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The Employer’s Guide to Remote Work Compensation

Remote Work Compensation

Key Takeaways

1. Figuring out how to equitably pay remote workers has become a challenge for employers and HR departments globally.

2. National employment policy and labor laws are still working out how to deal with remote workers, especially when employing workers cross-border: This becomes even more complex when assessing how to incorporate employee benefits or taxes into a remote salary package.

3. Remote work compensation strategies can be based on either location-specific factors, merit-based or role-based. There are also companies that apply an international minimum salary for all their remote workers.

4. Consider using an international partner to help your company implement an equitable remote work compensation strategy. 

The acceptance of remote work has challenged employers and HR departments globally to work out how best to provide pay equity for remote workers. In the post-pandemic world, the pressure for companies to implement some form of remote working strategy increases daily, as does the pressure to compensate remote workers in a fair and transparent manner.

This guide will discuss both the key elements of remote work compensation, as well as four core strategies you may wish to consider when paying your distributed workforce. 

What does remote work compensation include?

Remote working is sometimes seen by companies as less favorable to in-person work, less productive, a privilege or simply about cost efficiencies, especially now the pandemic is over.

Others hold that remote work is the future, and clearly think that the benefits outweigh the cons. Either way, there is a real risk that remote work salaries or compensation is seen as unfair, especially when remote workers’ salaries are adjusted or decreased in comparison to their in-office equivalents.

The setting of remote work compensation usually still takes into account  all the same requirements when compensating traditional onsite workers, such as a competitive salary, fair benefits, and a host of pre- and post-tax deductions.

Below we briefly summarize the challenges that employers face when working out how and what to include in remote work compensation.

1. Salary

When formulating a salary package for a remote employee, a whole array of new factors come into the spectrum of consideration, such as location, living costs, employee value, work capacity and the company budget. Whether or not you have existing employees on your payroll that want to work remotely in some capacity, or you want to expand and diversify your team with international candidates, a couple of questions become quite pertinent. These include:

  1. What is a fair salary for a remote worker?
  2. Should the salary be location dependent or independent?
  3. Is the task being filled a full-time position, part-time, freelancing or project based?
  4. Should the salary reflect a candidate’s experience and qualifications?
  5. How does payroll work when hiring abroad?
  6. Should pay reflect national rates for the specific role, or the local rates?

These questions become even more challenging to answer when companies are looking to set up a remote payroll, and hire employees from abroad or in cities that may or may not have the same salary expectations as the local company base.

2. Benefits and entitlements

Building on the previous point, your company will also need to work out how or if you are to provide benefits for remote employees as part of a salary package: This can include specific remote work allowances as well. When hiring abroad, knowing the local labor laws are important, which will guide whether there are mandatory benefits and entitlements that extend to remote workers. For example, if hiring a remote employee in France, the local labor laws and mandatory benefits extend to remote employees. This will change depending on the country and the capacity in which a remote worker is employed.  

3. Taxes

This is an area where policy might be considered lagging — especially when it comes to international hires or employees working abroad remotely. Although many countries’ labor laws stipulate how much tax an employer or employee is obligated to pay, a key challenge arises if a remote employee ends up moving or living in a new country for over 6 months. This becomes even more problematic if your company does not currently have any roots in a specific country. 

Four remote work compensation strategies

As can be seen from the discussion above, remote salary compensation can vary based on several factors. What is slowly evolving in this space is strategies or standardized frameworks that companies can follow to work out how to compensate remote workers.

We consider the four most significant remote work strategies below: 

1. Tie compensation to employee location

The first is one of the more common strategies — tying compensation exclusively to an employee’s geographical location. This could be at a local, regional, national, or international level. This means that two employees who work in the same role but work in completely different locations will likely be compensated differently.

Sometimes a salary adjustment could be based on a single rate difference between those who choose to work on-site and those who opt-in for remote working conditions. The company could also go one step further and add a level of complexity to the formula, and specifically pay according to the living costs of where the remote worker chooses to work, such as where a local employee chooses to work remotely from their home outside a major city where the office is located.  

As an example, for employees of Facebook that want to move their role from on-site to permanent remote, they may be in for a pay adjustment based on market rates for where they decide to work from. Google also follows this strategy for remote work compensation, designing their own internal remote compensation calculator based on location so employees can see how their salary will be affected. 

2. National or regional rates

Similar to the above strategy, using national or regional rates is  an increasingly common strategy when trying to formulate salary compensation when hiring international workers or trying to remain competitive in the national market. When compensating remote workers using this strategy, a company will use the national averages associated with the role as a benchmark for working out a remote salary package.

As an example, Airbnb recently made the decision to let their employees choose if they want to remain remote or come back to the office, without any penalty to their salary compensation. As Airbnb have local offices all around the world, compensation will vary depending on the national or regional rates of the office equivalent for where the employee is hired from.

Similarly, Reddit also made the decision to pay remote workers based on what employees the head office would be entitled to, creating a national average salary compensation for remote workers.

3. An international standard

As the remote work compensation debate continues, one strategy evolving more recently would introduce a policy to pay remote workers a global minimum standard, no matter where they are located or decide to work from. This position is still evolving as it is difficult to put an equitable number on what a global minimum salary standard should be. 

4. Based on employee credentials

Merit-based remote work compensation is where a company formulates a remote worker’s compensation solely based on their experience, expertise, or qualifications. A new term being associated with this strategy is ‘location-agnostic’ compensation. This means that employees working the same role worldwide will be paid the same rate. A company that uses this strategy is Basecamp, where all employees hired in each role will be paid the same no matter where they live or work from worldwide.

Video: Remote work compensation — the Meta/Facebook approach

Structure your remote work compensation with Horizons

With remote work becoming more accepted worldwide, hiring top talent from abroad is becoming a more common option for international companies. Horizons, a leading global PEO can help companies structure their remote work salaries and compensation, navigate local labor laws, and support companies to hire top talent from anywhere in the world. 

Frequently asked questions

Some remote compensation strategies seem to be driven by the premise that remote work is a luxury, rather than a standard entitlement. This tends to mean compensating remote workers less than those who choose to work on-site, or expecting existing employees to take a remote work salary adjustment if they want to continue working remotely in some capacity.

It is also possible for companies to contract or hire employees in countries with lower wages and compensate based on the living-wage standard of a country or region. 

Yes, as with many types of employment offers, you can negotiate your salary. Negotiation for remote work is becoming more normalized as acceptance of the practice widens.