How to Pay Remote Workers Fairly
Avoiding the global ‘HR Nightmare’ of Work from Anywhere practices
Last week, Spotify became the first company to launch a ‘work from anywhere’ policy.
The streaming platform announced it will allow employees the freedom to work from anywhere while continuing to pay San Francisco and New York salaries. Employees will be free to live and work globally, so long as their working locations do not cause legal issues.
However, Spotify’s policy may end up causing problems for more than just the legal department.
Nicholas Colin, a financial expert, called ‘work from anywhere’ a potential ‘HR nightmare’ and wagered many companies would start to set limitations on remote work when these complications rise to the surface.
With over 25 years of experience managing global workforces and international payroll – Mauve examines how global HR teams can create fair remote pay policies.
How much should remote workers be paid?
Nicholas Colin points out that the question of what to pay remote workers is a domestic issue as well as an international one. For companies with previously centralised work locations, existing salary levels will be based on appropriate benchmarks for that local economy and labour market. Location-based salary is likely to become a major consideration when employees start moving to areas or regions with a significantly lower cost of living.
How does poor pay policy impact workers?
Feelings of low morale can arise when any worker feels they are being unfairly paid. This can dampen productivity levels, and some lab-based studies have even found pay-related stressors to cause physiological impacts linked to cardiovascular disease.
But it is not simply a question of blindly agreeing substantial compensation for the remote worker to ward off these potential problems. Local salary levels must be taken into account when establishing pay for remote workers, especially where companies also employ local staff members in that jurisdiction.
The 2016 ERSC-funded study Addup explored the wage gap between the salaries of local and expat co-workers performing similar roles for aid sector organisations in lower–income countries. It found pay disparities of up to 900% in favour of expatriates.
Local workers interviewed as part of the study expressed feelings of dissatisfaction and workplace injustice. They cited the pay gap as having damaged relationships with their wealthier co-workers, creating power inequities and ultimately reducing productivity.
In some situations, dual pay practices can lead to an ineffective, unhappy workforce – and could stand at odds with many organisations’ declarations of internal efforts against inequality and privilege imbalances.
Pay rise and promotion equality across dispersed employees is also something that companies will have to consider. Nicholas Bloom’s study of a Chinese company that tested home working nearly a decade ago revealed that people working remotely were promoted at about half the rate of those in the office. His recent studies suggest workers that come into the office are still 30% more likely to be promoted.
Although some workers claim working from home is as valuable as an 8% pay rise – questions about pay rise discrimination are likely to emerge if employers do not establish clear policies.
Should employees be earning based on their value to the company or proportional to their cost of living?
Glassdoor’s Dr Andrew Chamberlain argues that workers should always be paid according to their worth. But when the work location is removed from a centralised economy and becomes global, how is that worth quantified?
Workers moving out of cities for a different quality of life are generally settling in areas with a better cost of living – but they are not necessarily expecting a drop in pay. To their minds, they are carrying out the same tasks, but now away from the overhead-rich environment of a centralised office. They may also be missing out on some of the perks and benefits of an office-based role, such as subsidised lunches or colleague camaraderie.
For employers with existing regional pay policies, and perhaps with less resources than Spotify, this expectation can spell difficulty. The company may want to avoid an office headcount exodus if they are tied into lengthy contracts or other constraints.
Remote work could trigger a longer–term reduction in worker value to the business, even if short-term impacts are nominal – for example, if they are unable to attend client meetings in person or network to the same standard.
Another focus point for employers is the issue of taxation. Technology may have broken down the geographic limitations to remote work, but financial boundaries mean global governments will still require local tax revenue from workers living away from their companies.
Local labour laws around compensation should be taken into consideration when agreeing a salary for workers who will be employed overseas – there may be new minimum wage requirements, tax reliefs for home workers, or even 13th salary payments applicable.
Employers should explore the financial impacts to the business, as well as the implications for the remote worker and their colleagues when proposing a remote pay structure that works for everyone.
Building a remote pay policy as a global hybrid employer
From our experience as an employer of a hybrid global workforce, and of supporting organisations with their global pay policies, there is a delicate balance to be struck between employee value and operational viability.
While every employee should be paid their worth, other considerations must also factor in pay policy discussion – fairness and equality across the workforce, the financial benefits and limitations of remote work, international compliance, long-term organisational goals and individual employee needs.
To get to that perfect point of balance, we recommend prioritising the following before agreeing on remote worker pay:
Salary benchmarking – familiarise yourself with local rates of pay by carrying out salary benchmarking. You can explore job roles, industries, experience levels, expected benefits and so on to determine salary ranges for your chosen market and build a fair, appropriate package. Mauve Group monitors salary levels across its network and provides a salary benchmarking service to its global clients.
Consultation – gaging worker opinion and managing expectations is a vital part of formulating a winning remote pay policy. Survey your workers and find out what they are looking for – exercise honesty and transparency in the avenues you are investigating. Great communications between all involved parties will reduce the risk of ill-feeling.
Financial viability audit – every option should be fully costed – including the long- and short-term impacts of remote work. For organisations without the resources of Spotify, the financial health of the decision has to be considered.
Risk assessment– commissioning a risk assessment can draw attention to potential red flags for your business and the worker if they choose to settle in a certain location. These reports can focus on local HR, tax, immigration and compliance issues, and draw your attention to permanent establishment concerns. Awareness of these local conditions can provide a foundation to develop universally beneficial salary packages. Mauve Group’s compliance department can offer bespoke risk assessments based on the unique circumstances of your organisation.
From here, you can build a structure of salary bands that take into account workforce variances in location, experience, worth and seniority – and allow upward progression whether office-based or remote. This tactic will help to reduce the risk of worker-to-worker disparity and unfair compensation.
The future of ‘Work from Anywhere’
‘Work from anywhere’ policies are likely to become a common extension of the remote working revolution. Progressive companies that want to keep abreast of workplace trends will be looking to accommodate this new way of working in order to benefit from the economic and efficiency advantages of the policy.
Financial experts like Nicolas Colin agree that supporting ‘work from anywhere’ will eventually become a powerful tool for economic development – providing companies can navigate the maze of external restrictions and internal responsibilities.
With careful planning and the right support at hand, even resource-constrained companies can avoid the pitfalls of poor pay policy. Awareness of the risks will help to build a fair global structure that is workable and accepted across the entire workforce, no matter their physical location.
Interested in the solutions that could help you form better remote work policies? Get in touch here. Salary benchmarking, risk assessments, global HR consultancy – whatever your need, Mauve Group’s experts can support.