Location-based pay has been a hot topic for many years. It comes from a place of logic, fairness, and good intentions. However, the lines have blurred now that many employees are able to work from the city of their choosing.
Have you ever asked an employee how much they pay for rent, how much their home is worth, or how much their mortgage is during a job interview? No, because that is inappropriate and unrelated to the job listing.
Some companies, like Gitlab, Lunchbox, and Buffer, scale their remote employees’ pay based on where they live. As you’ll find here, Gitlab firmly stands behind its decision, and I appreciate all of the thought, data, and maintenance they have put behind it.
However, if a remote employee can produce the same quality of work from anywhere in the world, should their salary change depending on where they created it?
How Are Remote Employee’s Salaries Determined?
Employers determine salaries for remote workers in a variety of ways, but some common factors include:
- The employee’s experience and qualifications
- The job duties and responsibilities
- The company’s salary range for the position and what other companies are offering for similar roles
- The employee’s performance
- The employee’s ability to work independently and meet deadlines
- The employee’s willingness to travel, if necessary
In some cases, employers take into consideration the cost of living where the employee resides. They may also offer additional benefits to remote workers, such as a stipend for office supplies or a bonus for meeting specific performance goals.
It is important to note that there is no one-size-fits-all formula, as the salary for a remote worker is dependent on many factors. Negotiating a fair and competitive salary based on the employee’s experience, qualifications, and market value for the position is vital.
How Salaries Vary Across US Cities
According to ZipRecruiter, the average yearly income across the United States is $58,563. However, depending on your career and which city you work in, that number can change drastically.
Cities with the highest median salaries include:
- San Jose, California, $75,770
- San Francisco, California, $69,770
- Washington, D.C., $64,930
Other high-paying cities include Green River, WY, Boston, MA, New York, NY, and Baltimore, MD.
Cities with the lowest median salaries include:
- Detroit, Michigan, $20,961
- Cleveland, Ohio, $21,507
- Hartford, Connecticut, $23,498
Other low-paying cities include Rochester, NY, Birmingham, AL, Newark, NJ, and Jackson, MS.
Is Location-based Pay Fair?
Location-based pay is fair in most circumstances for in-office or hybrid roles, where employees must live within X miles of the office. Location-based pay is not appropriate for remote positions, where employees can choose which city they live in. Remote employees are paid for their output, and the cost of living in their chosen city shouldn’t matter to a company.
While I know it’s not black and white, part of the beauty of working remotely is being able to choose the city you call home. Should a person who prefers remote wilderness be paid less for their preferences? Should a city-slicker with an active social life earn more for doing the same job?
Companies should negotiate gross employee salaries based on where the company is headquartered. If that’s not possible, we can shift our eyes to Hubspot, a software company that tethers its pay to one city per country, allowing its employees to live anywhere in the world and earn a fair, decent, living wage. Airbnb is also a great example of a company that encourages and aids its employees to relocate without taking a pay cut.
What To Consider When Contemplating Location-based Pay
Morale and Fairness Among Employees
If two employees have the same obligations and are held to the same standard, the one who makes less money will feel less valued than the one who lives in the center of a big city and earns more. This issue is being pushed into the spotlight even more, with some states legislating pay transparency.
Bonuses and Raises
HR and managers must work together to decide if they’ll offer remote employees the possibility of raises and bonuses. Will they be available to employees based on the city they work from or on their quality of work? Bonuses and raises may be necessary to retain valuable employees living in expensive cities. Whatever you decide, be transparent and honest with employees.
Legal Matters
Title VII of the Civil Rights Act of 1964 protects employees and job applicants from discrimination based on race, color, religion, gender identity, sexual preferences, and national origin. Changing a person’s salary based on where they live is not illegal. However, there is a bit of a gray area here. As many neighborhoods are segregated, an employer’s decision to pay a person less could be misconstrued as the employer paying them less for being a minority instead of living in a minority neighborhood.
A Competitive Job Market
As a remote employer, your search net is wide. You can no longer only hire people who live near the office or are willing to relocate. If you provide a reasonable offer, you’ll receive applications from nationwide top talent. This net grows even wider if you allow applicants from outside the US. Studies show that companies with higher diversity have increased revenue and profit and have more productive management teams.
For Those Who Choose To Implement Location-based Pay For Remote Employees
If you’ve gotten this far and still think location-based pay is preferable for your company, ensure that you and your HR team present the information to applicants in a respectful and organized way.
Include charts, data, and facts to show your reasoning. Be honest with the employee about the salary differences and ensure they understand that if they move, their salary may increase or decrease by a certain percentage.
Check out Gitlab’s compensation calculator to see how they’ve perfected their method of paying remote employees based on their location.
