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Employers are using remote work to negotiate lower wages – Forbes Advisor

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Same work. Same experience. Same salary? Not necessarily. What you earn will likely depend on two things: where you live and whether you work from home.

While most workers in today’s job market have the upper hand, thanks in large part to a labor shortage, remote workers could be at a disadvantage when it comes to negotiating jobs. wages.

Remote hiring has exploded in recent years, skyrocketing 223% between March 2019 and March 2022, according to a new report from payroll and benefits company Gusto. This new frontier of working from home has prompted employers to rethink how they compensate remote employees.

Employers know people want remote flexibility, and they also know that some job seekers may be willing to take pay cuts in exchange. Research has shown that some employers offer remote work flexibility in exchange for lower pay.

Here’s what you need to know about how companies tend to structure compensation and what it might mean for you as a remote employee.

3 Common Salary Structures for Remote Jobs

Location based

According to the Payscale 2022 Compensation Best Practices report, 40% of organizations are considering a location-based compensation structure for their remote workers, meaning your location will be used to determine your salary.

Many large employers have already taken this step. Google has long had a location-based compensation structure, but as more employees have opted to work remotely, the tech giant has reminded them that their pay could suffer if they don’t return to the desk. In 2021, Google created a tool that showed how much salaries would change if employees applied to work remotely or asked to work at another location.

Influential employers like Google can set trends for other big employers.

While many companies are moving toward location-agnostic pay bands, most still use location-based structures, says Brittney Hancock, director of recruitment at Higharc.

“Wage cuts certainly happen for people moving to cheaper areas, especially in larger companies, but I wouldn’t call them typical,” Hancock says. “More typical is a scenario where an employee moves to a location with a lower cost of living, their salary remains the same, but there is a longer period before they are eligible for a raise.”

Regional areas

Employers can also create payment zones, which are usually divided by different regions of the country that have different price tags based on the cost of living or by certain metropolitan areas where the company has offices.

Margaret Buj is a senior talent associate at Mixmax, where she helps technology companies find workers in the United States, Europe and Latin America.

“When I worked for Expedia, we had four different salary brackets, even in the United States. There were salary brackets for high-cost places like New York or California, which were much higher than those in the South , for example,” says Buj. .

Some companies will allow you to keep your expensive city salary even if you consider moving to a more affordable location – this is usually a matter of negotiation.

Single market tariffs

Another standard compensation structure is to pay all employees according to the same market, usually attached to the company’s headquarters. It’s a strategy that Reddit adopted during the height of the pandemic.

Employers are using remote work as a bargaining chip in times of high inflation

According to a July 2022 report from the National Bureau of Economic Research, employers could use remote work options to reduce pay levels.

The economists behind the report surveyed 500 US-based companies and found that 38% were using remote work opportunities to ‘keep employees happy and moderate pressures on wage growth’ .

Brent Meyer, one of the report’s authors, an assistant vice president and economist in the research department of the Federal Reserve Bank of Atlanta, said the huge spike in inflation caught businesses and policymakers off guard .

“There’s a notion in macroeconomics that workers will fight hard for higher wages in times of inflation — they’ll bargain for real wage catch-up,” Meyer says. “But it could be a problem from a monetary point of view. Some employers have used working from home as an amenity value instead of paying higher wages.

The report found that large companies – those with more than 250 employees – were much more likely to pay less for the “convenience” of remote working (52.4%) than smaller companies or those with fewer of 250 employees (35.3%).

Percentage of companies offering remote work as a way to manage wage growth

type of industry Percentage of companies
Goods producers 23.1%
Retail and wholesale trade; transport and storage; leisure and hospitality 24.8%
educational services; health care and social assistance and other services 45.2%
finance and insurance; real estate and rental and leasing; professional and commercial services and information 50.4%

Source: National Bureau of Economic Research

This perception that remote workers require less pay and can be less valuable are two hurdles job seekers and employees looking to leave the office may have to overcome.

Employers may be reluctant to offer fully remote opportunities even if they think they can save money, says Nicholas Bloom, one of the report’s authors and a Stanford professor of economics.

“You would think companies would all be flocking to hire remote employees then, because their salary could be 50% of in-person costs,” Bloom says. “But fully remote employees are generally considered less productive than hybrid or in-person workers in most roles.”

Hybrid employees could have the worst of both worlds: they have to compete with local workers and global workers for jobs, says Bloom, adding that a hybrid worker’s salary will likely reflect that.

How to Negotiate a Salary as a Remote Employee

If remote work is a priority, you need to be prepared for employers to use it as a bargaining tool. However, this does not necessarily mean that you have to accept salaries that are greatly reduced compared to what other people in the same field earn, with similar experience.

“Doing your research on salaries for comparable roles and settling on a number that will help you achieve your career goals should be your main priority rather than tying your perceived value to geographic location,” says Feldotto.

Before you start talking about salary with a potential employer, ask yourself these questions:

  • How much do I want to earn?
  • What is the lowest salary I would accept for this position?
  • Are there any benefits I need/want (a strong health insurance program, paid time off, retirement benefits)?

“Accepting a job is about balancing what’s most important to you,” says Hancock. “Compensation, of course, but also consider work-life balance, remote or office environment, level of business impact and team culture. That being said, If the question is: Should I expect a pay cut if I want to work remotely? Generally, the answer is no.”

This advice can be applied to workers who want to keep their jobs but also want to transition to a fully remote or hybrid arrangement.

Feldotto says that while knowing a company’s compensation structure can be helpful, ultimately your negotiation should be about the role itself and your own situation.

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