paid based on the market competitiveness of the company headquarters, regardless of where they live. This may be the right strategy when you want all team members, regardless of where they live, to be paid equally for equal contribution to the project.
It ensures that all employees feel equally valued for their contribution, while providing them with the benefit of being able to live anywhere. A high financial incentive! Another big pro is that it is less complicated to manage compensation this way, making it easier to monitor and adjust compensation to ensure pay equity across the workforce.
This approach also makes sense if the talent you want to attract is fiercely competitive. Paying a market premium based on the location of your headquarters can be attractive to top talent, if your company is headquartered in an expensive area. But, if headquartered in an inexpensive location, you may be unable to attract talent that lives in more expensive locations.
Basing pay on employee location. This is a more complicated way to manage compensation, but also the most accurate. It is especially common for positions that are heavily regulated and must comply with local law, for positions that must adhere to minimum wage laws, which vary by location, and for hard-to-find and tough-to-fill positions that require a broader search and competitive pay.
The biggest pro for a compensation strategy that adjusts pay based on employee location is that, depending on the company’s location, it can sometimes be the most cost effective strategy. For example, it is cost effective if your company is headquartered in an expensive area and you can source job candidates from less expensive areas.
While some view paying radically lower wages for off-shored teams as penalising people based on where they were born or their lifestyle choices, adjusting salaries for employees according to their location is a widely accepted practice. On the other hand, you have to weigh this option carefully and be open to considering adjustments for cost of living in areas that are out of your pay range.
When it comes to how to set compensation for remote workers, the right strategy will vary by industry, company and position, but we can help! Nixa.io is a talent platform created by professionals with hands-on experience in the tech recruitment industry. We are here to connect you with top remote candidates – because we strongly believe that the future of work is remote.