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Employers Use Remote Work To Negotiate Lower Pay – Forbes Advisor

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Same job. Same experience. Same pay? Not necessarily. What you earn will likely depend on two things: where you live and whether you work from home.

While most workers in today’s job market have the upper hand, thanks in large part to a labor shortage, remote workers might be at a disadvantage when it comes to negotiating wages.

Remote hiring has boomed in the past few years, skyrocketing 223% between March 2019 and March 2022, according to a new report by payroll and benefits firm Gusto. This new frontier of working from home has prompted employers to rethink how they compensate remote employees.

Employers know people want remote flexibility, and they also know that some job seekers may be willing to take pay cuts in exchange for it. Research has shown some employers are offering remote work flexibility in exchange for lower pay.

Here’s what you should know about how companies tend to structure compensation and what that could mean for you as a remote employee.

3 Common Salary Structures for Remote Jobs

Location Based

According to Payscale’s 2022 Compensation Best Practices report, 40% of organizations are considering a location-based pay structure for their remote workers, meaning that where you live will be used to help determine your salary.

Many big employers have already taken this step. Google has long had a location-based pay structure, but as more employees opted to work remotely, the tech giant reminded them that their salary could suffer if they didn’t return to the office. In 2021, Google created a tool that showed just how much wages would change if employees applied to work remotely or asked to work at a different location.

Influential employers like Google can set trends for other big employers.

While many companies are moving towards location-agnostic salary bands, most are still using location-based structures, says Brittney Hancock, director of recruiting at Higharc.

“Pay cuts certainly happen for people who move to less expensive areas, especially at bigger companies, but I wouldn’t call them typical,” Hancock says. “More typical is a scenario where an employee moves to a lower cost-of-living location, their salary stays the same, but there’s a longer period before they would be eligible for an increase.”

Regional Zones

Employers might also create pay zones, which are usually divided by different areas of the country that have various cost-of-living price tags or by certain metro areas where the company has offices.

Margaret Buj is a senior talent partner at Mixmax, where she helps technology companies find workers in the US, Europe and Latin America.

“When I worked for Expedia, we had four different salary bands even within the US There were salary bands for high-cost locations such as New York or California, which were a lot higher than those in the South, for example,” Buj says .

Some companies will allow you to keep your expensive-city salary even if you plan to move to a more affordable location—it’s typically a matter of negotiation.

Single-Market Rates

Another standard pay structure is to pay all employees according to the same market usually pegged to where the company is headquartered. It’s a strategy Reddit adopted at the height of the pandemic.

Employers Are Using Remote Work as a Bargaining Chip During High Inflation

Employers may be using remote work options as a way to keep compensation levels down, according to a July 2022 report from the National Bureau of Economic Research.

The economists behind the report surveyed 500 US-based companies and found that 38% used remote work opportunities to “keep employees happy and to moderate wage growth pressures.”

Brent Meyer, one of the report’s authors, assistant vice president and economist in the research department at the Federal Reserve Bank of Atlanta, said the huge surge in inflation caught businesses and policymakers flat-footed.

“There’s a notion in macroeconomics that workers will fight hard to get higher wages during times of inflation—they will bargain for a real wage catch-up,” Meyer says. “But, that could be a problem from a monetary standpoint. Some employers have used working from home as an amenity value instead of paying higher wages.”

The report found that larger companies—those with more than 250 employees—were significantly more likely to pay less in exchange for the remote-work “amenity” (52.4%) than smaller companies or those with less than 250 employees (35.3%).

Percentage of Firms Offering Remote Work as a Way to Manage Salary Growth

Industry Type Percentage of Firms
Goods producers 23.1%
Retail and wholesale trade; transportation and warehousing; leisure and hospitality 24.8%
Educational services; healthcare and social assistance and other services 45.2%
Finance and insurance; real estate and rental and leasing; professional and business services and information 50.4%

Source: National Bureau of Economic Research

This perception that remote workers require less pay and may be less valuable are two hurdles job seekers and employees who want to transition out of the office may have to overcome.

Employers may be reluctant to offer fully remote opportunities even if they think they can save money, says Nicholas Bloom, one of the report’s authors and a professor of economics at Stanford.

“You might think firms would then all flock to hire remote employees as the wages for them may be 50% of the in-person costs,” Bloom says. “But fully remote employees are typically seen as less productive than hybrid or in-person workers in most roles.”

Hybrid employees might be getting the worst of both worlds: They have to compete with both local workers and global workers for jobs, Bloom says, adding that a hybrid worker’s salary will likely reflect that.

How to Negotiate Salary as a Remote Employee

If working remotely is a priority, then you should be prepared for employers to use it as a negotiating tool. However, that doesn’t necessarily mean you should accept greatly reduced wages compared to what other people earn in the same field, with similar experience.

“Doing your research on salaries for comparable roles and going for a number that will help further your career goals should be your main priority rather than tying your perceived value to a geographic location,” Feldotto says.

Before you start talking about salary with a potential employer, ask yourself these questions:

  • How much do I want to make?
  • What is the lowest salary I would accept for this position?
  • Are there any benefits that I need/want (a robust health insurance package, paid time off, retirement benefits)?

“Accepting a job is balancing what’s most important to you,” Hancock says. “Compensation, of course, but also consider work-life balance, remote or office environment, level of impact on the business, and team culture. That being said, if the question is: Should I expect a pay cut if I want to work remotely? In general, the answer is no.”

This advice can be applied to workers who want to keep their job but also want to transition to a fully remote or hybrid arrangement.

Feldotto says that while knowing a company’s pay structure can be helpful, ultimately, your negotiation should be around the role itself and your own situation.

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