How Much Should You Pay Your Remote Workers? That Depends.

Remote work was growing in popularity before 2020, but the coronavirus pandemic has catapulted it right to the center of workforce planning and talent strategy. Organizations may not realize it yet, but this major shift will fundamentally change how top talent is sourced, hired, rewarded, and retained.

When your talent pool is no longer restricted to a 50-mile radius around your office location, your competition also expands beyond local organizations. The talent pool now includes anyone who can be interviewed, hired, and managed through the internet, and companies around the world will be vying for the same talent as you.

This is a monumentally different way to think about talent strategy. Even organizations that have been recruiting nationally or internationally for decades have largely focused on relocation rather than remote work. With 25-30 percent of the workforce working remotely by 2021, according to projections by Global Workplace Analytics, relocation may all but disappear as a piece of the recruitment process.

With remote work going mainstream, employers are going to see even greater volumes of applicants as job openings become available to candidates around the world. The application process has already become reliant on machine learning and automation to filter through high volumes of candidates, and these tools will only become even more important in the future.

Ignoring the shift to remote work isn’t an option. Some employers may prefer to hire locally, but even if you’re limiting your search, other employers won’t be. You’ll still need to compete against these remote-friendly organizations as they tap your local talent sources. The same Global Workplace Analytics report cited above notes that 80 percent of the US workforce wants to work from home at least some of the time, which means those employers offering remote work may have an edge over those that do not.

Of course, not every position can be performed remotely, but as technology improves, more and more positions will likely be adapted for a digital world. Many in-person jobs that exist today may evolve to be anywhere jobs in the not-so-distant future. This will likely happen faster than you think.

So, how do organizations plan for this fundamental change to their talent strategies?

Competitive Pay Is Key to Attracting Remote Talent

There are many factors to consider, but one of the biggest is compensation. Compensation is vital to any talent strategy. It’s not the only thing that matters, but it matters a lot, both to candidates evaluating opportunities and to organizations trying to optimize payroll. When significant portions of the workforce are working remotely and distributed geographically, your overall compensation strategy will need to undergo some revision to keep up.

At PayScale, we recently released new research on how to set pay for remote employees. It shows that people who permanently work remotely make 8.3 percent more than people who don’t work remotely. This data precedes the impact of COVID-19, but it still offers some potentially surprising insights into how remote employees are valued.

Many businesses have speculated about the potential to cut costs by making positions permanently remote and hiring talent in less expensive locations. However, this isn’t necessarily a feasible strategy for every role. The market will determine what’s necessary — and possible — to attract and retain top performers.

According to our data, some occupations are likely to pay higher salaries to employees who work remotely than employees who don’t. Occupations that currently pay the most to remote employees relative to non-remote employees include media and publishing (5.7 percent more), marketing and advertising (5.4 percent), sales (5.1 percent), information technology (4.5 percent), and human resources (3.9 percent). In contrast, occupations that pay remote employees the least relative to non-remote employees include manufacturing and production (2.2 percentless); construction (-1.5 percent); and installation, maintenance, and repair (-1.1 percent).

Given the great variety of salary standards across industries, it can be difficult to figure out how much to pay remote employees to remain competitive. Overall, there are three primary methods employers can use to set base compensation for remote employees:

1. Align pay for remote workers with pay for workers in the organization’s office location. This is the traditional approach, but if your organization is headquartered in an expensive area, this may lead to higher than necessary salary expenditures.
2. Map pay to the market rate in the area where a remote employee lives. This is an attractive option for organizations based in expensive locations, as it can help them realize significant cost savings by hiring employees to work remotely from less expensive areas.
3. Base remote worker pay on the national median pay for their position/industry. This is particularly effective for less competitive roles that don’t require niche skill sets.

While setting competitive pay for remote workers may require a bit of careful planning, it’s well worth the time and effort it takes to get it right. Embracing remote work expands your talent pool, giving your business access to top candidates around the world. Offering remote work can also help your organization build a more diverse workforce, especially if headquartered in an area with a homogenous population. If you want to realize these benefits, you need to offer compensation and rewards that will make candidates pay attention.

Shelly Holt is the chief people officer of PayScale.