Paying employees by location doesn’t mean that all employees who work remote will be paid less. In fact, PayScale’s recent data on remote employee pay shows that people who work remote permanently make 8.3% more than people who don’t work remotely. This is because only the most self-directed and high-performing employees have typically been allowed to work remotely full-time. 

The data also shows that occupations in professional, white-collar industries pay more to employees who work remotely, while occupations in blue-collar industries are paid less. In some jobs, like sales, marketing and advertising, or technology, remote employees make significantly more than their non-remote counterparts.

This may be surprising to organizations that have been contemplating remote work as a way to save on payroll costs. For smaller, more nimble organizations or in industries with less competitive positions, there may be a bonanza of cost-savings in shifting to a remote workforce. For other organizations, however, the real value might be in offering increased work flexibility and access to a greater talent pool, while scaling down on expenses like commercial real estate.

Should You Adjust Comp for Remote Employees Who Move? 

For employees living in the same general area that they lived before working remotely, you should not reduce pay. It would be problematic, and possibly discriminatory, to pay people differently based on their residential address. In other words, you probably shouldn’t pay people who live in a city more or less than people who live in the suburbs. And you definitely shouldn’t adjust pay by neighborhood or zip code.

But what if you give newly remote employees ample time to choose to live far away from the office — say a year or longer to sign a lease as some organizations are reported to be doing — and discover that a substantial percentage decide to move to a new state or region with a lower cost of living? Do you lower the salaries of these employees? 

The answer to this question depends upon your compensation strategy. 

Determining Your Comp Strategy

There are three primary approaches to compensation. You can pay:

1. By employer location

2. According to a national median

3. By employee location

If you pay according to employer location or a national median, you don’t do anything to your employees’ salaries if they move because where your employees live doesn’t matter. Indeed, some organizations do this to attract the very best talent wherever they live and box out local competition. However, this scenario is actively worrying many employers that fear that a remote work strategy will result in them having to compete against corporate giants like Amazon, Microsoft or Google, which have historically paid higher wages for this precise reason.  

If you want to start paying by employee location, then you must have a policy and process for adjusting compensation if and when employees move.

This process needs to be fair and consistent, which means that you must apply the same logic whether an employee moves to a less expensive oa more expensive area. There will also be considerable upkeep with this approach...

Source: ERE