The U.S. Labor Market and Compensation Trends

Remote Work

The pandemic vastly increased the number of employees working from home. Now that the pandemic is over, the question is whether remote work has become a fixture of the U.S. employment landscape. Remote work has been going on long enough now for there to be some evidence about how well it works and whether employers are accepting it as more than a temporary necessity.

There is growing evidence that many companies are becoming impatient to get their workers back in the office. Recently, some very large and notable companies have ordered their employees to return to the office five days a week. Some remote workers may be ready for this, but many others are resisting the call to return. In a tight labor market, employers may have to be flexible and provide solutions that are acceptable to different employees. Hybrid work is one such solution. This allows employees to work remotely but go to the office on a regular schedule two or three days a week. The key to making hybrid work meaningful is to have an entire team go to the office on the same days. Remote work can help an organization cut costs by not needing as much office space, so for some jobs it may make sense to allow employees to continue to work from home.

Studies show that there are pros and cons to remote work. Several studies have shown workers are more productive working from home for a variety of reasons. Other studies show that remote work hurts new employees because onboarding, orientation, and training are more effective when done in the office. Proximity bias can affect employee recognition and advancement. It is always a difficult situation for supervisors when they cannot see their employees working. Administering pay and benefits to a highly dispersed workforce that may reside in multiple states can also present challenges.

Remote work studies often cite schedule flexibility as a reason for greater productivity so organizations could support this benefit of working from home as long as remote workers can be reached when they are needed. Also, setting up a home office can involve expenses for the remote worker, and where reasonable, the organization should consider covering them. Some states now have a statutory requirement for home office expense reimbursement that goes beyond the FLSA requirement that work-at-home expenses may not cause an employee’s salary to fall below the minimum wage.

With remote work continuing post-pandemic, albeit on a smaller scale, organizations have to adjust to this new reality. National, state, and local regulations must be observed, and decisions have to be made about how to compensate workers who do the same or similar jobs from different locations. Organizations have largely settled on three approaches to determine pay for remote workers:

1. National Average – some organizations that have their headquarters in a location where pay approximates national averages have found this approach to compensating their employees works best for them. Paying all employees at the national average regardless of their location maintains fairness and is easier to administer. The downside is that it may be more costly depending on where their remote workers are located.
2. Geographic – for smaller organizations, paying remote workers based on their local wage rate helps to keep costs down and with fewer employees, administration is less onerous.
3. Hybrid (pay zones) – a compromise approach between the first two, a hybrid system allocates locations with similar pay levels into a few zones and remote workers are paid according to the zone they are in. For organizations with remote workers in many different places, this approach reduces the complexity of pay administration and creates greater pay fairness.

As with any pay system, there may be key employees who should not be lumped into any category, and their pay handled on an individual basis.