How to Pay Remote Workers

Topics: Comp Strategy, Modernizing Comp

How to Pay Employees Who Work Remotely In my current capacity as Director of Professional Services at PayScale, I get the privilege of working with many different companies in many different industries to build their compensation plans. One of the most interesting observations that I’ve made in the recent months is how many companies, both big and small and from all different industries - tech to manufacturing - have employees who work remotely in home offices. And, paying these employees in different locations brings up some tricky compensation questions.

May 2, 2011

How to Pay Employees Who Work Remotely

In my current capacity as Director of Professional Services at PayScale, I get the privilege of working with many different companies in many different industries to build their compensation plans. One of the most interesting observations that I’ve made in the recent months is how many companies, both big and small and from all different industries – tech to manufacturing – have employees who work remotely in home offices. And, paying these employees in different locations brings up some tricky compensation questions.

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The Shifting Workforce

It’s true what they say about the virtual workforce. It seems that many employers are recognizing the benefits of letting employees work remotely and, in many cases, it’s not much different than working down the hall from those employees. While this isn’t possible for every job, e.g. parts assembler, it makes sense for many jobs, like sales or tech support.

There also seems to be a trend with employers who have dedicated, loyal and high-performing employees who find themselves relocating out of the area for personal reasons. When you find out a high-performing employee is relocating to a new state to care for an elderly parent or because their spouse has been transferred, more and more companies are looking for creative ways to keep that employee on board.

Pay Differs By Location

The implication for compensation plans is that the location of where the job is performed can greatly affect the value of the job. For example, in most cases the same job in San Francisco or New York City will pay more than that same job in Miami or Kansas City. So, when determining the appropriate salary, a decision needs to be made about what city to use for pricing the job. There are many different options including for how to determine compensation: a national wage, wages based on the corporate or regional office closest to the employee, or wages based on the location of the employee’s home office.

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So, how do you decide how much to pay these employees who work remotely? Here are some guidelines that can assist you in drafting a strategy that works for your organization.

1) Is this a current employee who is relocating? If the answer is yes, then chances are high that you would not take money away from that employee. In this case, you’re best to keep their range in alignment with the ranges of your corporate or regional office.

2) What percentage is the base salary of the total compensation? If the job is a full-time sales position where the pay is more heavily weighted towards incentive compensation, you can be less sensitive about geographic differentials. As soon as the incentive portion exceeds 40 percent of the overall target for total cash compensation, you can worry less about pricing the job locally.

3) How much does the job pay? Generally jobs that are paid over $100,000 are less sensitive to geographic differentials, so you may be okay with using a national wage.

4) How restrictive is the company about where the home office is located? In some cases, employers require the employee to locate their home office in a certain territory. If this is the case, you many need to pay attention to local wage. In other cases, the employer does not limit the location of the home office, and therefore the employee does not get a higher wage because they decide to live in a higher cost area.

There is no right or wrong answer in this discussion. Only what is best for your organization and what your budget can allow. However, with these guidelines and access to accurate market data, you should be able to create to a good philosophy on how to pay your employees who work in remote home offices.

Sincerely,

Stacey Carroll, CCP

Director of Professional Services and Education

PayScale, Inc.

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