As the shift to full-time remote working endures during the ongoing coronavirus pandemic, location-based pay policies are coming to the forefront of discussions as employers plan for the future workplace, noted a geographical pay survey by WorldatWork.
Of the 62 per cent of U.S. organizations surveyed with existing geographic pay policies, 44 per cent are considering modifying, or have recently modified, their policies due to the increase of full-time remote work, said the survey.
Last May, Mark Zuckerberg, Facebook Inc.’s chief executive officer, said employees working remotely had to notify the tech company if they moved locations and that pay would be adjusted based on location. Meanwhile, in October 2020 Reddit said it wouldn’t cut pay for its U.S. employees regardless of where they choose to live in that country.
Location-based pay has become a hot topic since the start of the pandemic for employers well beyond the tech sector, noted the survey, particularly as they strive to improve recruitment and retention efforts. The survey found expanding (38 per cent), or consolidating (20 per cent), the pay differential application by geographic area were organizations’ top two considerations for addressing localized compensation. As well, employee geographic pay locations are most often determined by their reporting location, noted WorldatWork, with 55 per cent of employers surveyed having said they use city/metro area as the indicator for geographical pay differentials.
According to the survey, the more locations an organization has, the more likely they are to consider creating a geographic pay policy, especially as full-time remote work rises. The findings showed 41 per cent of U.S. organizations apply pay differentials as a premium/discount to either structure or individual pay and 33 per cent create separate base pay structures for each/different geographic location.
However, the survey also noted although almost all organizations are somewhat or moderately flexible regarding voluntary relocations for full-time remote workers, only 29 per cent are willing to establish a legal entity anywhere in the U.S. And of the organizations that don’t allow relocations outside of pre-existing geographic or legal entities, the biggest challenges for these organizations are legal, regulatory and tax implications, followed by cost.
Geographic pay determinants are top of mind for both employers and employees. The survey showed 50 per cent of U.S. employees said a pay adjustment would be very, or extremely, influential in their decision to voluntarily relocate. And 67 per cent said they expect their compensation to reflect their location.