Managing cost-of-living differences for pay in a remote world

Nationwide, 37% of U.S. jobs can be performed remotely, according to the U.S. Bureau of Labor Statistics. It’s a stat that varies according to location. For instance, more than 45% of jobs in San Francisco, San Jose and Washington, D.C., are remote-ready, while the figure stands at 30% or less for jobs in Las Vegas, Fort Myers, Fla., and Grand Rapids, Mich.

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The rise in remote jobs now enables employers to expand their reach and recruit skilled candidates from anywhere in the country. While good news, one key question has surfaced: Do salaries need to be adjusted for cost-of-living differences? Should someone living in Iowa, for example, earn the same salary for performing the same remote job as someone living in New York?

For years, geography was among several factors that helped determine salary. But that’s changing. Some employers are basing pay mostly on the job itself, not where applicants live, and also the demand for their skills and experiences. Although this trend has been escalating in recent years, COVID-19 accelerated it.

See also: Why embracing long-term remote work is the ‘right thing to do’

“If the work can largely be done from anywhere and there’s a competitive talent pool, it would be less likely that the location has an impact on pay,” says Tauseef Rahman, partner at Mercer, a global HR consulting firm. “But if the job isn’t in demand, then it’s more likely that geography will play a part in determining the wage.”

Mercer conducted research that compared job wages between high-tech companies in Silicon Valley and 10 other cities. While organizations in Silicon Valley paid the highest for all jobs, not just IT positions, pay differentials ranged from -6% in Seattle to -23% in Austin, Texas.

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The HR implications of this trend, says Rahman, are twofold: HR will need to change its operating model and value proposition to reflect remote workers.

“The entire operating model is flipped on its head,” Rahman says. “You also have to look at the employee experience. Is it only catered to the person who comes into the office? You have to think about the person who never steps foot into the office or comes in two to three days a week.”

He says this disruption will create a long-term impact for HR and that the “monolithic idea” of what employees want and how to attract and treat them is over.

“Now the question is to what extent does location matter?” Rahman says, adding that, when considering salaries, geography won’t be in the back seat; it might not even be in the car. “While becoming more accepting of distributed work, organizations will have to question if it really makes sense to thinly slice 5% differences or lump them together and call it a day.”

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Carol Patton
Carol Patton is a contributing editor for HRE who also writes HR articles and columns for business and education magazines. She can be reached at [email protected].