How to Set Remote Salary Benchmarks

Erez Greenberg September 02, 2021
Images for salary and payslip

Do you miss the office? If the answer is a resounding no, you’re in very good company. In fact, according to Forbes, 61% of people would prefer for their roles to remain fully remote with no ‘back to the water cooler’ in sight.

The chances are, the future will be hybrid, with many companies going choice-first, even selling a percentage of their office space and looking to create a more global workforce. There are many benefits of expanding your talent pool further afield, including access to niche talent that you wouldn’t find locally.

If you’re stuck on how you should set salary expectations for remote candidates and calculate their compensation packages, you’re in the right place.

Creating a Strategy for Employees who Move to Remote Working

Did you know that 72% of organizations have no strategy in place for how they will pay their remote employees? It’s important to create a plan for your HR teams, or they will end up treating each candidate in a silo which can get complicated fast. It will also leave you open to risk, both in terms of legal compliance and also employee mistrust.

Start by thinking about your current employees who may have been in-house employees pre-pandemic but have since moved to remote. The common consensus is that you shouldn’t change worker compensation in this situation, agreed on by 95% of employers. It’s a good thing too, as 83% of employees say that they would walk out the door if their salaries were cut as a result of remote working.

However, in some cases you may need to raise an employee’s salary, for example if your company is based in a state with a lower minimum wage than another. Iowa has an hourly minimum wage of $7.25, while Illinois and Minnesota, just next door, require workers to be paid $10.00 per hour.

How to Offer Remote Employee Compensation

What about new employees who you’re looking to hire for fully-remote positions? These candidates may be anywhere in the world, and it can be tough to know how to pitch compensation packages. There are three main schools of thought when it comes to making this decision.

Location-agnostic Compensation

With this approach, it doesn’t matter where your employees are based, you pay them according to the location of your Headquarters. It’s certainly a simple way to manage payroll, and as a bonus – you’re offering equal pay for equal work, so you can’t be accused of being unfair.

However, depending on your location, this could impact your ability to attract the best talent, for example if they live in a location where the pay is generally higher for that kind of work. The average salary for a product manager in London, UK is around €67,000, while over the English Channel in Paris it’s €45,500. A company based in France is unlikely to attract a UK-based product manager with that compensation package. This strategy also won’t save you any money over hiring locally, which is often a goal when creating a remote working policy.

Who does this?  Basecamp is the most famous example of a company who promises equal pay for equal work anywhere, but other organizations like Reddit have recently followed suit.

Location-targeted Compensation

On the other end of the scale, you could consider compensation based on the location of your employees. If you’re hiring in India – pay based on salary expectations for that role in India. In contrast, if you’re hiring in San Francisco – you’ll offer top dollar rates for the position.

There’s a lot of good things about this strategy. First off, you know that you’re offering a competitive salary for the employee’s location to meet their cost of living. You can also strategically hire in less expensive locations to reduce your own internal overheads. If you work in a place with a talent shortage, this approach helps to attract high-quality candidates as they will be paid according to their location’s expectations, not your own.

The biggest challenge with this approach is the operational overheads. Working out each candidate’s salary expectations based on their location and the seniority of the position is a pain, and will need to be recalculated every time they get a promotion or move internally in the company.

You’ll also need to consider what you will do if your employee moves location. Let’s say you hire a senior developer from Poland, and pay them an above average salary of $70,000 per year. A year later, they decide to up and move to the United States. Do you now need to increase their base pay to $160,000 to meet the expectations of the new location? How about the other way around? If your employees move to a place where the cost of living is lower – can you cut their wages accordingly?

Who does this?  As the traditional way of compensating international employees – you’ll find a lot of companies who use a candidate-based approach when hiring. In terms of changing salaries once an employee is on the payroll, the move to remote working has put this in the spotlight. VMware has gone on the record saying that they will reduce employee’s salaries if they move out of their HQ location – San Francisco. Facebook has also said employees will need to be transparent about where they are working from, and may need to accept salary adjustments.

Compensation Based on the National Average

The third most common way to approach setting remote salary benchmarks is by using a national average for the country in which you’re hiring. This definitely simplifies your operations, especially if you’re hiring only within the US for example. If you’re looking for candidates abroad, you can even expand this to offer a continent average, for example when hiring across the EU. This is a better strategy for those who work in an area with limited talent available, attracting those who you might otherwise be unable to tempt aboard.

However, offering average prices may attract average staff, and one-size fits all is a tough sell in the era of hyper-personalization and employee experience.

Who does this?  SHRM reports that in general “The more locations an organization has, the more likely it is to consider creating a U.S. geographic pay policy, especially as full-time remote work rises.”

Creating Unique Salary Formulas for your Workforce

Another option that’s not yet common but is garnering greater attention is creating a unique salary formula for your company, where you base all of your employee salaries on a single, pre-set calculation. This calculation will look at a benchmark for the role/area, and then factor in added considerations such as your location, your experience and your skills. Unique salary formulas can be complex to create, but once you’ve done it, you have a transparent and standardized way to pay your staff anywhere.

Who does this? At GitHub, the formula for compensation for a job in San Francisco is SF benchmark x Location factor x Level factor x Exchange rate. GitHub updates the exchange rate twice a year, and when reviews are made to levels, benchmarks or anything else involved, the pay is updated for both new hires and existing ones.

Additional Considerations for Remote Compensation

The right salary benchmarking strategy will depend on your resources and the make-up of your organization. For example, if you only have employees within the US and you’re limited on HR resources, a national average approach may work best for you. If you mainly have employees in a single location with a handful of remote workers overseas, paying based on employee location could be the right choice. If your remote working strategy is less of a cost-saving operation and more of an employee-first approach, location-agnostic compensation can definitely simplify the way you do payroll.

However, whichever option you choose, don’t forget that as well as remote compensation, you’ll need to think about your obligations as an employer in terms of taxes and benefits. This can vary between state lines, and certainly it will add complexities if you’re looking to hire abroad. Each country in which you hire will have its own laws in terms of vacation and sick days, healthcare and pension allowances, overtime, parental leave and more.

Where Papaya Global Comes in

Creating a global strategy for paying your employees is about more than just making sure that everyone gets paid on time each month. It’s closely tied to the philosophy and culture of your business, and helps to show your employees that you see the worth and value in what they provide to your organization.

At Papaya, we offer a global benefits management service that looks at each employee as an individual, and includes policies for benefits such as parental leave, medical coverage, PTO, and even birthday bonuses! We help you to localize the implementation of your salaries and benefits packages in line with local tax laws, government subsidies and compliance around the globe. At all times, you have access to our center of excellence, to get up-to-date advice on whether your compensation and benefits are competitive and fair in line with market standards or trends.

For more information on remote hiring for your global workforce, download our eBook Does Working from Home Mean Working from Anywhere? And reach out to see a demo of Papaya Global’s all-in-one platform for global payroll management.

Papaya Global payroll platform lets you:

  • Automate payroll with zero processing errors
  • Manage global payroll, PEO & contractors via one platform
  • Make cross-border payments in 140+ countries