3 Ways Employers Calculate Salaries for Remote Workers

globe on top of money in different currencies

Over the past two years, remote work has had an enormous upswing. Although remote work was already becoming more common with companies aiming to improve morale and their work environments, it now seems like the norm. 

Remote jobs have transformed the way that many employees think of work; they’re more flexible and don’t come with strict dress codes or commutes. They have also transformed salary structures for many companies. Traditionally, businesses set salaries based on what other local employees with similar skills and job responsibilities are making in the area. But remote jobs allow employees to work from any area. If you’re looking at a job in rural North Carolina but live in Manhattan, the NC salary might not cut it. 

But there are a few different ways that employers calculate salaries for remote workers. Understanding them can help you gain some clarity and feel confident that your prospective employer is setting pay rates based on fair and equitable practices.

Do Remote Workers Get Paid Less?

Although remote workers have more flexibility, they don’t have less responsibility. They still need to carry out the duties of their position. Therefore, the compensation is usually comparable to what an in-house employee makes. In some industries, remote workers make more.

According to Salary.com, the average base pay for remote workers in the U.S. is about $34,000 per year. Ziprecruiter reports the average annual pay for remote employees as closer to $63,000. With the median pay for remote jobs hovering around $48,000, more than the median compensation for non-remote workers, you can feel confident that you’re not missing out on pay by choosing this type of job.

But how exactly are these salaries determined?

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Location of Headquarters

Where is the company office located? In some cases, the business sets the pay rate based on the going salary for that type of job in the city where the headquarters is located. If there is no primary office, the salary may be based on the location of the regional offices.

This means that people who live in cities that tend to have lower salaries can improve their situation by working for a company in one of the highest-paying cities for this type of work, such as San Francisco or San Jose. But the cost of living in these areas is also high. You can improve your profit margins, so to speak, by living in a lower-cost area but raking in a better salary.

One of the main benefits of this salary structure is that it’s equitable. It offers similar pay and benefits for equal work. This goes a long way in helping your employees feel valued and recognized for their contributions.

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Location of Employee

Some companies pay their remote workers based on the employee’s location. While this may be attractive for the employer, it’s not always the best option for the employee. Remote workers in cities or countries with a lower cost of living and lower income tax rates will earn less than those in higher-paying areas. 

The difference can be significant. For example, the average yearly pay rate for remote tech employees in Germany is about $72,000, but that wage drops to about $49,000 for work-from-home developers in India.

This can be a hassle for employers because they need to recalculate their rate every time they onboard a new hire. It can also be complicated if an employee decides to move.

But one of the biggest downsides to this pay structure is that the remote workers may find it inequitable. Any time employees are compensated differently for similar performance or experience, it generates concerns about unfair treatment. 

Still, companies like Facebook, Twitter, and Stripe use this as the basis for calculating salaries for remote workers. Many employers rationalize this strategy by explaining that employees in places with a lower cost of living spend less on living expenses and don’t need the same compensation as those who live somewhere with higher housing, gas, and grocery prices. Ultimately, the take-home pay is comparable.

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Equal Pay for All Employees

One way to make compensation equitable among all of a company’s employees is to pay them the same wage, commensurate with their role and experience. Personally, this is my preferred method of determining pay for employees. I take the perspective of paying for the result, not a warm body. I will always want the best employee for the role I’m trying to fill, so why wouldn’t I make it competitive for anyone in the world who can do said job?

This method isn’t too different from calculating salaries for remote workers based on the location of the company headquarters. Most businesses choose the basis of the wage on a different number, such as the national average for annual salaries. My preference is to base it on value. As long as I can put a value on the work that they’re giving back, it’s a win-win. This also allows me to be very competitive with rates.

Companies that use the national average to determine the salary, will often have to add extra on top to remain competitive. This is especially true in industry-saturated markets (San Fransisco for tech, for example).

This is often a better option than a headquarters-based calculation if the company is located in a less expensive area. But it might not be as attractive in other cases. Still, if the business is trying to stay relevant and competitive, this strategy may come out on top.

What About Perks?

The compensation package for a new hire usually includes more than a salary. But the perks that entice office workers aren’t necessarily appropriate for those who work from home. Employers can add value to in-house employees’ salaries by offering free parking, on-site gym memberships, meals and snacks, and commute reimbursements. However, those benefits don’t apply to remote workers.

Some employees consider the ability to work from home a perk in and of itself. You may be happy to sacrifice higher pay in exchange for the chance to work in your pajamas. But that doesn’t mean that you shouldn’t look for other benefits.

Some of the popular benefits for work-from-home employees include:

  • Health insurance
  • Paid time off
  • Retirement savings
  • Career training and development
  • Performance bonuses
  • Student loan and tuition reimbursement programs
  • Remote work stipends

Can You Find Out How a Prospective Employer Calculates Salaries for Remote Workers?

As a remote worker on the lookout for a new position, you might find it important to understand how a prospective employer will calculate your salary. This information is not always readily available. However, many companies are extremely transparent about their methods.

While you’re doing research to determine whether the company is a good fit for you and preparing for the interview, look for a public company handbook or a document that states its hiring and compensation policies. Buffer is known for publishing the salaries of every employee.

The job listings themselves are a goldmine of information as well. This strategy might take some reading between the lines, but it’s very doable for many companies. If they publish a salary range, you can always reverse engineer it to find out which method they are using for determining salary. If they don’t publish a salary range, they may still give you an idea of how they determine salaries by the culture they promote in the listing itself.

Not every company is this transparent, however. And to be honest, they don’t really have to be. It’s up to you to determine whether a salary is going to cover your expenses and lifestyle. 

Remember that whether a company bases its salaries on the location of its headquarters, the employees’ location, or a national average, it should also compensate employees based on their performance and value to the company.

Once you are in the negotiation stage of accepting an offer, you can ask whether the salary could change depending on your location. This could give you the information that you need to decide whether relocating is a good idea to boost your earning potential. In that case, you could always ask for a relocation allowance or sign-on bonus.

Good luck with your job search!

Founder : Wherever I May Work | Website | Other Posts

Jared has worked remotely for 15 years in various marketing capacities, and has managed hundreds of marketing campaigns along the way. He has held freelance, agency, and in-house positions for companies large and small.

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