As employers encourage staff to return to the office post-pandemic, the debate remains whether remote employees should earn less than their office counterparts. There are two schools of thought among employers on this subject. The first school of thought advocates a lower salary for employees who relocate or live in areas with a lower cost of living to compensate employees who live in areas with high living costs and travel to work, such as pay cut announcements by major tech firms, Amazon and Microsoft, in 2021.
The other school of thought believes that remote workers should earn the same as their office counterparts where the nature of work is suitable as a flexible job, and slashing their pay would result in the loss of good talent. Meanwhile, based on previous reports, employees are willing to take a pay cut for the opportunity to work from home permanently, and some even quit jobs without flexible work arrangements, which led to the Great Resignation trend. Much of the debate on salary focuses on the geographical location of workers. However, associating salary scales and location, including whether an employee works remotely or in the office, would affect productivity and the business in the long run.
In this article, we consider the factors that determine salary and the reasons for maintaining the status quo wages of remote employees and office workers.
Essential factors for determining salary
1) Expertise and education
Talents with more work experience or high academic qualifications relevant to specific industries have a high salary. Companies looking to employ a Master’s degree holder with more than five years of work experience in any field would necessarily be willing to pay more for their expertise.
2) In-demand skills
Jobs that require highly specialized or technical skills, such as IT, finance, and law, are paid a high salary due to the complex nature of work and a heavier workload. In addition, the same job title in other industries may involve more versatile skill sets and experience that equally demand a high salary scale.
The type of industry often dictates the salary range for workers with the same designation. For example, a finance manager or IT manager is paid more than a retail manager due to the job scope and complexity of work within the specific industry.
Employees working in major cities or urban areas like Kuala Lumpur and New York are paid more due to the high cost of living than workers in remote locations with a low cost of living. With the increase in remote working or hybrid work arrangements, the focus has shifted to role-based compensation rather than location-based compensation.
5) Labour supply and demand
Compensation is also heavily dependent on the demand and supply of labour in a particular location. Companies in less urban areas must be willing to pay more for talent with higher expertise when the need for specialized workers outweighs the supply in such areas.
When it comes to remote workers, the salary scale becomes trickier. Whether the location is a significant factor may vary from company to company. Overall, skills, expertise, work history, and ease of communication appear to weigh heavily in determining the compensation of remote workers.
Accordingly, failure to offer competitive salaries results in high turnover, low productivity and morale of staff, and a negative outlook on the company’s reputation that affects long-term growth.
The case for maintaining the status quo salary of remote employees and office workers
1) Role-based salary vs. location-based salary
The shift away from location-based salary scales offers equal opportunities to remote workers who have moved to areas with a lower cost of living. Denying remote employees equal pay as their office counterparts would be harsh simply because they didn’t travel to work. It is not surprising for companies that insist on a pay cut for remote workers to compensate for the higher costs of their office counterparts to end up with a high turnover rate and the loss of highly-skilled talent.
2) Inclusive work culture
If workers who choose to work remotely on a full-time basis are mostly women for childcare reasons, then paying them a lower salary than office workers would lead to a wide gender pay gap and a less inclusive work culture. The future of work way before the pandemic moved toward a more inclusive environment where employees have the opportunity to manage their work schedules for better work-life balance. Adopting the school of thought where remote workers get a lower salary than office workers lead to a less inclusive work culture that may negatively impact the company’s reputation in the long run.
3) Companies incur lesser costs in hiring remote workers
Remote workers do not enjoy additional employee benefits like social security benefits and health insurance received by office workers. To a large extent, remote workers pay more out of their own pockets for electricity and Internet bills. Since the company gets to reduce its operational costs by hiring remote workers, slashing their salary does not appear to be justified. However, if companies are willing to pay for setting up a home-office or broadband costs, then a pay cut may be acceptable with clear and adequate notice to remote employees.
The rise of digital nomads and remote work culture has witnessed many companies adapting to these new trends. In recent times, flexible work practices and better work-life balance attract and retain the right talent as these aspects are rated more significant than the traditional pay packet by employees.
In conclusion, it may be interesting to see whether companies refrain from adopting the “pay less” mentality for remote workers in the days and months to come. The reality is that remote workers and their office counterparts make sacrifices daily to deliver their best. From an objective standpoint, it only seems fair to maintain the status quo for both categories of workers to value their contribution, maintain productivity, and boost morale in the long run for business growth and success.