Will geographic pay policies help reduce turnover?

Employees demand flexibility, but they don't want to be taxed for it

Will geographic pay policies help reduce turnover?

The migration to the remote work setup is causing a headache for employers.

With many workers opting to continue working out of the office, 28% of organizations in the United States plan to modify their policies through consolidation of pay differentials, according to a report from WorldatWork.

Another 13% are considering eliminating differentials by geographic area.

Read more: Flexibility rivals compensation for job seekers

"Geographic pay policies have existed for many years but in the past were more about an organization's multiple physical work locations rather than where the work was being performed, including employees' homes like with remote work," says Alicia Scott-Wears, WorldatWork director for total rewards content. "With the increase in remote work over the past two years, these philosophies and policies have required more attention and communication."

Currently, 24% of U.S. employers say their base pay is dependent on location, down from 33% in 2021. Meanwhile, 25% say the same in not dependent on location, up from 19% from last year.

Almost half (45%) of employers apply pay differentials as a premium or discount to either a baseline/single pay structure or individual pay, and 24% create separate base pay structures for each/different geographic location.

For in-office or hybrid employees, the geographic pay locations are most often determined by their nearest work location (45%) or reporting location (31%). Meanwhile, over half of full-time remote workers are tied to location of residence, says WorldatWork.

Is dependency beneficial?

But is eliminating base pay dependency on location a wise move? Only 7% of organizations report geographic pay policies as ineffective for reducing turnover, according to the survey of 858 U.S. employers and 312 full-time business professionals.

And 73% of employees expect their pay to differ based on a geographic location.

Since 2020, about 2.4% of Americans, or 4.9 million people, say they’ve moved because of remote work. And almost 1 in 10 Americans plan to move to work remotely, report Bloomberg, citing studies from Upwork.

Almost three-quarters (72%) of HR leaders and 61% of employees say that the stress resulting from cost-of-living increases is negatively impacting employees’ work. Now, 72% of senior executives plan to leave their employer within the next two years, according to another study.

A boost in pay is the best way to address staff turnover, say 42% of employees, according to another survey. Pay transparency also appears to be more important now than ever, according to another report.

More than one-third (35%) of workers believe location flexibility to be the primary deciding factor to accept their last job offer, above those who said that total compensation was the defining factor, according to just released data from Gusto, a San Francisco-based HR tech firm.

“Flexibility might be just as important to you as having health insurance,” Liz Wilke, principal economist at Gusto, told HRD. “Compensation is table stakes: if the compensation level isn’t right, we’re not even having a conversation about the job. But remote flexibility aspect has become the differentiator.”

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