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Should remote workers be paid differently based on location?

damcosset profile image Damien Cosset Originally published at damiencosset.com ・3 min read

New World Order

With the COVID-19 crisis, one trend has gained a lot of momentum: remote working. A lot of workers were asking for it for quite some time, pressing their companies to allow them to work from anywhere and trust them that they could be more productive on their own terms.

The coronavirus forced their hands obviously and now some companies decided that remote working was worth it. Twitter announced their teams can keep working from home "forever". Facebook also started the transition towards allowing more of their employees to work remotely.

These two are just some examples of how the crisis help the work from home movement gain traction. Of course, how we do remote work in this crisis is another subject entirely. For hundred of thousands of people, the change was not prepared, or even not wanted. In this configuration, we are trying to make remote work function, during a crisis. But that's another debate.

What about the salary?

According to this tweet:

Tweet about remote working Facebook

Our good friend Zucky is basically saying Facebook will not pay employees the same based on their location. There are no details yet of what will be done, and how. But it begs the question:

Should remote workers salaries differ based on their location?

Assuming two developers with the same skills, experience and productivity. One lives in New York, the other lives in Marrakech. As a CEO, should you adapt the salary of the developer living in New York, because the cost of living will be much higher than in Morocco?

Basecamp, a company with most of their employees working from home, pays their employees based on same base, which I believe is the New York market. Doesn't matter where they work from. Same experience? Same job? Same pay, period.

If you are a Facebook worker in California, you will be payed higher than a Facebook worker in London. And that disparity will continue after the coronavirus crisis ends and Facebook moves to a remote friendly environment.

What do you think? On one end, if two developers have the same position, they should be able to claim the same compensation for the same work. Should we include the environment they live in in that compensation? A worker in San Francisco is most likely to spend a good amount of his salary to pay a rent. While the developer in Morocco will most likely spend a smaller percentage of his salary towards her housing.

But then, if you start with housing, where do you stop? Should you consider the size of the employee's family? If they still want to work at the office from time to time or full time, should you compensate the salary for the commute costs?

This is a difficult issue, with quite a lot of nuances. Personally, I quite like the "Basecamp" way: pick a fair location and adapt your salaries based on that location.

I'd love to know where you stand on this issue 😄

Love ❤️

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Damien Cosset

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French web developer mostly interested in Javascript and JAVA

Discussion

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I mean, collectively in IT, we pay developers from India, Bangladesh and al. a much more lower salary than ours and it seems like everyone is fine with it unless it impacts us. We should address this first before complaining about that "injustice".

 

Couldn't agree more with that observation. I think there is a larger problem of racism when it comes to that sort of problem.
I think people will talk about the cost of living or what not, when the real issue comes from the internalized racism creeping in our society.

 

I feel there is something to that ... paying Indian devs way less than US devs just because they're living in India somehow doesn't feel right, especially so when both are working remotely i.e. not in an office.

When people are getting into an office to get work done I feel it's somehow different and more justified to "discriminate" on salary/wages because they're really physically tied to that location.

But if companies decide to go full-remote and have their employees working remotely, then location should not be a factor at all - ZERO - that's the whole point of "remote". So in that case differentiating salaries based on location is an absolute no-no in my opinion.

 

Are Indian developers living in the US paid lower wages? If not, racism is not the issue here.

We actually have protections to prevent this in the US. This could absolutely still be rooted in racism.

Not only on the US, there are similar laws all over the world. This doesn't prevent a certain amount of disparity anyway, but I have no specific data to support this claim (as much as there's a disparity between men and women, for example).

But still, an Indian developer in San Francisco is paid orders of magnitude more than one in Delhi. I don't think this could be remotely disputed.

What actually abysmal in the US is what's considered "minimum wage" by law, which is way below the poverty limit 😟

 

This feel more like capitalism than racism, although the end result is often the same. Our lives are leveraged against massive differences in wages across the world. IT probably directly benefits less than manufacturing industries, but the same thinking applies: if I can reduce the unit cost of my thing by having it made in Country X where wages costs are 1/10th of those in my country, I would be a bad capitalist not to.

Why not both? Capitalism and racism are intertwined.

 

I am from Sri Lanka and here we are annually getting paid 10k to 20K. When comparing with the US they are getting paid, 100k-120k at least. But for us, this is not a bad amount when compared to other industries. but here it is much harder to buy required hardware etc with that cost. Let's say most of US developers are using apple products while here we have to stick with cheaper products. That is where the issue comes in!

If every person is delivering something valuable, they must have treated the same way!

 

I don't want to offend anyone but this logic is a bit odd to me. If the company pays less for developers from India, Bangladesh and etc why don't they just get everybody from there and fire you guys? They will make more money that way and if they are as good as you guys no one will see a difference.
The problem is that it is not even close to the case. I had the pleasure to work with more than 20-30 team members from the countries you are "marking" and there is a big difference in knowledge and etc.(They were all in teams of 4-5 and I was like a manager to all of them.) Not everybody is the same and I'm sure there are differences everywhere but in most cases, companies get people from those countries for cheap labor, not for the good code/tests or etc.

 

Yes companies invest these asian countries because they need to reduce the cost. But if you compare the knowledge, as a sri lankan and as a person who have worked with developers who were getting paid well, there is no such a big different. Sometimes our people are better than them. Then i have that issue why they are getting paid more than us without even having more knowledge than us?

 

Workers should always be paid for their work. I believe it to be as simple as that. When you are paid a salary, you are paid for the skills, knowledge, and time you invest in the work. Someone working from New York would have the same working experience as someone living in any other part of the world.

 

Agreed! I hope there's no bias and racism in any tech companies. We must value camaraderie for every nationalities.

 

How do you see it considering taxes and cost of living?
It's really weird discussion, salary is a product of market, market is different from country to country...

It is an odd discussion. I was being overly simple with my general statement before. A business has workers to maintain the market presence which they inhabit. By saying that a business can make compromises for workers that operate in a lower rate market they are merely maximizing profit potentials within the business' own market. This portrays a profit-first business mentality.

In short, regardless of the market that the employee occupies the business must have the staff they are employing to be successful within their own market, meaning they should be able to facilitate the expenditure of that market.

 

Quick point to note - Basecamp bases their pay on the Chicago market.

A few others have pointed that paying Indian developers less than the USA is somehow relevant here. That is simply not the case. I know good developers in India making mid-high Seattle rates from right here in Bangalore. I also know of people who work at body shops that farm out a single developer's job to 3-4 engineers and paying them less than a tenth in aggregate compared to an Engineer making high-market rates. The services being rendered are widely different and hence the pay disparity.

The point here is, if we're accepting geographical location as a factor, what about the area they live in? Let's say someone wants to live in small room in a shared house in Daly City and someone else wants to rent a nice cabin in Woodside. Is facebook going to pay them different rates now? What about Harrison NJ vs Manhattan? This whole argument is absurd.

Also, someone mentioned the COLA in the Military. That works very wel. But for one condition. The person actually is required to be on the base. People here will be remote, meaning they don't "have to" be anywhere really. As far as the company is concerned, absolutely nothing is different.

 

Not necessarily on the base. I lived in a town within an hour from the base with lower housing costs (rent and housing immediately around the base is always based on military pay rates, and that drops the further out you go from the base). My COLA didn't change, because it was based on the base's location.

That said, I don't think it could be an exact 1:1 comparison to the military system, nor do I think it would work worldwide, but I do think it could work with something along the lines of "US/Irish/Indian/Chinese/Australian/Costa Rican base salary + geographic COLA adjustment"

As long as the worker stays within their original geographic base, moves are a simple COLA adjustment. If you move to another "base" it requires a renegotiation of salary (up or down)

This would allow the company to avoid overpaying based on the market value of labor, but also allows the employee freedom to move to anywhere in the world.

The "geographic base" approach does less to even-out pay disparities across countries, and would benefit companies that want to exploit market labor rate differences, BUT with a high degree of transparency (IE: Clear documentation of what the median salary is per "geographic base") you could easily convert someone to a new base ("previously you made the median + 25% in base1 due to a successful negotiation/advanced skillset/documented reason, so you will make median + 25% in your new base, and the region you live in has a COLA adjustment of +2.5%"

It requires a lot of initial and ongoing effort on the company's part to carry something that detailed, so I don't think any smaller shop would ever be able to keep up with it, but for a Facebook? That's not that hard at all... It DOES require transparency in the pay bands for all markets to allow employees to make informed decisions when deciding on whether or not to change their geographic base...

Just spit-balling ideas based on the rest of the discussion. I know we would probably all like there to be one universal salary, but unless we have a universal set of laws, market forces and even economic systems, that's impossible to implement economically.

 

I hear the point about regional base salaries and a more fine-tuned COLA type adjustment.

My question is, what would facebook lose if a developer who lived for so long in the Bay Area decides to move to Montreal or Chattanooga or wherever (let's say for this conversation, within a reasonable time zone difference)? They get X value and in return pay Y amount. What are they losing to reduce Y? The argument that the employee no longer needs Y is a silly and absurd argument very much along the lines of Twentieth Century Motor Company.

The cost to the company is less (no money spent on an office space for this person + any of the office perks). Are they claiming remote workers are inherently less efficient to warrant the pay difference?

Nothing is ever truly universal. But something along the lines of "Anywhere in the world except [these places we aren't allowed to do business in, can't get a payroll system up in, etc] gets the same pay" is not all that complicated.

The only beneficiary wrt location-specific pay is the employer. Given that they're already saving on expensive real-estate, this is nothing but a "we'll try this too and keep doing this if we can get away with it" type situations.

If this is applied across the board, engineers who are now already in smaller cities and towns or cheaper countries can, in theory, move to the more expensive locations and demand a higher pay? I don't for a second believe Facebook or any other company is ever going to support or even begrudgingly get on board with this side of the equation. They will find a way to block such moves, claim employees are free to do so on their own without a change in pay, etc.

The level of transparency required for this is absolutely in stark contrast to the very nature of companies like Facebook (there's so much documented evidence that if they could run a black box without zero oversight they'd jump at the chance).

Oh, don't get me wrong: I absolutely believe all companies SHOULD pay the same rate for the same work. Full stop.

Edit: I forgot to address the primary issue: What does FB have to lose?

It's purely economics. They consider it an overpayment for payroll. See below for the reasoning, I just wanted to make sure I was talking TO you and not past you by not addressing the specific point... Sorry about that!

I'm simply describing what I see as an economically viable alternative system to "Your pay is going to get cut arbitrarily if you don't come back to the Bay Area"

The key here is that the Bay Area cost of living is so astronomically above the average that someone making 300k is making 300k not because that is the value of their labor on the open market, but because companies cannot recruit employees without either an incentive to drive an hour+ from affordable housing (I don't know where the affordable housing is in that area) or enough that they can live nearby.

Without the enormous cost of living, none of those workers would be making as much as they do.

Zuck is (shudder) correct that if a worker isn't in the Bay Area, then they shouldn't get paid the recruitment premium necessary to get the best and the brightest to come work for FB in the Bay Area.

The thing that most people fail to realize is that if we truly had a globalized average of pay for Senior Software engineers, the average would probably be (off the top of my head, zero research) somewhere in the 60 to 80k/year range.

But COLA is already baked into the salary. This is just making it explicit.

Now that I feel icky, I do think there are a lot of important conversations to be had around worker treatment, profit sharing and general compensation packages, but when it comes to a company trying to optimize pay based on localized cost of living, we can say things like "They should get the same pay regardless" (which would make them targets for the next round of layoffs), "They should pay overseas engineers the same as domestic US engineers for the same work" (decimating the offshore engineering market by removing it's primary value proposition, which is labor in markets with much lower cost of living thresholds than the US), or we can approach it from a position of how to get the most good and best transparency in the process so workers can be informed and know what to expect rather than what Zuck did, which is just say "we'll cut your pay if you don't come back"...

Jeez... I feel like I'm defending giant companies (I'm not, I just don't think this is a good target)... I need a shower now 🤣

 

This:

The person actually is required to be on the base. People here will be remote, meaning they don't "have to" be anywhere really.

That is the whole point. If as a company you're going fully remote then location should go completely out of the window as a factor. People can move around, even go abroad, go "digital nomad".

If you choose this company model then you just need to pay based on competency and performance, period.

 

I think this should be pretty simple: the salary should be based on the position, and established up front in the usual fashion. If it's a remote position, you the worker should take into account the cost of living in either the area you are IN or the area you WANT to be in when negotiating the salary, or even considering the job offer.

If you're already being paid a certain salary, and you decide to move while keeping the job, I don't think it's fair to force the company to pay you more than they were before just because you moved to a higher cost-of-living area. A Duluth-based tech company should not have to pay considerably more to Employee X than anyone else just because he decides to go remote and move to NYC.

At the same time, the company should pay the same (in general) for remote or in-office, not more or less for either. I say "in general" because salary negotiation is a thing, but there shouldn't really be significant differences based solely on remote status or where you live.

The cost savings to a company for remote workers (if any, depending on their infrastructure) are a reasonable incentive for the employer to support remote work, so it also isn't fair to expect them to roll up those savings into some sort of bonus for the worker.

Long story short: in-office, or remote from anywhere, should be the effective same salary. The only time geography should affect salary is if the employee is being required to move to or stay in an area by the company.

If a company has multiple offices, each with a different average salary — let's say London and Seattle — then the salary for the remote worker should depend on which office he or she works out of. There are other factors that determine the base office, including time zone factors, where the team needing the worker is based, et cetera. This doesn't have to be complicated, because honestly, it has nothing to do with it in the end. If Employee X is hired to be part of the team based out of Seattle, he should be compensated based on the average for the Seattle team, and London doesn't even factor into it.

Anything more or less is unfair to the worker, or the employer, or both. Individual differences in salary needs and expectations is why we have salary negotiation.

 

Its not an easy subject.

On one side, I think you should be paid according to your experience and what the company will benefit from your work.

In the other hand you work to make a living, and it kind of is not fair that if you live in a cheaper country, you'll get a better quality of life (based on what you earn) than a person earning the same in an expensive country.

Also, there's this difficulty of leveraging companies in different countries. A company in, say, Romania, can't compete in terms of salary with a company in Canada, even thought they can hire the same exact people.

So we'll all want to work for Canada, leaving Romania with less options for workers.

But I feel that the way Facebook so doing it is petty. They have all the money in the world and it seems they'll lower their workers salary if they wish to work from home? I'm not sure if this is the case. If it is, it's crappy, if they're talking about future decisions of new employees than I don't think it's that bad.

Execution will be everything. I hope that companies don't do it just for the sake of paying less. But, yeah, I feel that will happen, as always

 

What do gou mean "its not fair"? Why?

 

This is just an idea, I haven't fully thought about it :)

If you live in Poland and earn 3000USD month and your colleague earns the same but lives in San Francisco, you'll have a better living standard than your SF colleague, because it's cheaper to live in Poland. It wouldn't be fair for the guy living in SF.

That was my reasoning. It has some validity but probably has counterpoints :)

What do you think?

I think that as long as we're not talking about the kind of wages where you can't afford to live, it's not an issue.

So what if the person in SF doesn't have the same perks? They don't magically "deserve" more because of where they live.

I probably didn't explain myself correctly. I don't think some people should get more, I think they should get the same according to the living-cost of the places they live. But that is next to impossible to measure, of course.

But yes, I wholly agree with

I think that as long as we're not talking about the kind of wages where you can't afford to live, it's not an issue.

 

If a company decides to go 100% fully remote then it is my deep conviction that they should NOT differentiate salaries based on location.

The point is, if a company is all-out and completely remote then location is not a factor at all anymore - ZERO. People could move around, to other places, countries, go "digital nomad". Location then needs to be removed from the picture, so differentiating salary based on location should go out the window as well.

 

I imagine many businesses will try to use this line to guilt their employees into accepting less pay based on their circumstances, which is far from fair.
I hope Facebook changes their stance on it because it will set a standard for thousands of other workers.

 

Don't know if anyone has mentioned it here, but the US Military has had this figured out for decades.

You establish the base salary for the "average" position, and then you apply Cost of Living Allowance (COLA) adjustments (always up, never down) for high cost of living areas like NYC or San Francisco.

This is very easy for them given the exact nature of military pay, but I thought there were businesses that had figured this out as well.

A person can still negotiate their base, and still move wherever they like. If the area they move to is allowed a COLA adjustment, then at some point after the move they start receiving it. If not, they do not.

Divorce it from total pay and make it a standard percentage increase applied to all workers in that geographic region.

 

This is interesting. Seems like whenever we talk about adjusting to the cost of living, it's always about places where the cost of living is lower and therefore the salary should be decreased accordingly. Here, we have a contrary example where the salary can only go up if you live in places where the cost of living is high.

I can imagine that because a lot of "famous" tech companies are based around San Francisco, we have the "salary down" mentality rather than one that could resembles the US Military example.

 
[deleted]
 

I don't think anything Facebook is doing is preventing people from working where they want. Don't people still have the freedom to work where they want, just not the chance to take advantage of different costs of living?

p.s. I cannot believe I'm siding with Facebook on this as they are a vile organisation in so many ways.

 

Not arguing your point, but every primarily remote company I know (except Basecamp) pays based on location already. Gitlab for example has a calculator on their page where you can see how much you’d make for the same role in different places.

 
 

I think it's justified to some extent. Cost of living in different countries varies greatly, and for the most part companies aren't thrilled to pay significantly more than the market.

Living in India is far cheaper compared to San Francisco, so one could argue that by paying employees the same amount, your Indian employee will be significantly richer compared to his American coworker. Is it fair? I don't think so. There's no silver bullet obviously.

Also, don't forget that in different countries average compensations can be quite different regarding what they contain (pension, study funds, 401k...), where these things might not be applicable in other places - how would you compare them?

With all that, if an employee in SF chooses to move to a suburb to enjoy a more relaxed environment he/she should not be "taxed" for it in any way.

 

But by your logic I should move to SF first, get hired, then immediately move back to the suburbs. To take advantage of the higher pay that won’t get normalised. Having to renegotiate every time I move leads to all kinds of weird situations, when nothing about my relationship with the employer has changed.

Instead if the solution is to pay people what they’re worth to the company it’s kept simple: It doesn’t matter where you live, go to countryside to be rich if you’d like it’s your choice.

 

Well I get why you may think so, but that was not my intention, so I'll try to make myself clearer - there should be no salary gap between a metropolitan area and the surrounding suburbs. Heck - there should be no salary gap if you move from SF to NY (I am not from the US so I can't compare cost of living, but I assume it's similar).

However, when we're talking about different countries or even continents I think my original point still stands - cost of living plays a big role in overall compensations.

 

One point I don't often see discussed in this context: if salaries aren't based on location, the US tech sector will become even more dominant at the expense of developing economies. I live in SE Asia, there just isn't the same amount of VC money going around for local startups to compete with US-based salaries. So "the market" won't be able to fix this and if we don't give smaller economies the chance to bootstrap, this may never change.

Right now it looks like this: if you work for a primarily Thai startup, you'll make something like 50-100k THB/month (that's around 1.6k - 3.2k USD with current exchange rates). At some of them the upper limit might be 120k-150k, but that's the general ballpark. That's good compared to the median income in Bangkok (something like 20k THB/630 USD), but companies that work internationally (like Agoda, part of Booking holdings) or the Thai offices of international companies sometimes pay much more than that, especially to foreigners. In that range salaries of 200-300k Baht/month (6.3-9.5k USD/month) are not unheard of, and I know of at least one company that offered senior IT managers they poached from other companies 450k/month (that's almost 15k USD/month). As you can imagine, the more talented people already flock to the bigger/international companies, so if we now add FAANG Bay Area salaries of 300k+/year to the mix, it will be game over for many local companies. They just won't be able to compete with that, since their pricing is reflective of local purchasing power, which obviously influences how much they can spend.

 

I am working remotely (another country) and I am getting paid less from others who are working in the office. But I strongly dissagree with that culture and here are my reasons:

  1. You are getting hired for the skills you have and you should be paid for the skills and the work you do. Why you should include the country of the developer in the salary? From the work of the developers you get the money and the customers dont ask you from which country the devs are so they can pay you less or more.
  2. Is a bad thing to hire devs from another country just for low wages. That could have a huge impact to all the devs because they will lose their job just because the company can hire devs from other countries that get paid less.
  3. When devs realize that they get less money compared to others for the same work, it would be a matter of time for them to leave.
 

If two people have the same job, perform the same and produce the same, why should one be paid less than the other? And I'm not talking only about remote jobs, I think it should be applied to people who go to offices as well. Of course, there are laws and benefits based on the location, but I believe the base payment should be the same.

 

Bear in mind other things apart from "cost of living" come into effect here.

In the USA people tend to have less vacation and almost no "notice period" should they be fired or the company go under. Sick pay is another one, in France or the Netherlands being sick would require significant support from your employer for a very extended period - in an "at will" state in the USA you are probably just facing massive medical bills with no support.

Let's take an example from the UK. You can become a contract developer - earn £400 a day. No sick pay, no holiday (that you aren't paying yourself for) and until recently you could game the tax so that £400 was more like £500. But you have to keep changing jobs and there is risk if you are older and more likely to fall ill. So lots of people take permanent jobs - lower basic pay but holiday, sickness cover, redundancy cover etc.

My point is, not sure you can just pick a market and go "that's the reference" because that is probably massively unfair to people who have high costs of living and can't change that because of their families etc. Why should an American suffer with massive health insurance costs meaning that their effective standard of living is lower than someone in the UK with no medical bills at all? Does not seem equitable to me.

Paying at a level that for a local area means you can have a reasonable home, reasonable car, be protected for your health and then equalising disposable income per job would seem fair - but there is a massive cost in itself just maintaining that.

 

That depends on what factors are used to determine value for both parties involved. Does FB find value in having developers in NY vs Indiana? If they had to make a layoff and all things being otherwise equal, would they fire that $125,000 Ny dev or the $70,000 Indiana Dev.

My first startup will probably implement a Double Dare! style physical challenge system. This will settle disputes as well as encourage uniformity due the required jumper.

 

As we seen before this problem will be answered by economy dynamics:

1st - Facebook believes this is the right way and keep the strategy.
2nd - Good developers at FB won't see any interest in working at FB anymore.
3rd - Emergeing Startups will see the opportunity and use the same payroll as Basecamp to steal FB developers.
4th - Good developers at FB will leave FB and start to work on the emerging startups.
5th - FB Human Resources team will be in crises by their talent retention and engagement metrics and Product team will be getting problems with productivity.
6th - FB will spend some millions in propaganda to say that they are very honest with their payroll and will keep Basecamp strategy.

That's all folks. End of story!

 

With that move I foresee a mass exit of Facebook employees due to this. Which can be a huge boon for other big tech companies or startups to snap them
up as they don't implement something as outrageous as this.

 

We pay developers in different countries different rates but we pay them well enough for their cost of living. Everyone needs to advocate for themselves at some point and ask for they pay they believe they deserve based on skill and cost of living. When I don’t like about what facebook is doing (if they are going to do this) is reduce pay based on where someone lives.

Also what about the perks they offer for working from the office? Meals or other services. Do they give employees a stipend for this? What benefits will there be to working from home? If you will be paid less and lose these perks then it would be better to just go into the office.

 

I think it's important to be fair. And it's up to every business how they want to do. I'd rather be paid fair. If I would remote from Sweden to a US company I would prefer a fair compens based on how my life would have the change, like timezone wise. If I had to setup my life to be able to attend meetings at night I would ask to be compensated the same for that time, 3-4 hours maybe, the rest I could do myself with appropriate location based comp.

 

Gitlab has a good article on why they pay local rates for remote workers about.gitlab.com/blog/2019/02/28/w...

 

you dont have to outrun the bear

 

Not completely. Some parts of salaries such as parts intended for housing, food, etc could be scaled to country/region coeficient.