Setting Salaries: Should It Be Location- or Value-Based?

For many professionals, one of the benefits of remote work is the ability to work from home. Remote jobs do away with some of the traditional markings of work—office workspace and strict start and end times. Should the salary be based on where employees live? Or are job responsibilities the deciding factor? In this article at The Balance Careers, Alison Doyle explains if salary must be paid based on location or responsibilities.

Setting Pay for Remote Workers

Location-Based Salary

Determining location-based salaries is a complex process. Organizations must develop a unique formula that accounts for local expenses, market rates, and employees’ experiences and skills. To strike a balance, location-based calculations must include:

  • Market rates: Companies must determine each position’s market rates by using salary research tools.
  • Experience: Businesses must evaluate employees’ skills and experience to determine whether they must be paid above or below the market rate.
  • Cost of living index: Organizations must measure an area’s core expenses such as transport, meals, utilities, housing, and more.
  • Income tax rates: Organizations must consider giving international employees, especially those living in countries with high tax rates, a slight salary boost. The calculations might be difficult and tedious because progressive structuring is different in each state and country.

Value-Based Salaries

Under this type of remote pay, there are just two variables to assess—the national market rate for the position and the employees’ experience level. With value-based salaries, experience is the only pay differentiator for employees in the same position. Furthermore, this model gives employees more financial autonomy. It is simpler to calculate compared to location-based pay.

“The increase in remote work has complicated compensation strategies for employers,” says Doyle. But, according to studies, enterprises that rely on the workforce with hard-to-find technical skills and a surging occupational outlook are likely to pay at a higher scale.

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