Heard it on the Hotline: Determining a Comparable Salary for Employees Working Remotely From Another State

Employers have found the need to expand the recruiting area to fill positions throughout the United States that have historically been filled at the main location. Relocating employees is often cost prohibitive, however, the pandemic has forced employers to think differently and try something that most thought would not work—having employees work from home. Not only did remote work keep businesses open, but it provided employees with the work/life balance they longed for and are now demanding.

Creating a competitive compensation package in today’s national recruiting environment can seem overwhelming, especially with a tight labor market. If your company has a salary structure or if you know, based on local compensation data, what you would offer a candidate at your main location, you can quickly determine what to offer that same candidate in an alternative geographic area.

Pay differentials allow you to make the most of all available labor markets to maximize profits and minimize operating costs. For example, if producing a product in one location is cost-prohibitive, inclusive of supplies and labor, a company could consider moving production to a location where wages are lower.

A common compensation strategy is to pay the minimum rate necessary to attract, retain, and motivate employees in each area. Determining the following information will help establish pay in an alternate labor market:

1. Base City: The city for which the current salary is known. Typically, this is also the headquarters or the main location for the company.
2. Base City’s Salary Level: The salary you wish to use as the starting point for valuation.
3. Destination City: The location where work will be performed, or the city that you would like to compare. Choosing a specific city rather than a state will provide more accurate information due to high-demand areas, heavily populated areas, or more depressed areas of a state.

Once you have these pieces of information, you will be able to determine competitive compensation for a recruit in the area. Geographic assessor tools can help determine the cost-of-living differential in that area along with salary differentials for that location. From there, employers can determine a baseline for compensation and consider adjusting for any significant variations in the cost of living.

Example: Company XYZ has a midpoint of $80,000 established for a position at the main office in Minneapolis, Minnesota. What would a comparable salary be for a remote worker living in Cincinnati, Ohio?

Base City: Minneapolis, Minnesota
Base City Salary Level: $80,000
Destination City: Cincinnati, Ohio

Utilizing a geographic assessor tool, you can determine:

Geographic Salary Differential (difference in salaries between cities as a percent): 92.6%
Destination (Cincinnati, Ohio) Salary: $74,079
Calculation: $80,000 (Minneapolis Pay) x 0.926 (92.6%) = $74,079

There are several different geographic assessor tools available. MRA uses the tool provided by the Economic Research Institute (ERI) to valuate positions as part of a total rewards package.

For more information how to use a geographic assessment, or to conduct a geographic assessment for a position in your company, contact MRA’s 24/7 HR Hotline at 866.HR-Hotline (866.474.6854) or [email protected].