At the onset of the COVID-19 pandemic, working remotely became more of a norm rather than a perk. The need for people to work virtually brought about an important realization—employees can be productive and focused even outside the office.
For employers, remote work has granted them the ability to hire from anywhere in the world, increasing their pool of talent. However, this also entails making necessary changes in their recruitment processes and protocols. One of the biggest changes is having to set more remote-friendly salaries and benefits.
If your business plans to go fully remote or is simply experimenting with remote work, you may be wondering how to even begin paying your remote workers. Determining the right pay for remote workers requires a well-planned strategy, something many companies are struggling with now. This guide will cover the basic principles, factors, and strategies you need to consider when paying your remote workers.
Benefits of Remote Working
One of the most evident benefits of remote working is cost savings. When companies hire people and let them work remotely, they can save office space, utilities, and maintenance. In particular, companies don’t need to provide freelancers with expensive tech or equipment since they usually have their own at home.
Hiring remote workers means you can get talent from anywhere in the world. This allows you to find workers with specialized skills and, thus, save on training. Furthermore, by employing people from different countries and time zones, your business can be open 24/7.
You can also expect remote workers to be more efficient and productive since working from home doesn’t allow for long commuting hours, tardiness, and office distractions. Instead, it allows for a flexible working schedule where employees can manage their own time and work during their most productive hours.
Types of Remote Workers
These employees work from home but still benefit from healthcare, salaries, and retirement options just like an in-house, full-time employee. When paying a full-time remote employee, you’re responsible for paying a portion of their payroll taxes and withholding payroll taxes from their paychecks.
Also known as freelancers, these remote staffers work on a project-to-project or hourly basis and can work for multiple companies. When paying an independent contractor, you don’t need to withhold payroll taxes from their paychecks. These remote workers are responsible for their own taxes, so this is usually a preferred way of hiring.
Factors to Consider When Paying Remote Workers
1. Payroll Taxes
Companies are responsible for withholding payroll taxes from their employees’ pay. In the United States, if a remote worker lives and works from home in another state, the company must research what taxes they should withhold for that specific state. These can include federal income tax, social security tax, and Medicare tax.
If you plan to employ full-time workers in another country, you may have to open up a local branch in the country where you’re hoping to hire. These branches are then expected to comply with all the local labor and tax laws, including minimum pay, overtime, and benefits.
2. Local and International Laws
As seen from payroll taxes, there’s a need to understand the various laws applicable to your location and that of your remote worker. These include minimum wage laws, local income taxes, payday frequency, workers’ compensation requirements, mandatory direct deposit, and state-specific taxes.
Labor laws, in particular, vary from country to country. For instance, in the European Union (EU), specific laws protect the employee’s data, prevent discrimination, and offer equal pay. In China, labor law is minimal and flexible, and workers are responsible for their taxes. In India, contractors are protected from discrimination, but regulations don’t extend further than this.
3. Payment Methods
Generally speaking, you can pay your remote workers via direct deposit, pay cards, mobile wallets, checks, or cash. Again, do your research on the various pay laws that exist in specific states or countries.
Also, determine which payment method would be the most secure. For instance, if the remote worker lives and works out of state, the cash option may not be the best one. Alternatively, you can use online payment platforms to pay your remote workers easily and at a low cost.
4. Exchange Rates and Currency Rules
When hiring internationally, consider how exchange rates will affect your remote employees. Most banks and many money transfer services have high exchange rates, which can be deemed unfavorable to your employees.
In most cases, companies make payments in their local currencies, and employees convert the money to their native currency. If exchange rates fluctuate, employee salaries can take a significant hit as they convert to their native currency.
Companies can also experience this when operating in a country with a local currency different from theirs. Some jurisdictions allow you to specify a fixed exchange rate and other currencies in employment contracts to guarantee stability and reduce fluctuation risks.
5. Pay Options
Consider the following options when paying a fair salary to your remote workers. Make sure to study how these align with your pay philosophy and employee retention strategy.
- Universal Salary
The universal salary approach means that you pay your remote workers a set wage regardless of where they live, whether in a high or low cost-of-living area. This can save you time figuring out adjustments for the cost of living and tracking your employee’s location.
A universal salary can also attract a diverse pool of top talent, including those who live a nomadic lifestyle. Since the salary isn’t based on location, you won’t have to deal with the hassle of updating their salary every time they move.
- National Average Salary
This means setting your company’s salary according to your local area or the national average cost of living. This can be a fair and straightforward process since you won’t have to make drastic adjustments to your employee’s pay.
However, this only applies if they live in a location with a similar cost of living as yours. Note that your national average salary may not be competitive in high cost-of-living countries. To remedy this, you can focus on finding talent in less expensive areas.
- Location-Based Salary
Location-based salaries involve making adjustments according to the employee’s cost of living. These adjustments allow for higher chances of attracting talent from more expensive locations while allowing you to have savings on employee salaries.
On the other hand, paying location-based salaries runs the risk of having employees who live in cheaper areas feel as if they’re being undervalued. You also have to consider if you’re going to cut an employee’s salary just because they moved to a cheaper location—another unfavorable decision for employees.
Key Compensation Strategies
1. Communicate and Negotiate
To successfully formulate a good remote pay policy, it’s essential to gauge worker opinion and manage expectations accordingly. Great communication between you and your remote workers will reduce the risk of any negative feelings. Survey your employees and find out what they’re looking for while exercising honesty and transparency.
Consider negotiating remote worker pay based on the actual scope of work, the candidate’s history, references, and portfolio, whether the job is a one-time project or a long-term undertaking, and whether the employee has their equipment or if you need to provide it. When hiring hourly employees, add a clause in their contract stating you will use time tracking software to determine their pay.
2. Work with a Local Partner
Consider working with a local partner or affiliate in the employee’s country of residence. Local partners may be willing to place your employee on their payroll and withholding and benefits system. This makes them legal employees of the local partner while you continue to direct and supervise their work.
Working with a local partner can provide you with in-country expertise and ensure that statutory benefits (e.g., social security and workers’ compensation) are offered in full compliance with the country’s laws.
3. Outsource your Payroll
Outsourcing your payroll can be an easy and effective strategy to pay your remote worker in a foreign country or even between states or regions within the home country. An outsourced payroll provider is capable of computing, withholding, and issuing checks. However, this does not guarantee compliance with taxation, immigration, or labor laws in the country.
A more comprehensive solution is to use a Global Employment Outsourcing (GEO) service. GEO services are responsible for compliance, risk management, payroll, and benefits. They also minimize the challenges of dealing with local laws and regulations since they’re already compliant with local regulations.
The Future of Remote Starts with Fair Pay
One thing is clear—a vast number of employers and employees alike have gotten used to remote work. Many businesses have started to adopt new tools and processes that help their teams work closely, albeit not physically. But before even considering such tools and processes, remember that an employee’s pay should be a priority in any remote work strategy.
Fair compensation, in particular, is vital if you want to realize the benefits of remote work fully. It highly attracts job seekers who could be potential assets to your company, helps you optimize your payroll, and creates a loyal remote team.
If you want to provide a payment that’s both fair and competitive, your overall compensation strategy will need to undergo constant revision. It may require extensive planning, but given the importance of remote work today, it’s well worth the time and effort to get it right.