Not so long ago, many technology firms and other companies shared a common business strategy that reinforced coming to work. In fact, this strategy became so pervasive that tech companies in particular provided a plethora of food, laundry service, shopping and other concierge services enabling people to spend as much time physically at work as possible. Central to this premise, leaders believed that working on-site together facilitated a better team environment, necessary to achieve critical business outcomes. Hence, the company determined pay by office location.
Today, conferencing technology is very advanced, while only five years ago it was in its infancy. Technology platforms such as Slack, Google Docs and others support much more collaboration than previously was possible. Technology advancements, coupled with soaring commercial real-estate costs, have caused companies to question the need to work from a particular office site.
Questioning the collocated workplace
How will companies pay workers who no longer work at a designated site? Gallagher’s HR and Compensation Consulting team is monitoring this question closely. Currently there is no direct answer. There is yet no real benchmark data, only a lot of articles talking about what ifs. Meanwhile, the pandemic has prompted companies to re-examine their business model and challenge the status quo. Using great conferencing technology, high-speed personal internet and recognizing the potential to downsize expensive real-estate, companies are questioning whether collocating employees in the same place is still relevant.
Moving forward, leaders likely will designate as “remote” positions those that do not require a specific location or daily, in-person collaboration to achieve success. Already we see job postings for "remote” positions offering a pay rate regardless of job holder location. The message: “Here is the position; this is what we pay. Live wherever you like.” For large national companies, managing multiple state employment requirements is easy because they are set up to do this. For other employers, such flexibility across state lines is not as easy.
Exploring the options
Employers are exploring several options to support the benefits associated with a remote workforce. Those options include:
1. Require all workers to work within a specific state. We have seen employers tell employees they can work remotely as long as they work within the state; out-of-state work is not supported. Our Gallagher team’s experience in several national employer roundtable discussions suggests that many academic and regional healthcare systems are going this route.
Some public sector employers prohibit out of state work because of state restrictions on public institutions. Other employers don't want to deal with employment issues across state lines. We think this restriction will be difficult to enforce because an employee could use a friend's in-state address and live somewhere else. Such scenarios may become an issue for employers.
2. Identify location-specific work hubs. Other employers are structuring positions that require a specific location. Factors limiting remote locations may include the requirement of specific equipment, limitations of security, or situations where collaboration and immediate access to colleagues is imperative.
For example, we heard from one company that scheduling remote conferencing meetings proved a barrier to launching an important company project. They needed people on site to communicate quickly, make decisions and act without time delays due to conference call scheduling. They tried remote work and felt that approach failed. Without being able to walk down the hall, throw ideas on a white board and make quick decisions, they feared their project would become jeopardized. So working remotely was not an option for them at this time.
Similarly, Google has announced1 that, although return to the worksite is delayed until at least September 2021, workers should live within a commuting distance of their designated office site in anticipation of returning to the work site in person.
3. Allow workers, either in toto or by position, to work anywhere. Companies such as Twitter2 have committed to making remote work an option for all employees moving forward. Whether this shift will become permanent, or whether it represents a short-term strategy to reduce real estate costs, is unclear. Considerations also include access to benefits. Questions include:
- Will an employer’s health plan provide national coverage?
- How will a remote workforce impact the cost of health and welfare benefits?
- Will employers need to move to a different kind of benefit approach, such as Health Savings Accounts?
- How will employers manage multi-state employment regulations and risks? Are companies required to be registered in a particular state if they have employees in that state?
Find your solution
So what is your organization’s business model? If it is, "this position can work anywhere," then offering a single pay scale applied to everyone may be the best answer.
If your response is, "We are accommodating this situation; but, such accommodation creates undesirable organizational impacts to include employment liability or collaboration challenges, so we don't want you to work remotely" -- your organization may arrive at a different answer to the pay question.
While pay differentials to offset the accommodation risks and impacts may initially seem logical, you might think about whether or not continued remote accommodation makes sense for long-term organizational wellbeing.
In the end, your organization’s pay philosophy and strategy should support its business strategy. Becoming clear on your business strategy and philosophy will help you answer the question, “How do I pay people?”
Gallagher’s team of HR and compensation strategy consultants bring decades of compensation design experience across multiple industries. Contact us if we can help you answer questions or think through the complex variables you may be facing as you navigate this time of change. We can help your organization match your pay strategy to your business goals, to you can face the future with confidence.
1Lyons, Kim. “Google pushes return to office to September and will test flexible work week.” The Verge, 14 Dec. 2020, www.theverge.com/2020/12/14/22175150/google-return-office-september-flexible-work-week-coronavirus-pandemic-sundar-pichai. Accessed 1 March 2021
2O’Mara, Margaret. “Twitter Could End the Office as We Know it.” The New York Times, 9 May 2020, www.nytimes.com/2020/05/19/opinion/twitter-work-from-home.html. Accessed 1 March 2021
© 2021 Arthur J. Gallagher & Co.
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