Why to Rethink: How Companies Set Salaries for Remote Jobs

How companies deal with remote jobs is essential to how successful they are. But how do you create a compensation strategy for these jobs? Learn why we need to rethink outdated salary models, how to compensate remote workers without breaking the bank or making employees feel undervalued!
by Billy Stone » Remote Work Nerd » 
last updated on November 13th
It's understandable that companies are hesitant to hire remote workers. It can be difficult to know how much they should pay them, how many hours they work, how often they're available and how long it takes for tasks to get completed.

Fortunately, there is a way around this problem! Read on below for some remote worker salary planning tips that will help you create an effective compensation program.

The latest trend in how companies set salaries for remote jobs is to provide a competitive salary that includes a mix of cash and equity.

This strategy provides the best of both worlds, as it allows employees to work from home while still allowing them to earn more money.

This article will go into detail about how this strategy can help your business grow and how you should implement it to get started.

Does having more work flexibility make your salary rate go down?

Let's talk about if more work flexibility makes your salary rate go down. Or should it not?

No. Companies should be willing to pay what it takes to retain and attract top talent, regardless of how much work flexibility they provide.

Rethinking this: People who are talented enough to do a job well don't care how many hours their paycheck says they worked; they want the opportunity to produce great work and feel like an important part of your company.

Woman standing in front of her computer in a big company

Remote employees vs. on-site employees: Who earns more?

In some industries, remote workers earn less than someone sitting in the same building. But they are likely to be happier and work harder because of it. If your business can attract top talent without having to overpay for their location, then that's a win-win.

Rethinking this: In general, people who work remotely should note be paid a lower salary rate than someone on-site. This is usually due to how companies compensate for the cost of office space, but that shouldn't be a factor in how much you can afford.

The pros of flexibility

One of the biggest benefits of having remote talent in your team is that you are hiring people who are extremely passionate about their job, which means they will work harder than most employees.

Some benefits for employees are

  • No commute time, which saves a great amount of their time.
  • This way they can spend this extra hour with family or friends and have more personal experiences.
  • Working from home also means fewer distractions from work.
  • They don't need to worry about how long until the boss shows up in their cubicles, how loud someone is on the phone, or how many hours they've been at work.

Some benefits for employers are

  • Fewer spendings on office spaces, which saves a great amount of money.
  • Another benefit for employers is that remote workers are more productive and engaged than on-site workers.
  • The size of the talent pool is nearly endless compared to hiring locally; you can hire someone virtually anywhere in the world.

Rethinking this: Working remotely is awesome because it allows your team to do more of what matters - focusing on the actual work! This gives them a lot more time for family and friends outside of how many hours in at.

The cons of flexibility

Let's talk about the drawbacks of working from home.

Some cons for employees are:

  • Some people may be distracted by a lack of structure to their day and this can cause them not to complete tasks on time.
  • Some companies set lower salaries for remote jobs compared to how much they would earn in an office.
  • Remote workers also have less access to co-workers which means that to get help with a question or to bounce ideas off of someone, they need to contact their manager.
  • Sometimes remote employees do not receive the same benefits as on-site employees, such as a gym membership or discounts to local stores and restaurants.
  • Finally, remote employees may not be as well connected to the company's culture and team dynamic because they are working independently.

Some cons for employers are

  • Remote workers can potentially make more mistakes due to fewer opportunities of being heard or having someone watch over their shoulder.
  • There is also less oversight on how much time an employee spends doing different tasks which can lead to employees taking advantage of how much they are allowed to work.
  • Finally, remote employees can demand more managing and they tend to be more demanding than on-site workers.
  • This can cause an employer to become frustrated with how much time is spent communicating and how often they need attention.

Conclusion

There are ways to make remote management easier and more effective, which will result in happier employees.

The biggest thing is open communication between the manager and all workers so that everyone feels involved with what's going on. This can be done through video conferencing, phone calls, and text messages.

If a manager can provide some structure to how an employee works remotely, then the more likely they are going to be productive. This means that employees should have specific tasks for their days as well as times where they check in with their managers or co-workers during certain hours of the day.

The Old way of How Companies Set Salaries for Remote Jobs

Okay, let's have a look at the current state of how companies set salaries for remote jobs. Most companies choose one of the strategies below to set salaries for remote workers.

#1 Salaries Based on General Market Trends, Regardless of Location

The first strategy is to completely ignore location and base salaries on general market trends.

money on world map

An example: A company hires a software developer for $75,000 and they would pay that salary no matter where the employee lives.

Problem: This strategy does nothing to keep your talented employees happy with how much you pay them. Another problem is how general market trends can be inaccurate because they do not consider location. This means that the company might underpay their remote workers since salaries are based on how much people earn nationally rather than locally where they live and work.

Why we should rethink this: As you can imagine, this is not so great of an option because it doesn't take location into consideration which means remote workers may be paid less than on-site employees who live locally to their company.

#2 Salaries Based on Location of Remote Worker

The second strategy is to base how much you pay remote workers on where they live.

An example: A company hires a software developer in Florida for $85,000 and pays the same rate as if he or she worked from their office.

Problem: This can be frustrating because it means that companies may have more money invested into employees who work remotely than employees who work on-site. Another problem is how this strategy doesn't take into account how much someone's salary should increase or decrease based on how productive they are. This means that if a remote employee becomes less effective at their job, the company does not have an option to lower what they pay them and may lose money because of how their salary is based on how much they would pay an employee if they had worked in-house.

Why we should rethink this: This strategy of how companies set salaries for remote jobs means that you will be paying your employees more money than necessary and can potentially lose them because how productive they do not influence how much the company pays them.

#3 Salaries Based on Location of the Company Office

The third strategy is how companies base how much they pay remote workers based on where their office is located.

An example: A company hires a software developer in California for $100,000 and pays them the same rate as if they worked from their office.

Problem: This can be frustrating because how the company may be overpaying their remote worker since how productive they do not influence how much money you pay them.

Why we should rethink this: This strategy of how companies set salaries for remote jobs means that you are paying your employees more money than necessary and can potentially lose them because how productive they do not influence how much the company pays them.

The New way to calculate remote employee salary

Now that you've learned about the old ways of how companies set salaries for remote workers, let's see how it should be done to keep your employees happy and productive.

Salaries Based only on experience

The answer is pretty easy. You should pay remote workers how much they are worth to your company. This means that you can't just hire anyone at a certain salary because how productive someone does not determine how much the company pays them and neither does where they live since this strategy also ignores location completely.

Why are remote workers a smart hire money-wise?

All across the country, remote employees are saving themselves and their loved ones from an exhausting commute.

With video calls being so popular during COVID-19 as well - those who work at home were successful 50% more often than those that don’t!

It is no surprise then that 59% would choose a job with this option over one without it. After all, we've seen just how beneficial this was for people during recent emergencies like Hurricane Harvey or Irma.

Home offices are becoming more and less popular as the workplace of choice. Home-based work exists in fewer than 20% percent of all companies, but for those who do offer it, -81% say their employer will continue to support remote jobs after COVID-19! 59 percent claim they would be more likely to choose an organization with this benefit over one that didn't provide it.

Remote salary calculators (Buffer, GitLab)

Let's discuss how you should go about planning an effective compensation program. First, get a feeling for how much you should pay someone. This starts with how your company calculates their employees' salary which is done through a "remote salary calculator" like Buffer or GitLab who helps calculate how much someone should be paid based on how much they would make if they worked in-house.

Steps to Effective Remote Work Compensation Planning

Step #1: you should compensate your employees based on how much they are worth to the company. This means that based on their experience and how productive someone is.

Step #2: How far away from the office or where the office is located, should not determine how much salary they should get.

Step #3: You need to figure out how you will measure productivity for remote employees. Some companies do this by how many hours they work or how often someone is available for a video call. But you should measure productivity by the output, how much someone contributes to the company, how many sales they generate, or how often they help customers.

Step #4: Once you've figured how much salary should be paid based on productivity, then you can pay them this rate no matter where they live.

What about employee benefits for remote workers?

When it comes to how companies set salaries for remote jobs, this means that you cannot just offer health insurance and a 401K plan. You need to have something else which is how they can be paid more when the company has extra money available or how employees who work from home get holiday pay in addition to their salary.

Another thing that your organization can do is how you pay your employees more when the company makes extra money.

For example, if you make 100% profit and this means that everyone in the company would get a bonus equal to how much they contributed to making it happen or how much they saved on their salary for working from home during holidays like Labor Day - which is how companies set salaries for remote jobs.

Conclusion

Now you know how companies set salaries for remote jobs and what benefits they need when working from home! Just remember that if your company is planning on hiring a new member, then this might be the best time to think about how you can incorporate them into your team and how it will help everyone.

What is your experience with how companies set salaries for remote jobs? Let us know in the comments below or send us a message!