A frequent question our clients have been asking is what to do with compensation now that their workforce is remote and choosing to relocate.
The COVID-19 pandemic has greatly affected the way many organizations operate and one of the largest impacts is the transition to remote work. As the prevalence of remote work increases and for many employers, is here to stay, employees may start to think, “Well if I’m working remotely, then I can be anywhere.”
We even had a client tell us that an employee of theirs relocated and then informed leadership of their move!
When business and HR leaders are faced with this scenario many questions and challenges will begin popping up. For example:
- Are we set up to operate in the employee’s new location?
- Do we understand the local laws?
- How do we address this employee’s choice to move without managerial consent?
- Are we able to efficiently handle timekeeping, payroll, performance management, etc. should more employees want to relocate?
- What is our position on relocation and how do we plan to communicate it?
- What is our approach to remote pay when an employee relocates?
And it is with that last question, that I have been asked to provide additional insight as a compensation consultant here at Helios.
So, how do you handle pay for remote workers who relocate?
Well, it depends on your compensation philosophy. Ultimately, the goal with any compensation program is to align pay with the organization’s mission and objectives, Total Rewards, and to ensure consistency with all pay decisions.
Often our clients struggle with making consistent and fair pay decisions, not because they do not want to, but because they have not established a set of guiding principles that drive compensation decisions.
There are three general approaches to remote pay:
- You can pay for the HQ office location.
- You can pay for the closest local office location.
- You can pay for the employee’s home office location.
There are pros and cons to each and when evaluating which approach makes the most sense for your organization. It will be important to consider the administrative cost to implementing and maintaining your compensation program.
We recommend evaluating the HR systems in place to maintain the approach (HRIS) as well as the teams’ ability to administer it (Payroll, Human Resources, Finance).
A good place to start is by identifying all current and forecasted work locations. Then, using a reputable source or two, determine the cost of labor in those markets.
What's the difference between cost of labor vs. cost of living?
It is important to understand that cost of labor is not the same as cost of living. The Economic Research Institute defines the key differences as the following:
- Cost of Labor is the process of establishing external pay practices, where information on labor market costs (total compensation amounts) are obtained from labor market competitors and relied upon when determining target total compensation opportunity.
- Cost of Living is defined as the cost of purchasing goods, services, and housing. Typically, these costs are determined by a standard basket of goods and services.
Once you understand the geographic differentials for all work locations, then you can decide which compensation approach will support the organization’s goals. It is possible there is not a significant difference in the cost of labor among all applicable markets and does not warrant a complex approach to remote pay.
On the other hand, it may make sense to set up multiple structures for premium and/or discount labor markets.
At the end of the day, the compensation approach you take needs to make sense and work for your organization. We find that establishing and documenting a set of guidelines that align to the mission of the organization will provide clear and concise compensation related instructions to support managers and Human Resources in communicating pay to employees and making equitable salary decisions.