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Will Remote Working Allow Employers to Reduce Salaries?

CoAdvantage- Remote work is likely here to stay, and its increased use raises some interesting questions around recruiting.

One potential implication is that employers can expand recruitment efforts from their local area to nationwide (or beyond). “As talent becomes more of a national marketplace, some of my clients have been contemplating the idea of having more of a national approach,” says Catherine Hartmann, rewards practice leader at industry advisory group Willis Towers Watson (WTW) North America, told The Washington Post.

So, if a New York- or San Francisco-based employer can now hire workers from Ohio or New Mexico or Vermont, where the cost of living is lower and people are accustomed to lower paychecks, can employers in expensive areas now reduce salaries?

Indeed, given that remote work often reduces employee expenses even in high cost-of-living areas because workers no longer have to commute and come into the office. That too could encourage employers to reduce salaries commensurately.

Be wary of inadvertent discrimination, however.

Imagine if you make a new hire from a lower-cost area (say, Des Moines, Iowa) at a lower salary. Then you have a current employee with a far higher salary who moves to Des Moines to work remotely. Now you have two workers in the same place making wildly different money.

“You don’t want to have this situation where perhaps somebody was hired in a lower-cost area and then a ‘more expensive’ employee from San Francisco moves in. And then all of a sudden you have this disparity in pay,” Erica Brescia, the COO of GitHub, a site for hosting software code, told The Economist.

The situation may be legally defensible, but it has the potential to create problems for HR, employee relations, and maybe even regulatory compliance. Remember that disparate impact can be the basis for action just as much as outright discrimination.

Ultimately, location is only one aspect of salary-setting, and maybe not even the most important.

All of that said, these questions may well be much ado about nothing, and many of these concerns may never coalesce into full-blown problems.

• For one thing, only 26% of employers, according to a WTW survey, say they would base compensation for remote workers on location.

• Plus, it’s unlikely that very many employers will permanently shift to nothing-but-remote work. Remote work is probably here to stay, but in a hybrid form that includes at least some time in the office.

• Finally, location is only one factor in setting compensation. In a competitive job market, particularly in sectors with worker shortages, it’s supply-and-demand that will set the salary, not location.

CoAdvantage, one of the nation’s largest Professional Employer Organizations (PEOs), helps small to mid-sized companies with HR administration, benefits, payroll, and compliance. To learn more about CoAdvantage’s ability to create a strategic HR function in your business that drives business growth potential, contact us today.