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same job Same experience. equal pay? Not necessarily. What you earn will likely depend on two things: where you live and whether you work from home.
While most workers have the upper hand in today’s job market, in large part due to labor shortages, remote workers could be at a disadvantage when it comes to wage negotiations.
Remote hiring has boomed in recent years, skyrocketing 223% between March 2019 and March 2022, according to a new report from payroll and benefits company Gusto. This new frontier of working from home has prompted employers to rethink the way they reward remote workers.
Employers know that people want flexibility remotely, and they also know that some job seekers may be willing to take a pay cut to do so. Research has shown that some employers are offering remote work flexibility in exchange for lower wages.
Here’s what you should know about how companies typically structure compensation and what that could mean for you as a remote worker.
3 Common Salary Structures for Remote Jobs
According to Payscale’s 2022 Compensation Best Practices report, 40% of companies are considering a location-based compensation structure for their remote workers, which means using your location to determine your salary.
Many large employers have already taken this step. Google has long had a location-based compensation structure, but as more employees opted to work remotely, the tech giant reminded them that their pay could suffer if they didn’t return to the office. In 2021, Google created a tool that showed how much wages would change if employees applied to work remotely or asked to work elsewhere.
Influential employers like Google can set trends for other big employers.
While many companies are moving toward location-agnostic salary bands, most still use location-based structures, says Brittney Hancock, Higharc’s director of recruiting.
“Pay cuts certainly happen for people moving to cheaper areas, especially at larger companies, but I wouldn’t call them typical,” Hancock says. “More typical is a scenario where an employee moves to a place with a lower cost of living, their salary stays the same, but there is a longer period of time before they are eligible for a raise.”
Employers can also set up pay zones, which are usually divided into different areas of the country with different costs of living, or specific metro areas where the company has offices.
Margaret Buj is a Senior Talent Partner at Mixmax, where she helps technology companies find talent in the US, Europe and Latin America.
“When I worked for Expedia, we had four different salary bands even within the US. There were salary ranges for high-cost locations like New York or California that were much higher than, for example, in the South,” says Buj.
Some companies will allow you to keep your expensive city salary even if you plan to move somewhere cheaper – this is usually a matter of negotiation.
domestic market courses
Another standard salary structure is to pay all employees according to the same market, which is usually tied to the company’s headquarters. It’s a strategy Reddit adopted at the height of the pandemic.
Employers use remote work as a bargaining chip when inflation is high
According to a July 2022 report by the National Bureau of Economic Research, employers could use remote work opportunities to keep pay levels down.
The economists behind the report surveyed 500 U.S.-based companies and found that 38% used remote working opportunities to “keep employees happy and ease wage growth pressures.”
Brent Meyer, one of the report’s authors, an associate vice president and research economist at the Federal Reserve Bank of Atlanta, said the surge in inflation has caught businesses and policymakers off guard.
“There is a notion in macroeconomics that in times of inflation workers will fight hard to get higher wages — they will haggle for a real wage catch-up,” says Meyer. “But that could be a problem from a monetary perspective. Some employers have used work from home as a convenience rather than paying higher wages.”
The report found that larger companies – those with more than 250 employees – are significantly more likely to pay less for the “conveniences” of remote work (52.4%) than smaller companies or those with fewer than 250 employees (35.3%). .
Percentage of companies offering remote work as a way to manage salary growth
|industry type||percentage of companies|
|retail and wholesale; Transport and Storage; leisure and hospitality||24.8%|
|educational services; Health and social assistance and other services||45.2%|
|financing and insurance; real estate and rental and leasing; professional and business services and information||50.4%|
Source: National Bureau for Economic Research
This perception that remote workers require less wages and may be less valuable are two hurdles that job seekers and employees looking to move from the office may need to overcome.
Employers may be reluctant to offer fully remote opportunities even if they think they can save money, says Nicholas Bloom, one of the report’s authors and a professor of economics at Stanford University.
“You’d think that firms would then all flock to hire remote workers since wages for them could be 50% of personal costs,” says Bloom. “But fully remote workers are typically seen as less productive than hybrid or face-to-face workers in most roles.”
Hybrid workers could get the worst of both worlds: They have to compete for jobs with both local and global workers, Bloom says, adding that a hybrid worker’s salary will likely reflect this.
How to negotiate salary as a remote worker
If remote work is a priority, be prepared for employers to use it as a negotiating tool. However, that doesn’t necessarily mean that you should accept greatly reduced wages compared to what other people with similar experience in the same field earn.
“Your research on salaries for comparable positions and finding a number that will help you achieve your career goals should be your top priority, rather than tying your perceived value to a geographic location,” says Feldotto.
Before discussing salary with a potential employer, ask yourself the following questions:
- How much do I want to earn?
- What is the lowest salary I would accept for this position?
- Are there any benefits I need/want (a solid health insurance package, paid time off, retirement plans)?
“Taking a job is balancing what’s most important to you,” says Hancock. “The compensation, of course, but also consider the work-life balance, the remote or office environment, the level of business impact and team culture. However, if the question is: do I have to expect a pay cut if I want to work remotely? In general, the answer is no.”
This advice can be applied to workers who want to keep their jobs but also want to move to a fully remote or hybrid arrangement.
Feldotto says that while it can be helpful to know a company’s salary structure, your negotiations should revolve around the role itself and your own situation.