As employers continue their remote work models, leaders will need to reassess their policies so that both the organization and employees aren’t blindsided with tax implications based on location. Cheryl Johnson, CHRO, Paylocity, discusses what factors should be considered as remote work continues and how to effectively communicate payments and tax information to employees.
It seems like every day, more companies announce a permanent remote work model. As organizations adjust their workplace settings for the future, a work-from-anywhere (WFX) policy can be a great way to retain existing employees and attract new talent.
But what does WFX mean for the future of compensation? When employees can move freely, employers may be tempted to adjust pay accordingly, but nickel-and-diming employees often backfires.
Human resource and payroll teams need a consistent and transparent compensation program powered by technology that matches the modern workplace. Otherwise, organizations risk blindsiding their employees, which could lead to feelings of unfairness, lowered engagement and increased turnover.
Learn More: How To Optimize Compensation With APIs and Real-Time Business Data
How Geography Affects Compensation
Employers rarely base pay on the cost of living for a geographic area. In fact, the majority of companies instead look at the cost of laborOpens a new window for a given region to determine geographic pay differentials.
For example, two software engineers — one in Silicon Valley and one in Boise, Idaho — can have the same role but make different amounts of money. That’s because the demand for tech talent in Silicon Valley exceeds the supply, meaning companies must pay more to attract and keep top talent. But in Boise, the demand for tech talent is more limited, and companies can retain workers at a lower price.
Before the pandemic, half of my company’s workforceOpens a new window was fully remote, and another 20% could work from home part of the time. We calculated pay using a national range that applied the same geographic differential to all roles and candidates. It didn’t matter where employees were located; a software engineer didn’t make any less because they lived in Boise.
Best Pay Practices as Offices Reopen
As more employers adopt WFX policies, many wonder how this will affect global compensation practices. Will companies determine pay using a national range? Or keep compensation bound to the region an employee lives in? And how will WFX affect pay in areas with a high cost of labor?
While there is no crystal ball or a one-size-fits-all compensation program, the following tips, paired with the right tools and technologyOpens a new window , can help ensure your pay practices support employee satisfaction and retention:
- Match compensation to recruitment: Your recruitment strategy should inform how you calculate pay. Are you going to hire fully remote employees? Restrict new hires to geographic areas you have offices in? Or some sort of combination? This can help you decide whether salary should be based on geographic differentials or a national range.
An Applicant Tracking System (ATS) embedded within a human capital management (HCM) tool can help manage this process.
- Consider your other employee benefits: According to a recent survey from PwC, over half of the workforce wants to be partially remoteOpens a new window . Most employees now expect flexibility, like a hybrid work plan or adjustable hours. If you need employees to be in the office or work 9-to-5 every day, you’ll likely have to pay more than a competitor who offers a broader range of options.
Benefits, though separate from employees’ paychecks, are another way to compensate, reward and retain your workforce. Leverage employee survey technologyOpens a new window to gauge future work preferences and opinions on the right mix of benefitsOpens a new window to offer (like on-demand paymentOpens a new window for flexible cash flow in between pay periods). This will help you make data-backed decisions that will also resonate with your workforce.
- For movers, consult the range: While everyone has their own reasons for moving, many see relocation as a chance to stretch their salary. An unexpected change will not be well received.
Be sure to consult the salary range in both cities for the employee’s position before making any adjustments. If a worker moves from a city where the geographic differential is $120,000-$220,000 to a place where it’s $110,000-$190,000, they are likely still within range. Even if they’re at the high end of the market (or a bit above), it’s likely not worth lowering their salary and risking their satisfaction.
HR technology can enable you to benchmark your compensation range against competitors to determine if an adjustment is necessary.
- If you’re going to go down, also go up: If your company decides to adjust pay based on geography, it must do so both ways. If you aren’t willing to increase pay when someone relocates from Kansas City to New York City, it shows employees you care more about saving money than pay equity.
An HCM with compensation management and performance management features can give visibility into all of your employees’ salaries and work history so that you can pay your workforce fairly and accurately.
- Ensure compliance: It’s important to stay on top of any relocation changes to adjust payroll accordingly. Local and federal tax laws are complex to manage, especially if you have thousands of employees dispersed across the country.
 Make sure your payroll software or HCM platform can help you stay compliant. It should also be easy for employees to adjust their information, so you’re up to date.
Learn More: Benefits Utilization, Cost Management and Strategy Take Center Stage as Employers Invest in HR Tech
The Modern Workplace Needs a Modern Compensation Strategy
Compensation needs to go hand in hand with your post-pandemic work policies and recruitment plans. Though the future of work is far from certain, a trusted payroll and compensation technology partner can help your company meet the modern workforce head-on. Happier employees are more productive and loyal, and a well-communicated, thoughtful compensation program is one way to prioritize their well-being.
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