When the COVID-19 pandemic drove masses of employees from corporate offices to work from home, it also prompted unprecedented numbers of relocations—temporary and permanent moves by employees across states and regions.
For total rewards leaders and others responsible for setting compensation policies in the U.S., those worker migrations present complex and ongoing challenges when it comes to decisions about pay, benefits, and taxation.
Compensation professionals representing large employers (workforces of 1,000-plus) across the U.S. who responded to the Institute for Corporate Productivity’s (i4cp) latest survey, Compensation in the Era of Untethered Workers, confirmed that they are facing a variety of issues related to remote work situations.
“Developing compensation structure for remote workers and policy on how to handle employee-elected relocations” is how a director of global compensation in a firm serving the defense and aerospace industries described her company’s two-fold challenge.
Other respondents reported similar issues—a compensation manager in a financial services organization spoke to additional effects of changing work models: “Discussions are currently underway regarding whether or not pre-existing geographic differentials continue to make sense in light of projections that a sizable portion of the employee population will continue to work remotely in the future.”
Pay localization policies predate the pandemic
The sudden expansion of remote work and relocations is
attributable to the pandemic, but pay localization policies (adjusting salaries
of remote employees based on location) are not new for many organizations.
More than a third of those surveyed (35%) said their organizations have a pay localization policy in place, and another 18% acknowledged that they are considering one. But the 40% of respondents who said their organizations have no policy revealed a fairly even split in current practices.
Of organizations with localization policies, about a fourth (26%) differentiated between employees working in company offices and those opting to work remotely. Further, all respondents with such policies said the measures had been implemented prior to the onset of the pandemic. The greatest proportion of that group (44%) reported that their policies had been in place between three and five years, and 11% said they’d had policies for more than a decade.
Companies are shifting further toward standardized pay structures
Four in 10 survey participants confirmed that their organizations standardize pay structure/rates for roles or work done, regardless of where in the U.S. that work is performed. Suggesting a greater shift toward standardization, another 20% of respondents said they planned to go that route or were considering it.
The largest portion of those with standardized structures (42%) reported a single national pay rate, while 29% noted regional rates.
Commenting on the findings, Ivor Solomon, Head of Total Rewards at Genentech and Chair of i4cp’s Total Rewards Leader Board, expressed surprise at the percentage of companies opting for national rates versus those that “have or will use some form of geographic differential to pay employees based on local cost of labor.” However, some total rewards leaders say they have shifted to national rates as a simplification strategy in a time of increased complexity.
Solomon suggests that movement toward national or regional rates could greatly influence relocation decisions of employees who can work anywhere. “Permitting remote work can open new talent pools for organizations, enabling a recruitment pipeline for more diverse talent,” he says.
Organizations track employee locations
Asked in a write-in question about their most pressing compensation and benefits challenge in the post-pandemic era, many survey respondents cited remote work and the questions it raises for compensation professionals.
Given that top challenge, it should come as no surprise that nearly two-thirds of those surveyed (64%) say that their organizations track the movement of their U.S.-based employees who choose to work remotely. That tracking enables reporting and deduction of appropriate payroll taxes based on workers’ locations.
Although 26% of the professionals surveyed said they don’t currently track their employees for that purpose, 19% of that group acknowledged that they are considering doing so.
Understanding where in the country employees work and reside can be an important factor for organizations when it comes to benefits considerations, too—especially in ensuring access to healthcare coverage. Perhaps anticipating that issue, many employers represented in the survey already offer healthcare plans that cover their workers nationwide. Only 1% of survey respondents said they’d change plan providers to make coverage available, and 10% reported adding or expanding provider networks.
Overall, survey findings—and especially the relatively robust percentages of “we’re considering it” responses—suggest that many organizations continue to struggle with sweeping implications of shifting business models in the wake of the pandemic. And that compensation and benefits leaders have more work ahead to evolve policies that ensure appropriate pay and benefits practices across their organizations’ varied work settings.
Carol Morrison is a Senior Research Analyst at i4cp