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Should remote workers' salaries differ based on their location?

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·Writer, Yahoo Finance UK
·4-min read
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Classic panoramic view of San Francisco skyline with famous Oakland Bay Bridge illuminated in beautiful golden evening light at sunset in summer, San Francisco Bay Area, California, USA
Facebook employees will be able to move from the hyper-expensive San Francisco Bay Area — but it will come with a pay cut. Photo: Getty

Earlier this year, Facebook (FB) made two major announcements. The first was that the social media giant would permanently embrace remote hiring, with around half of its workforce expected to work remotely over the next five to 10 years. Secondly, how much it will pay its remote workers depends on where they are located.

“Our policy here has been for years — is already — that [compensation] varies by location,” Mark Zuckerberg said. “We pay a market rate, and that varies by location. We're going to continue that principle here.”

Senior employees or those with strong performance reviews will be able to request remote work and relocate away from Facebook’s Silicon Valley base. In other words, they will be able to move from the hyper-expensive Bay Area to the Midwest — but it will come with a pay cut.

How much employees’ pay will be docked is not yet known. But Zuckerberg said the company will take a “measured” approach with existing employees and said workers would have to update the company on their new locations from 1 January 2021. He added they would rely on employees being honest, but Facebook will also check their IP addresses to check people aren’t lying about where they are living.

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But is it right for companies to pay remote workers differently, depending on where they live?

There’s no denying that allowing workers to move away from tech hubs and metropolitan areas is a positive thing that expands opportunities. We also know that many jobs can be carried out successfully remotely, as evidenced further by the COVID-19 pandemic — and that an increasing number of employees are ditching the traditional office 9-5.

“When you limit hiring to people who either live in a small number of big cities or are willing to move there, that cuts out a lot of people who live in different communities, different backgrounds or may have different perspectives,” Zuckerberg said. “Certainly being able to recruit more broadly, especially across the US and Canada to start, is going to open up a lot of new talent that previously wouldn’t have considered moving to a big city.”

There is a business justification for determining an employee’s wage on their location. After all, living costs in certain areas are higher. However, critics argue that paying remote workers based on their location is unfair.

If someone who lives and works in Birmingham is providing the same work and the same value as a worker in London, they argue, the right thing to do is to pay them the same salary. Significantly cutting their wages may amount to penalising them based on where they were born or where their family lives.

“If two people are creating the same value for a company, they should be paid the same wages regardless of where they are located,” says Dr Shainaz Firfiray, associate professor of human resource management at Warwick Business School.

“Paying someone lower wages on the basis of where they live amounts to penalising them for their lifestyle choices. If there is a business justification for an employee to live in a more expensive location, then the company should offer these employees locally competitive wages.”

READ MORE: What is permalancing — and what are the pros and cons?

Differentiating remote workers’ salaries on the basis of where they live can have a serious impact on businesses too. It can demoralise lower paid workers and heighten perceptions of inequitable treatment, which can have a knock-on effect on productivity and engagement.

It’s true that employers will have to take into consideration things like commuting costs that will no longer be necessary to a remote workforce, unless they have to travel to meetings or visit clients. However, employers should focus more on negotiating salaries based on market trends, regardless of location. Salaries are based on a number of factors pertaining to the job at hand, including experience, skills, reputation and performance.

“As more organisations begin to adopt permanent remote working arrangements, they will need to develop sophisticated compensation models and consider a range of factors to establish pay equity,” says Firfiray.

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