Calculating salaries for in-office positions is a straightforward process as you can rely on factors like market trends, candidate qualifications, and employment history. But how do you determine the salaries of remote employees? Do you need a different process?
Pay gap in remote hiring has gained more traction, particularly in the wake of the pandemic, where most companies had to shift their onsite operations to 100% remote.
A study conducted by WFH Research discovered that hybrid workers who spend one to four days in the office a week earn more than people with either fully remote jobs or in-person jobs. On average, hybrid workers earn at least $80,000 annually, while remote employees make about $74,000.
The rules for remote compensation are not yet firmly established, so when you’re in the process of hiring remote employees, this can lead to confusion. Let’s see whether remote pay varies, how, why, and where you might stand.
Common Myths About Remote Pay
Here are a few problematic areas and wrongly held beliefs you may have come across about remote salaries:
- Remote workers are outsiders, so they don’t share the same pay scale or benefits.
- They’re dispensable and easily replaced; no need to invest in them.
- They don’t contribute enough for equal pay.
- Not working at the office means not working.
- Cheaper substitutes are always available from contract job sites.
- Not working from the office is already a great perk, so they should get less pay.
What Is The Rationale Behind Less Pay For Remote Workers?
Some businesses may justify paying their remote workers less by using these reasons:
- No commute and other hassles – since employees are already enjoying benefits such as no commute, flexible work hours, and better work-life balance, they should take a pay cut.
- Principles of cheap labor – just like outsourcing and offshoring, remote work means cheap labor.
- The buzz around savings in remote work – axing remote worker salaries is the best way to reduce business overhead costs.
But salaries constitute only a small percentage of business expenses. And there are much better ways to save, such as reduced equipment cost, smaller office space, and many more that don’t involve pay cuts.
Besides, remote workers are more productive and add more value to your company. Reducing their pay makes them feel underpaid and sends the wrong message.
Is There an Actual Remote Pay Gap Right Now?
Remote hiring could reduce the pay gap, but this depends on the company’s policies. Some companies offer equal payments without considering employees’ locations; others do it based on their cost of living and market research.
Let’s review more closely the reasons why there still continue to be remote pay gaps when hiring:
1. Gender Bias
It’s not news that despite the efforts for equality, there is still a significant gender wage gap, even in a remote work environment. Employers may have preconceived notions about the skills and abilities of candidates based on their gender, leading to disparities in job offers and compensation packages.
Furthermore, Hired’s 2022 State of Wage Inequality in the Tech Industry found that remote women workers received an average of $0.96 for every $1 salary of their male counterparts.
2. Negotiation Disparities
A study by the American Psychological Association found that half of the men had negotiated their job offers compared to only one eight of the women.
In most cases, women are less likely to negotiate salary and benefits than men. In remote hiring, this can result in women receiving lower initial salary offers or benefits packages compared to their male counterparts.
3. Company Culture and Policies
An unspoken, underlying factor that may help you determine remote employee salaries is asking whether your company has adopted the “remote culture” and actively promotes gender equality.
Organizations that do not actively promote gender diversity and equity in their remote work policies often perpetuate pay disparities. Companies need to adopt inclusive practices and policies that ensure fairness and equal opportunities for all employees, regardless of their work location.
4. Cost of Living Variations
Remote work allows companies to hire talent from different geographic locations, and compensation often takes into account the cost of living in those locations.
However, the cost of living can vary greatly from one place to another. If a company pays employees based on their location, individuals in areas with a lower cost of living may receive lower salaries for the same work, which can contribute to pay disparities.
5. Local Economic Conditions
Local economic conditions, such as regional unemployment rates and economic growth, can impact the salaries offered to remote workers.
In areas with a strong job market, employers may need to offer more competitive salaries to attract top talent, potentially leading to higher pay for remote workers in those locations.
Why No Pay Gap In Remote Employment Might Be a Good Thing for Your Business
Essentially, a fair pay scale is a reflection of both the employers and the employees. Competitive pay is a way for employers to show that they value the work their staff does. It also tells the employees that you’re an employer worth choosing over others.
If your company’s remote positions offer better pay, then:
- You’re not stuck looking for candidates on job mills with little standing because you think it’ll cost you less.
- You can approach the right candidates and not compromise on skill level (doing which can end up costing you more).
- It amps up your company’s reputation as fair and transparent.
- The best candidates come to you because you offer remote positions at no pay cuts.
‘Now’ is the age of transparency. It’s easy for anyone to find out salaries from apps like PayScale, the Salary Project, SalaryList and so on.
Just as you can find out more about a candidate from social platforms, prospective employees can learn about you from sites like Glassdoor. Candidates are actively avoiding companies that are not equal in their treatment of ALL employees.
How to Fairly Calculate Remote Salaries?
Since the cost of living varies across the country in rural and urban areas, salaries are often calculated based on locations. But the gray area of remote means your company may be headquartered in one state while your employee works from another.
Here are the three different ways to calculate remote salaries and the rationale behind them:
- Location of your corporate headquarters – these companies have a national pay rate that covers all employees, no matter where they are working from.
- Location of your remote employees – some companies may leverage the rural locations of their remote employees to gain a competitive edge. Or even allow more flexibility if their employees live in a costly city like LA or NY.
- Location-free, considering market trends – fully-remote companies usually adopt this calculation method. They tend to offer salaries based on the value employees bring to the company, regardless of their locations.
How Should Remote Workers Living Abroad Be Compensated?
The most successful means of calculating remote worker salaries for non-US residents is a cross of the second and third methods. That is, basing the compensation partly on the candidate’s location and partly on market trends.
If the salary is based solely on local rates, chances are you’ll miss out on the best candidates to local/national companies who have above-average pay rates. But considering global market rates, you can still match the best local offers, compete with the top local employers to source outstanding candidates and pay substantially less than US rates.
15 Tips to Help You Calculate the Salaries for Your Remote Employees
At DistantJob, we have more than 16 years of expertise in not only sourcing top-tier remote developers but also in adeptly overseeing worldwide payroll management.
Our proficiency in calculating remote salaries is based on a meticulous and data-driven methodology that considers multiple factors to ensure that remote employees are compensated equitably based on their location, skills, contributions, and market conditions.
Here are some of our useful tips:
- Determine Industry Norms – Understand the compensation standards and industry norms for the specific role and industry. Different industries may have varying practices regarding remote work and salary adjustments.
- Evaluate Job Role – Assess the nature of the job role to determine how well it lends itself to remote work. Some roles may require physical presence or specialized equipment, while others can be performed remotely with ease.
- Consider Market Rates – Research market salary rates for the job role in the remote employee’s location. Industry-specific salary surveys and job market data can provide insights into competitive compensation.
- Factor in Employee Skills and Experience – Consider the remote employee’s skills, qualifications, and experience. Employees with valuable skills or extensive experience may command higher salaries, regardless of location.
- Assess Individual Performance and Contribution – Factor in the remote employee’s individual performance and contributions to the organization. High-performing employees who make significant contributions may merit higher compensation.
- Avoid Discrimination and Bias – Ensure that compensation decisions are free from gender, race, or other forms of bias or discrimination. Implement clear and unbiased criteria for determining salaries.
- Transparency and Consistency – Maintain transparency in compensation decisions and ensure consistency across remote and onsite workers. Clearly communicate how salaries are determined and apply these principles consistently.
- Consider Benefits and Perks – Evaluate the entire compensation package, including benefits, perks, and allowances. And ensure that remote employees have access to the same benefits as onsite workers.
- Regular Reviews – Periodically review remote employee salaries to ensure they remain competitive and aligned with changes in local cost of living and industry standards.
- Consult Legal and HR Experts – Consult legal and HR experts to ensure that your compensation practices comply with labor laws, regulations, and employment contracts in the remote employee’s location.
- Employee Feedback – Encourage open communication with remote employees. Seek their input on compensation and listen to their feedback to make necessary adjustments.
- Document the Process – Document the factors and considerations that go into salary calculations for remote employees. This documentation can help demonstrate fairness and consistency.
- Regularly Update Policies – As remote work practices evolve and circumstances change, regularly update your company’s remote work and compensation policies to adapt to new challenges and opportunities.
The DistantJob Method
By partnering with us, you don’t have to worry about calculating remote worker salaries. We’ll do that for you.
We find you the best global developers with uncompromising skills and for salaries that you’re on board with. All the related paperwork concerning recruitment and payment and benefits….well, we take care of those, too.