As companies ramp up their ‘return to work’ strategies, tensions are rising in the battle to decide who works where. Many employers want their teams back in the office while many employees are confident that they’re fully capable of doing their jobs remotely from their location of choice.
In the past few months, high profile organisations such as Apple and Google have made headlines for their suggested route out of this impasse: reducing the pay for fully remote workers and varying their remote pay rates according to location.
It’s a divisive move. On the one hand, a recent survey suggested that two-thirds of US knowledge workers would be willing to take a five per cent reduction in pay to work entirely remotely. On the other, location-specific remuneration packages often carry negative consequences. Some employees benefit more than others, leading to accusations of unfairness.
It’s no surprise to see Reddit and Zillow, among others, responding with the opposite policy – location-agnostic pay – to try and make themselves more attractive to prospective candidates.
Paying the same amount to employees doing the same job might sound easy enough but it requires a surprising amount of country-specific knowledge
What’s clear is that these questions of remuneration are growing ever more complex within distributed, multi-territory workforces, particularly now that organisations are hiring fully remote workers in territories where they don’t have an existing operational presence.
And it’s creating a major board level conundrum. To avoid internal division, might it, in fact, be better to harmonise pay and benefits across the entire company?
The problem with pay harmonisation
Paying the same amount to employees doing the same job might sound easy enough but, in practice, it requires a surprising amount of country-specific knowledge. The most obvious issue is local taxation. Both employee taxes (e.g., income tax) and employer taxes (e.g., national insurance contributions) will be different in every country. It’s a big mistake to assume that these are minor differences.
For example, in Denmark an employer could be paying less than two per cent in statutory employer tax contributions, while in Portugal this figure will be closer to 30 per cent. Once local taxation is accounted for, take-home pay can differ considerably from one location to the next.
Similarly, supposing that pay harmonisation means giving workers in certain locations a pay cut. This will be extremely difficult to achieve in many jurisdictions, even if companies attempt to sweeten the deal by following in Google’s footsteps and offering fully remote work for lower pay. In France, for example, it is illegal to index a salary based on location. And, of course, all pay cuts have to be reflected in employment contracts, which disgruntled employees don’t necessarily have to sign.
If pay harmonisation sounds complicated, it’s nothing compared to the minefield companies face when considering what benefits to offer their remote employees
Not only are there country-specific legal considerations, but there are also cultural norms. Anyone growing up and working in Portugal will become accustomed to legally taking 14 months’ salary. This isn’t considered a perk – it’s accepted practice in many southern European countries, and in some countries there’s a statutory obligation to provide an extra payment in July (to pay for a summer holiday) and an extra payment in December (to cover Christmas).
If a company wants to hire someone to work remotely in Portugal, they are legally obliged to offer this salary package. And yet, from an organisation-wide perspective, harmonising this package doesn’t make sense at all, because it isn’t necessary to attract and retain employees in other markets.
Choose your benefits wisely
If pay harmonisation sounds complicated, it’s nothing compared to the minefield companies face when considering what benefits to offer their remote employees. From a practical perspective, it’s not great to have different policies, manuals, and handbooks for each country.
From a cultural perspective, offering certain perks to some employees but not others could cause internal grievances. And, once in place, benefits can be binding. In Brazil, for example, companies are not allowed to take away perks or benefits from employees once they have offered them.
Failure to provide decent health insurance will almost certainly mean missing out on good candidates in the US market
Even the basics vary from country to country – just look at the difference in statutory requirements around paid leave in Germany compared to the UK. Miscarriage leave and domestic violence leave are becoming more common in places like New Zealand and Canada. Many countries are now affording workers time off for significant life events – a family member’s wedding, for example, or the birth of a child – as well as things like blood donation leave.
Employee expectations could look radically different too. Failure to provide decent health insurance will almost certainly mean missing out on good candidates in the US market. In the UK, on the other hand, health insurance is generally seen as unnecessary. At best, it’s a ‘nice to have’ rather than an essential benefit.
Where best practice meets pragmatism
So how can organisations navigate this maze and arrive at a coherent position on pay and benefits? Well, the first step is to meet the legal and statutory requirements in each market by offering legal full-time employment to their workers. Meeting these requirements is non-negotiable. If the upshot is that across-the-board harmonisation of benefits becomes more complicated, it has to be accepted as a small price to pay for employing a global workforce.
The second step is to understand what best practice employment looks like in each country and pick out the essential benefits that must be offered to attract and retain candidates in these markets. Where possible and practical, it may be worth offering these benefits across the entire organisation.
Ultimately, great employers understand that, above all else, employees want to feel valued
However, this is often easier with perks – such as gym membership or meal vouchers – than it is with foundational benefits, which are often dictated by country-specific statutory rules. And organisations still need to be diligent – even benefits-in-kind are taxed differently in certain countries.
Moving to a more flexible future
There is no blueprint for perfect pay and benefits harmonisation. Instead, organisations have to make continuous tweaks in line with what’s happening in each market. To that end, it is not unreasonable that companies like Apple and Google are giving serious thought to how they remunerate fully remote workers.
However, it is proving extremely challenging to devise policies that work for everyone in every market. Going forwards, the answer could be a change of emphasis – empowering employees to choose their own benefits.
Some organisations already offer stipends to employees in countries where they don’t have all of their benefits and perks ready to go. There are also a number of pick-and-choose benefits providers emerging that allow employees to select from a basket of options based on their life situation and current needs.
Ultimately, great employers understand that, above all else, employees want to feel valued. Pay and benefits harmonisation can play a useful role in strengthening the employer-employee bond, but what’s most important of all is that organisations understand local nuances and create packages that are fit-for-purpose wherever they operate. Both legally and culturally, this is the key to becoming an employee-first organisation.
Interested in this topic? Read Employee Benefits: the secret to keeping employees passionate about work.