The pandemic brought about many changes to how the traditional workplace has always functioned. Early in 2020, many office workers had to make an abrupt switch to remote to protect themselves, their families, and their co-workers. Once employees made this initial change, a lot of businesses and their workers appreciated the benefits and appeal of a remote or hybrid work setup. In fact, a recent Microsoft study of over 20,000 people revealed that 87% of employees say they’re more productive when they work remotely or in a hybrid setup.
While most businesses have reopened their offices in a bid to return to normalcy, a lot of employees in certain industries have been able to continue to work remotely. It has enabled a more flexible work schedule, provided employees with more personal time (i.e. not having to commute into the office), and has led to an increase in morale and happier staff in some instances.
Not only has it opened opportunities for current employees, but it has broadened the range of potential hires for employers. Now employers can search nationally, or even globally, for new candidates. However, PayScale, a compensation data and software firm, collected 538,438 salary profiles from July 2019 to July 2021 to find that, while 43% of workers expect remote-work options to continue to increase, only 19% of employers have a compensation strategy that includes remote workers.
As the younger generations are forming a preference for the flexibility allowed by remote positions, more and more employers are faced with adapting to remote and hybrid to battle turnover and to recruit talent. However, it’s not as easy as flipping a virtual switch. Do your in-office employees receive the same salary as remote workers? Does location really matter? Can you use the same job description postings? If you are looking to widen your geographic net instead of just hiring locally, there are things to consider when building salary and compensation packages.
Before the work-from-home revolution, setting pay levels based on your company’s headquarters address and the local market was the norm. Now that the pandemic has dissolved those geographic boundaries, some companies are finding remote talent from far beyond their backyard. While you certainly can still maintain single-market salary rates for your local region, it might dissuade talented candidates who are used to the pay rates in another market.
Based on the industry, workers’ duties, and type of work, you may have to rely on national salary averages for positions, instead of local averages. The new standard is most likely a blended pay rate based on compensation data/benchmarks and meets somewhere in the middle with the national average, the local average, and the average of the employee’s state all being taken into consideration.
Some large tech companies have made headlines for this exact reason. The hyper-competitive Silicon Valley and San Francisco regions are known for high salaries and high cost of living — but if the workers move to a more rural state, does that correspond with lower wages for the same work?
According to the Society of Human Resources Management (SHRM), there are three strategies employers should evaluate when setting fair, equitable, and consistent pay for employees across different markets and regions:
- Set pay rates by the main office location or regional offices.
- Set pay based on the employee’s home or remote-work location.
- Set employee pay to the U.S. national level and adjust it upward if necessary.
The whole compensation package
Now that we are two years in to the pandemic, the reality is there are two types of pro-WFH employees. There is a younger generation that emerged into a remote-friendly environment and will accept nothing less. There is also a part of the population that experienced work-from-home recently and, appreciating the flexibility and boost in work-life-balance, would consider it an amenity and would sacrifice higher pay in exchange for the benefits of a remote, flex, or hybrid work arrangement. That’s not to say that remote workers are to be paid less, it’s just to point out that it can be perceived as an attractive benefit within a whole compensation package offer.
Speaking of benefits, a new hire’s compensation package encompasses more than just a salary figure. It touches on everything of value that the company can offer the prospective employee, both monetary and non-monetary. When offering a candidate a proposed salary, it is being weighed alongside PTO policies, health insurance, other insurance coverages, retirement savings, career development and training, tuition and student loan contributions, employee discounts, performance bonuses, and more perks. Keep all of this in mind during negotiations when setting salary and communicating company benefits.
Varying state laws
The biggest takeaway employers and hiring managers need to be fully conscious of are the wage and labor laws that differ from state to state. From minimum wages to pay equity to credit checks to “Ban the Box” to taxation of employee benefits to remote reimbursement rules to state FMLAs… the legal obligations vary wildly per state. Some states even have greater restrictions on W-2 employees vs. independent contractor classification. Some states even have transparency pay laws when it comes to job descriptions, which means you may have to watch where you are soliciting candidates or promoting your job opening if the wording is not compliant. Most employment laws are applicable based on where the work is being performed, which would be the employee’s home state, but you may also be faced with having to meet the requirements of multiple states.
When it comes to setting a new remote worker’s salary, their state’s minimum wage and the location factor are just two parts of the pie. There are still other considerations, such as experience and role responsibilities, when calculating a compensation offer.
Taxes for out-of-state remote workers
While this may not directly impact a salary offer, it still affects the new hire’s paycheck. If the remote employee is out-of-state and lives in a state that collects income tax, the employer needs to review that state’s tax laws in order to withhold the correct amount of income taxes. Taxes are withheld based on the state in which the employee lives and works. If it’s the first time the company has an employee in that state, that generally requires the employer to register with the tax authority there. If you’re in Pennsylvania, you already know this, but some states have local and city-level withholding requirements, too. From a paycheck and payroll perspective, allowing certain types of deductions and garnishments may vary from state to state, as well.
As we’ve touched on above, health insurance can be an important element in your company’s offer to a new hire. However, check with your insurance broker if coverage will extend to employees in all 50 states. Some companies do not have the same network in every state or might not offer a cost-efficient network for out-of-state employees. You may need to upgrade to a national plan, seek out a supplemental plan local to the remote employee, or provide the employee with a stipend to purchase their own policy. This is something to keep top-of-mind in your compensation strategy.
Technology and equipment
Remote work requires some form of a computer and a reliable internet connection. However, not all applicants may be equipped with the required technology before starting a position. Decide if this is a requirement that you will present in the job description, if you will be providing a stipend, or shipping the necessary equipment to new remote hires. Some employers require their own company laptops or equipment to be used instead of an employee’s personal setup. In fact, some states even have remote reimbursement requirements. If you will be requiring team members to use their own devices, make sure their security is up-to-date and consider looking into having a BYOD (bring your own device) company policy.
Bottom Line on Remote Worker Salaries: Are You Still Competitive?
Most importantly, do your research. Look into your industry and competitors to see what kinds of compensation trends and offerings they are using to remain competitive and retain employees. Geographic limitations start to become nonexistent and your range of competitors will expand with remote work, so it is important to be fully aware of your industry and what kinds of other positions and salaries you will be going up against. While a high salary is great, there are other valuable compensation methods that you can utilize as an employer to be competitive, like unlimited PTO (Paid Time Off) or reimbursements for certain personal expenses (ex. reimburse your team for up to one workout class a week because of the benefits for physical and mental health).
What to Keep in Mind After Hiring Remote Workers
Once your remote work candidate accepts their compensation offer, the remote vs. in-person differences don’t end there. Following are some considerations when getting started with a remote work team.
Remote work presents unique challenges that in-person workers do not typically need to deal with. For example, different time zones. While your business may be located in New Jersey, a potential hire could be living in California. How will you, as the employer, decide how this time difference will affect the new hire’s work schedule? Should they be expected to wake up 3 hours early to work the same hours as those on the east coast or can they work the typical 9-5 on west coast time? Neither answer is right or wrong, but it is up to the employer and new hire to discuss and agree to a set expectation. Set consistent requirements and parameters for flexible schedule options and core hours.
Salary scale adjustments
Did your hiring team onboard a new employee at a higher starting pay with the trade-off of smaller raise increments? Depending on what was negotiated, revisit your company’s salary scale for performance reviews and promotions so that they accurately reflect your current team — both remote and in-office.
Will the new employee have a stipend or be reimbursed for wi-fi/internet service, for office supplies, cell phone usage, or other expenses reasonably incurred in accordance with their job responsibilities? Consider having an electronic expense reimbursement procedure to make this process seamless no matter where you (and your employees) are located.
Travel expectations and mandated visits to the office
While some positions may be listed as remote, there could be a possibility for the remote hire to travel to the office. Whether this is their choice or they have been asked by the employer, it is important to discuss who will be covering travel expenses ahead of time. If the employer is expecting the employee to travel to the office four times a year on their own personal dime, that may affect a new hire’s willingness to take the job. Be up front about expectations.
In yet another instance of laws varying based on the remote employee’s state, some states have differing definition of “wages.” Are vacation and sick days considered wages? Is accrued time paid out when an employee leaves? How soon does an employee need their final paycheck? An experienced payroll processer can make sure you’re compliant no matter what state your employees reside.
In addition to complying with interviewing and pay laws, there are HR considerations employers need to realize may have to be tweaked to accommodate their remote workforce. Are you mailing hard copies or displaying digital versions of workplace posters? Does their state and distance from the company impact their state FMLA eligibility? Are hours and overtime being logged appropriately, are breaks being taken as required by law? Turn to an HR pro or employment law attorney to reduce your risk and make sure you are taking the right steps to be compliant.
Payroll & HR for a Remote and Hybrid Workforce
It’s all about finding a winning balance. Set your company up for success and stability by having your remote worker strategy in place. And as always, market conditions change, so revisit your strategy and update as necessary.
Abacus Payroll can help your on-premise and remote workers be paid accurately and on-time each pay day. Our HR Help Center is equipped with resources, policy examples, and templates to enable your remote workers adapt to your culture and be prepared with the laws, knowledge, and tools to do their job effectively. Ask your Abacus Payroll specialist for a copy of our HR Support Center’s Remote Work Guide PDF, a 9-page summary that will set your company up for success with remote hires and workers.
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