Should compensation be adjusted in response to the number of employees working remotely?

May 25, 2022

For many, working from home has become ingrained into the nature of our job roles, and with hybrid working becoming more common, it looks like this is a practice that is here to stay. This begs the question; should compensation be adjusted because employees are working remotely?

In this article I will discuss two scenarios that need to be considered when addressing this matter. The first scenario considers those working from their home. Following the COVID-19 pandemic, many Londoners have chosen to leave the city for more rural locations that provided better value and were less busy. Prior to the pandemic, those who chose to live outside London would typically receive a slightly lower salary to account for the lower cost of living compared to their London-based counterparts. However, with the cost of living increasing significantly across the country over the past year, many would consider pay cuts in response to people moving out of London to be unfair and could lead to resignations. Furthermore, if people are capable of carrying out their work at the same level wherever they choose to live, should those living elsewhere than in London really take a pay reduction, especially as living in London is no longer required for them to do their jobs?

Recently, Airbnb announced that it would allow their 6000+ employees to work from any location without receiving a pay cut. This policy is likely to increase diversity due to the elimination of restrictions on location and childcare arrangements and the increasing flexibility for typical day-to-day commitments. Other names extending their work-from-home options include Google, Morgan Stanley, PayPal and Amazon.

The second scenario considers those who are working remotely whilst travelling globally. For those employees, taxation and purchasing power parity are likely to be significant considerations. In order to determine whether or not these employees should receive a pay reduction, three important questions to ask are: For how long are they expecting to be abroad?; Will they be returning home in between changing locations?; and Have they got financial commitments in their home country? The length of time deemed appropriate for employees to work from abroad can only really be decided on a company-by-company basis, but returning back to the argument that people can carry out their tasks effectively regardless of location, it may be deemed unfair to determine salary based on temporary living arrangements. Whether they will be returning home in between locations also ties in with the question of financial commitments, because if they are returning, where will they be staying and what will be the cost? Some may be paying rent or a mortgage for a home that they are rarely visiting during their travel period, but don’t wish to end those commitments, as travelling is only a temporary arrangement and it is convenient to have a place to return to in between travels. In this situation, a pay reduction is likely to deter people from travelling abroad, which could in turn result in them searching for another job that supports their personal goals. In the same breath, it wouldn’t make sense for the employer to award a pay rise to an individual to help with their bills, unless this, or a benefits package of similar value was to be offered across the rest of the workforce.

In conclusion, whilst working remotely might enable employees to choose to live in an area of lower property prices, or fulfil ambitions to travel abroad, companies are likely to suffer negative effects from asking their employees to trade off between these benefits and keeping their salary.

For more information, please contact George Edwards.

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