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Should remote workers get a pay cut?

Ring Central Blog

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Last year, companies like Facebook, Twitter, and Google shocked the world when they announced that employees can work from home permanently.

But while those announcements were monumental, they also came with a caveat: employees who choose to work remotely on a permanent basis will have to take pay cuts.

Hybrid work personality quiz

Cutting employee salaries seems like an odd decision. After all, remote workers proved that they’re more productive, work longer hours, and have higher levels of engagement and happiness than office-goers. And their workloads aren’t changing just by moving across the country.

This bears the question: what gives? Are these pay cuts meant to deter employees from going full-time remote? How will this affect companies in the long run?

How workforces shifted during the pandemic

When companies first shifted to remote work in 2020, no one expected it to come this far.

But as the pandemic dragged on and remote work continued, a significant number of workers relocated, moving homes to escape urban crowding or be closer to family. Roughly a third of the U.S. workforce has moved or are considering moving away from their offices, a survey by PwC found.

In fact, many of those workers bought new homes and have no intentions of going back. After all, they enjoy a lower cost of living, no commute, better work-life balance, and improved mental and physical health. 

The debate on remote worker pay

So why are companies punishing their employees for moving away? There are two sides to the story:

Why pay cuts are OK

Cutting worker pay would appear to be a deterrent to working from home, but many workers don’t see it that way—and that’s a key argument in support of reducing salaries. 

Many employees (and younger workers in particular) place such a high value on non-monetary benefits of their jobs, including remote work and flexible hours, that they’d agree to take a salary cut in order to keep them.

What’s causing the mass worker exodus?

At the same time, salaries have always been based partly on local cost of living: if you want to attract someone to come into your office, you have to pay them enough to fulfill their housing, childcare, and other personal needs at local market rates. 

(And when you add up commuting costs such as parking and gas, work clothes, and meals, working from the office usually involves more direct costs to workers, regardless of the local cost of living.)

Given these factors, it makes sense that companies could reduce the pay of remote employees who live in lower-cost areas without impacting their lifestyle, health, or job satisfaction. That being said, if companies reduce the pay of people who move to lower-cost areas, they should also make the reverse adjustment for workers who elect to move to higher-cost regions.

Why salary cuts are a bad idea

Money may not be everything—but it’s one of the top things people look at when considering a new job. And as we stare down The Great Resignation, companies will need to focus on how they can optimally retain and recruit top talent. 

Cutting the salaries of strong workers who choose to work remotely isn’t the right path. And considering that remote work eliminates geographical barriers, talented candidates have an even bigger pool of prospective employers to choose from. This means more competition on the salary front to attract the best.

“Code does not care where it’s written. Neither do user stories, design mockups, or seller enablement decks. If it works in Tempe, it’ll work in Menlo Park, too.”

Blair Reeves, Salesforce

But paying remote workers the same salary as their office-based counterparts has implications that go beyond hiring and retention. Pay is, rightly, associated with a workers’ value to their company. If employers cut the salaries of those working remotely, it sends a message that they just don’t value remote workers the same way—and that can erode morale, satisfaction, and the output as a result.

Cutting remote worker pay also has implications for gender diversity. Women are more likely to want to work remotely, and are 32% less likely to quit if they have the flexibility to work from home. And while this may be due to imbalances at home regarding unpaid work like childcare, cutting remote worker pay can exacerbate gender-based salary rifts if more women choose to work remotely.

It’s also impossible to ignore the economics of remote work. Companies are saving money due to shrinking real-estate needs, utility bills, and capital expenditures related to in-person work. Remote workers are also more productive and happier than before. Given the cost savings to businesses, the optics of cutting the pay of hardworking employees aren’t great.

Giving workers they freedom they need

We’re in the midst of a once-in-a-lifetime opportunity to transform work. And while there’s a lot to think about in this re-envisioning, the dollars and cents of it all are a key consideration for many businesses. 

Still, at the end of the day, the move to permanent hybrid and remote work is about supporting employees to do their best—and cutting pay is directly at odds with this objective.

Why human connections are key to working remotely

If the past year has taught us anything, it’s that companies are nothing without the commitment and hard work of their employees. But workers’ expectations of their employers are shifting, and the importance of feeling valued can’t be understated. In the current war for talent, companies that sell their employees short will leave.

The shift to remote work is a move to becoming a more flexible, agile business—and that includes becoming location agnostic. This needs to extend to all aspects of work, including pay.

Originally published Oct 20, 2021, updated Oct 21, 2021

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