Global Employer Services News April 2022

I can work from anywhere. How much should I get paid?

We have spent so long focussing on regulatory and compliance problems arising from allowing employees to work from anywhere, that we have forgotten to focus on the strategic question.

The regulatory and compliance headache

This is now a well-trodden path. In short, if you let people work as an employee in a new territory then there will be compliance hurdles to jump over.

Withholding, social security, pensions, benefits, required levels of insurance, corporate tax, or transfer pricing issues. And so on.

These issues are important, and all perfectly solvable if the employer adopts a sensible framework to approach the question(s) and partners with a commercial and pragmatic adviser to guide them through the framework. If the headaches are too big, cross the country off the “work from anywhere” list. And change the “work from anywhere” policy to a “work from almost anywhere (terms and conditions apply)” policy.

So, what’s the real question?

The real question is much more important.  And has the potential to change working practices beyond recognition. The question to pose is, “how much should I pay someone who works from anywhere?”.

It sounds easy to answer. But, of course, complexities abound. Think of these eight models:

  • Just pay them the same amount - it’s their choice to move and shifting their pay makes no sense.
  • Same as above - but make an adjustment to ensure the employer is not out of pocket in tax or other “cost to employ” terms. After all, why should we be out of pocket?
  • Same as above - but make an adjustment also to ensure the employee is no better off in tax or other “cost to employ” terms. After all, why should they gain from a decision that is simply their preference?
  • Same as above - but make an adjustment also to ensure the employee does not benefit unduly from a better cost of living in the country they wish to move to. After all, if they move somewhere cheaper to live why should they be enriched?
  • Apply a rate applicable to the local market they move to.
  • Create a new set of global pay bands. If we all work from anywhere, pay arbitrage between regions will soon be a thing of the past.
  • Create a new set of global pay bands which you then adjust to reflect meaningful cost of living movements in any major jurisdiction.
  • Designate each role to an office and location and fix the pay to that place irrespective of where the employee is.

So, what’s the real answer?

It’s a trick question. We don’t need to worry about how much to pay someone who can work from anywhere, because it’s already been decided for us. There is no need to look at other companies offering “work from anywhere” and see which model they have adopted. It is looking in the wrong direction.

Think about the following problem:

  • Julia sits in an office in eurozone “A”. She has highly sought-after technical skills.
  • US tech giant needs those skills. There are no more available in San Francisco.
  • They ring up Julia and offer her a job at a substantial premium to her current package. She remains way cheaper for them than a local hire, even with this premium. They are happy to let Julia remain based in eurozone “A”.
  • Julia accepts the job but is then tempted to remain at her current employer for the same salary uplift. They can’t afford to lose her.

What does this story tell us?

That the fact people can work from anywhere is not a progressive employer policy which may be rolled out on an “as required” basis. It is the catalyst for the rapid acceleration of growth in local salaries. 

The impact is not felt by the people you allow to work from anywhere. It is felt in your local pay market as your people are picked off by global employers looking for the skills and cost arbitrage that gives them a competitive advantage.

In effect, your question is not “how much should I pay someone who I wish to let work from anywhere?”. It is “how much will my local market for talent increase in cost terms when it suddenly becomes clear that good people are available for less on my doorstep?”.

So, we reach a place where two things become clear. First, very senior roles are global roles come what may. Their pay should be set globally irrespective of where they are. Secondly, everything else will be a matter for a local market. But pay inflation in your local market may well be extreme if the story we tell above accelerates. This is your real problem with working from anywhere.

The impact on the people who don’t.

David Ellis