I’ve been running remote teams and organizations for more than a decade.
Over that time, I’ve developed a pretty strong point of view about which pay practices actually work for remote employees.
The truth is a lot of the guidance you are going to find online about remote work compensation is horrible. At best, you get fluffy truisms that offer no real guidance about how to compensate remote workers. More often, you get downright bad advice.
Honestly, why on earth would you recommend that businesses account for cost of living differences by estimating a localized salary? For every employee, adjusting your estimate every year? And then to claim that localized pay is going to make pay seem fairer to employees–it’s fairy tale stuff.
There are much easier ways to benchmark salaries for remote workers that work perfectly fine.
In this post, I’ve distilled years of headaches and hardwon knowledge into a simple set of remote work compensation tactics. These are practices, strategies, and rules that I have used for years at multiple companies.
6 Remote Work Compensation Tactics We Use
1. Hire US-Based Employees for Full-Time Roles
The decision to hire globally forces you into all sorts of other decision trees.
Do we set up business entities abroad? Or, is it better to use an employer of record service? What’s the best way to handle exchange rates when we process payroll? Which countries do we have favorable tax treaties with?
We avoid all of these questions by only hiring US-based employees for full time roles.
Unless you absolutely need to have boots on the ground in another country, I would avoid international hiring altogether.
Figuring out the employment laws and benefits expectations across countries is a nightmare.
You can’t just offer a Canadian resident a 401(k) because it doesn’t exist there. PTO in Europe is not the same as PTO in the US.
The differences create all sorts of extra work for HR and grate on employees who notice their European counterpart has like 3 months a year off, or their Canadian colleague is getting a few thousand dollars direct compensation in lieu of a 401(k).
There are also time zones, which have a real impact on work when employees are scattered around the globe. Someone is going to suffer.
I know the hype with async–to a degree that works. But 2 AM calls where important decisions have to be made are bound to happen. Having been in those calls, I can tell you it’s not great.
Can you solve these problems? Yes. But there are thousands of them when you choose to hire worldwide.
We steer clear of all this nonsense by requiring that all candidates for full-time roles at our company are US-based.
If you absolutely must hire full-time people around the world, I’d recommend using a global employer of record (EOR).
Typically, a global EOR has established business entities in dozens of countries. This allows you to hire in countries where you don’t have a business entity yourself. On top of that, these services will help you navigate all the international red tape and compensation hurdles.
You tell them where you want to hire, what you want to pay for salary, and they’ll make sure you get a compliant offer in front of good candidates in different countries. Onboarding, payroll, offboarding–they handle the full global employment lifecycle.
The final cost might be 20 percent on top of salary, which would be relatively cheap. Sometimes the total cost of hiring an international employee is something like 70 percent on top of salary.
The variance pricing is really high and hard to predict.
Some global EORs have a flat rate of $400-$700 dollars per employee, per month. The flat rate makes it a little easier to budget payroll costs, though additional costs are bound to pop up whenever you hire people abroad.
It’s definitely a lot of money to use these services, but it is much less expensive and painful than trying to handle international hiring in-house.
What about hiring contractors internationally?
This is much more doable. The compliance burden for international contractors is still onerous, but it’s nothing compared to trying to hire someone full-time in another country.
The trick is to keep this person as a contractor. They can’t look like a member of your team. The IRS is very strict about what classifies a person as a contractor vs a full time employee.
You need to make sure there is zero confusion about an international contractor’s classification. If you mess up, you could be looking at years of back taxes owed, steep penalties, and potentially a full IRS audit of your organization.
In addition, countries that see a lot of remote work compensation are on the lookout for businesses that are hiring “contractors” to do the work of full-time employees. They know what they are looking for, and if they catch you, the penalties are painful.
If you are going to use contractors, I highly recommend working with a global HR company that offers contractor hiring services in multiple countries. It typically costs $20-$50 per month per contractor, and it is money well spent.
We use Deel, which is a global platform that lets you hire and pay contractors around the world. It is great.
We interface with Deel instead of dozens of national regulators. Deel handles all the currency exchange nonsense, local labor laws, tax codes, IP laws, and so on.
There is a manageable bit of work on our end to get people set up, but for the most part, we are following a clear process in Deel that ensures we are compliant with US and international laws.
2. Benchmark Salaries to a Top Job Market
I’ve seen some intricate compensation strategies that “help” HR manage remote work compensation.
“We do base pay determined by your national zone, with cost of living adjustments as a separate line item to be estimated yearly.”
Please no.
“We localize the salary midpoint of each employee to their zip code.”
Sounds horrible.
Don’t waste your time with any of that.
It’s hard work that makes more hard work every time you hire.
What we do instead is benchmark all of our salaries to a top job market–usually New York City.
This way, we are using a salary midpoint that is already higher than most of the country.
No matter who we hire, we don’t have to think about cost of living–we’ve baked any additional costs into the already-high benchmark.
Below, you can see basic salary data for a marketing analyst role in NYC from Glassdoor.
Of course you are going to want to play around with the benchmarking data you find, get a second opinion, and season the final salary to taste.
For example, when I checked Salary.com and Indeed for the same job in NYC, I found salaries that were about $8-10k lower than Glassdoor.
Unfortunately, the truth is that salary benchmarking data is far from perfect. By selecting a high-value market, you are giving yourself extra cushion to account for swings in the data.
Plus, with a location like NYC, there’s salary data on practically any job you can imagine, which is great for finding comparable roles.
But won’t someone in a less affluent part of the country be making relatively more money than their colleagues who elect to live in expensive places?
Sure. Is that so bad? With our NYC benchmark, all employees start off making more than the market average.
Ironically, it can make people’s pay seem really unfair.
The person in Kansas does not want to hear that the person in California is making significantly more than them for the same exact job. You can explain cost of living adjustments, but it probably won’t help.
Now you might say, hey, not every company can hire at a top market rate. That’s true, and if I was in the boat of not wanting to pay top dollar, I’d temper my expectations about applicant quality.
Just as you are widening your search to a national talent pool, so your candidates are increasing their options.
You’re competing with big name companies and scrappy startups from all over the US. Lowball salaries for remote employees at your own peril.
3. Hire That Operations Person Early
When you start compensating remote workers, payroll administration becomes exponentially more complex.
A traditional business figures out the state laws once, then they are done. If you are hiring across the country, you have to do this up to 50 times, and state laws change. You are responsible for keeping up with every last thing.
It’s easy for people new to remote work to drastically underestimate the amount of busywork this unavoidable situation creates.
Yes, a good payroll service helps a lot with getting the right documents signed and complying with local tax laws. But there are a ton of responsibilities the payroll service can’t take over.
My advice for companies that want to be able to hire nationally: plan to need a full-time operations role by employee 7-10. This person will handle payroll administration and dealing with all the different state laws.
It’s way earlier than I would hire the same person at a co-located company, but payroll administration for remote organizations is far more demanding.
Each state has at least one (sometimes several) regulatory agencies that you have to register with when you hire someone there.
These agencies always have different names, rules, processes, and websites that look like they were built in 1997.
Someone has to figure this all out and correctly submit information for every employee. It’s tedious, forms break, sites crash, and there are plenty of opportunities to mess up some small detail.
But wait–there’s more. When you let someone go, you have to alert all of those same state agencies in the proper way, within the proper time frame, or face the consequences.
For a small company that’s trying to hire remote workers, it’s so much better to have a dedicated person who handles all of the remote work compensation issues from start to finish.
You’ll minimize mistakes and provide a much smoother onboarding experience for remote workers.
4. Select National Health Insurance Plans
Here’s something I never want to say to a candidate: “We’re not sure if you’ll be able to find in-network coverage on our health insurance plan.”
If you want to compensate remote workers, get nationwide insurance coverage. End of story.
There’s a limited number of companies that offer it, and it is likely a little bit more expensive than a regional plan.
But the downsides of having a local or regional plan can be devastating for remote employees.
They may not be able to find in-network coverage nearby and wind up paying exorbitant prices for ordinary care. They might have to drive several hours simply to access care.
In some situations, employees might be stuck paying premiums for insurance that’s virtually impossible to use.
These are just a few of the completely predictable horror stories that come with hiring remote workers on a regional or local health insurance plan.
Don’t put your employees or company through this.
By going with a national health insurance plan, all your employees get the same coverage. You get to avoid dealing with different state rules, which is a huge time-saver.
Health insurance is convoluted and mysterious on a good day. National plans come with an extra cost, but it is totally worth it for you and your employees.
If you are trying to offer a national healthcare plan and hitting a dead end, switch your payroll or benefits provider. It’s that important for remote work compensation.
5. Offer Remote Office Allowances
Not having an office is wonderful–there’s a few things I miss, but the cost of commercial space and everything that goes with it? I don’t miss that one bit.
I treasure the savings as an employer, and it’s always been our policy to share in the savings with our employees. Specifically, we offer:
- One-time office reimbursement: We reimburse up to $1,500 of office expenses for all new employees as part of onboarding. People have bought laptops, bookshelves, standing desks, office chairs, noise-canceling headphones and so on.
- Monthly remote work stipend: We reimburse $300 each month for any work expenses people incur. Fast internet is never an issue for our employees, and anything that might come up is covered.
With a remote company, you are asking employees to supply the office.
Small apartments, bad lighting, kids, crazy neighbors–you don’t know exactly what people have to deal with. The office reimbursement is a clear-cut way to help employees create good working conditions at home.
This is a win-win.
Employees are happier with their home office setup and can really feel that we are investing in them. Most of the time, they buy equipment that makes them more productive and comfortable, which pays off every hour they put in.
And as small as these allowances are, I have a feeling they contribute materially to our 100% close rate for new hires.
$1,500 levels up any office. It’s a real, tangible, benefit that separates your organization from the dozens of others a good candidate investigated.
$300 per month isn’t a ton of money compared to salaries–but free phone and internet is an idea that sticks in peoples’ heads.
I recommend using some form of both of these allowances as you start to put together an attractive remote work compensation package.
6. Host Company Offsites Annually
Do an all company offsite once a year at the very least.
We didn’t do this for a few years during Covid, but every year is the norm for good reason.
People love it. They have a great time.
Turnover goes down, social bonds go up. The whole company feels more like a team.
The hardest part of running a remote organization is getting teams engaged and keeping them operating at a high level.
As annoying as it is to go into an office, working side by side with people generates a level of camaraderie that’s just not possible on Zoom calls.
There’s few social bonding opportunities in the remote office. No happy hours, softball leagues, or meeting up with colleagues on the weekends to hike.
If you run a company offsite, employees form new and deeper bonds to build on throughout the year. This is something people look forward to and plan around.
Bringing people together at least once a year should be a huge priority for HR and company leadership.
Remote workers can feel alienated, lonely, and not really part of their organization. It’s the main flaw with remote work–people have to work alone as part of a team.
Holding an annual company offsite is the most direct way you can address this flaw. The risk of remote worker alienation is predictable. An offsite is expensive, but it’s impossible to argue with the crucial benefits both employees and the organization feel when everyone comes together.
3 Remote Work Compensation Tactics We Avoid
1. Seek Lower Job Markets to Save Money
I get why people think this is a semi-safe tactic, but it’s bound to backfire.
The mistaken notion goes like this: “We’ll hire remote workers who live in cities with a lower cost of living than our corporate headquarters. It’s a win-win, right? We get to pay less to someone who appreciates the dollar value more.”
I mean, that could happen, but it’s more of a moonshot than a repeatable hiring strategy.
Much more likely is that you’re going to get lower quality candidates when you offer a lower salary–they just live all over the country now.
It takes about five seconds for a candidate to get general salary ranges for their role. With pay transparency laws on the rise, candidates are getting better info faster than ever before.
The people you really want to hire know how to do their due diligence. They have a good idea of what they are worth. NONE of them are factoring in a lower local cost of living when they estimate the salary they deserve.
The truth is that you aren’t the first company with the idea to hire from a national pool, and plenty of those employers have years honing their remote work compensation strategies.
This is what we do. You are competing with us now, and we’re competing with everyone else.
Salaries and benefits get anchored up in a national market, that’s just the way it goes.
The competition is fierce out here. Where do you think an insane compensation strategy like unlimited PTO comes from?
And say you do land a good candidate with your lowball strategy–well, it’s just a matter of time before they leave for better money doing the same job at the same desk in their home office.
2. Operate a Hybrid Work Place
It’s impossible to have some people in the office and some people working from home.
I really feel for the companies trying to make the hybrid office happen, but it’s doomed to fail eventually.
I’ve done it. I was at a 100% remote VC-backed company that then decided to get a snazzy downtown San Francisco office.
The office was optional–but it didn’t stay optional for long.
Here’s the problem: There is going to be a core nucleus of people who work at the office, and it’s going to develop into its own center of gravity. This is where the work happens, decisions are made, and people working from home are out of the loop.
You can try and fight this tendency, but it’s a losing battle. And for the employees who planned their lives around working remotely (maybe it’s even promised in their contract), the day to day experience is awful.
Say you are video conferencing into a meeting everyone else is attending in person.
Good luck!
The audio delay is just enough for you to miss out on natural pauses in conversation. You’re always speaking over people, getting talked over, and people actually forget you are there.
I wish it didn’t have to work this way, but the people who want to be in the office will push for it regardless of how it impacts the experience of the WFH crowd.
Suddenly the office is mandatory X days a week for one team. A majority of the team wants to do it, and the manager says it’s okay. Does HR overrule them?
Questions about remote work compensation can get heated when part of the company is still coming in for work. Do people who come into the office get priority for raises and promotions? How exactly does work from home affect compensation?
HR is in a state of constant catch up, trying to make policy decisions on the fly as in-office proponents lobby hard against the folks who enjoy remote work.
This is the environment that you are building by accident, no matter what version of hybrid office you set out to build.
Hybrid offices have all the worst aspects of traditional and remote work, with none of the advantages.
3. Benchmark Salaries Locally
You know who wants you to benchmark salaries locally?
Companies that sell benchmarking data.
They want you to buy fresh data every year, and that’s exactly what you’ll have to do if you are serious about trying to set salaries based on an employee’s local cost of living.
I think it’s a terrible remote work compensation tactic–it creates extra work and extra liability without a real payoff.
First of all, candidates are not thinking about their salary in terms of their local cost of living standards. They are looking at national data on salaries and factoring in their experience.
You are probably not going to woo someone in the big city with a marginally higher salary–yet you will most likely offend somebody from a rural area with a lower salary offer.
Over time, compounding raises will widen the pay gap between employees with the same job.
Sure, it’s explained by miles of cost of living calculations, but it’s not going to feel like a fair solution to the employee making less for the same output.
I believe in using a top job market like NYC to benchmark salaries. This is a much better strategy than trying to figure out unique salary adjustments for every single employee.
Save yourself the headaches and avoid benchmarking salaries locally.
