Near the end of 2019 and in the first months of 2020, the prospect of working from home was a growing trend, touted by some employers as part of their benefits offerings.
Now, it is one of several tools being used to combat a global health crisis.
Estimates vary on the number of workers operating on a remote basis as the coronavirus pandemic surges in the U.S. In June, Nicholas Bloom, a professor of economics at Stanford University, said in an interview that as much as 42% of the U.S. workforce was working full-time from home, effectively forming a "working-from-home economy." Later, a round of September polling by Gallup showed 33% of U.S. workers were working from home "always" during the pandemic, while 25% did so "sometimes."
Compare those figures to the U.S. Bureau of Labor Statistics' 2019 annual averages, which identified some 26 million employed persons who worked at home that year, or about 16% of total employed persons in the U.S., and it's clear there has been a shift.
In some cases, the movement of desk decorations and laptops has accompanied the movement of employees entirely. As employers embrace remote work, workers have moved from more populous regions like California to less densely populated areas such as Western Nevada, according to a report by The Wall Street Journal.
Beyond being able to move to a quieter area with less traffic, the region may particularly appeal to workers from neighboring states such as California, said Nancy McCormick, senior vice president of retention, expansion and workforce development at the Economic Development Authority of Western Nevada. That's because many frequent the area for skiing and other recreational activities, and some of them may have had second homes there growing up.
But remote employees moving to greener pastures may also see costs beyond moving expenses, including adjustments to their pay. Roughly half of employers in a recent Willis Towers Watson survey said that the growth of remote work could necessitate changes to the way employees are paid in the future, including pay based on where employees work. More than one quarter of respondents said pay would be based on the location of remote workers for all jobs within their organizations.
Employers adopt varying stances on 'pay localization'
Some high-profile employers have already hinted that they will continue to adopt an approach of what some have termed "pay localization." In a May video to employees, Facebook CEO Mark Zuckerberg said workers should expect to be paid less if they live in certain areas because the company pays employees a market rate that varies by location.
"That means if you live in a location where the cost of living is dramatically lower or the cost of labor is lower, then salaries do tend to be somewhat lower in those places," Zuckerberg said.
Similar strategies exist at other companies, but those who spoke to HR Dive indicated that employees who move remote may not see their pay decrease. Twitter — which announced earlier this year that it would allow employees in certain roles and situations to work remotely "forever" if they so choose — told HR Dive it "takes a competitive approach to pay localization" that accounts for factors including an employee's position, team and geographic location, among other factors.
That process may not necessarily result in a pay reduction, Twitter said. The company said it has prioritized, even before COVID-19, policies and programs that encourage flexibility in terms of where and how employees work. Permanent work from home requests have more than quadrupled in the past year, it said, and Twitter has a "highly customized process" for determining a worker's eligibility to either work from home or relocate that involves input from multiple teams.
Job site Indeed establishes pay ranges by location, a spokesperson said. The Austin-based company announced in October that it would allow certain categories of employees to work remotely permanently after local shelter-in-place orders were lifted. "For the coming year, we will leave our remote range as is but this may change over time," Indeed's spokesperson said.
'If there's one person who can do the job, it doesn't matter where they live'
A fundamental question for employers to answer in discussions about localizing pay is how such actions will impact talent management and recruiting strategies.
"Are they going to be driven by where the talent is, or are they going to be driven by where their company is today?" said Tauseef Rahman, partner at HR consulting firm Mercer.
Regardless of which approach is chosen, supply and demand for talent at a given position are likely to weigh heaviest in pay considerations. "The reality is that if there is one person who can do the job, it doesn't matter where they live … you will pay them what it takes," Rahman said.
In the event that an employee moves to a locale with a lower cost of living, an employer's "gut reaction" may be to lower that employee's pay, but "we don't view the matter quite so simply," said Josephine Gartrell, director, talent and rewards at Willis Towers Watson.
That's because cost of labor — not cost of living — is a primary driver of pay for roles that do not have a national market for talent, Gartrell said. Otherwise, employers might not consider the cost of labor in a certain location at all. In many cases, the movement of workers to less expensive locations has not resulted in any changes to their pay, but Gartrell noted that this may change over time.
Plus, there's no guarantee that companies that have been lenient toward workers' movement across state lines during the pandemic will always maintain this approach, Rahman said; "That's something that remains to be seen and we won't know until several years out."
Foreshadowing things to come on that front, Google CEO Sundar Pichai announced earlier this month that the company would push to reopen its offices in September 2021 utilizing a "hybrid work force model" that would permit some employees to work from home for part of the week, CNBC reported. But that model would not allow for a fully remote option and would require employees to live within commuting distance of their assigned offices, per the report.
Even so, some executives have criticized the notion that employees should be paid less for moving to less expensive places. In a Medium post, Salesforce Director of Product Management Blair Reeves wrote that "the business justification for employees needing to be in a major metro is collapsing," adding that companies should not penalize employees for living outside of such metro areas.
Tax, registration obligations to note when employees move
Whether or not employers adjust pay for remote employees who decide to move, they will still need to comply with a variety of state and local laws, rules and regulations, Gartrell said.
For one thing, wage and hour laws as well as their penalties vary between different locations, and employers may need to familiarize themselves with each, Gartrell noted. "These will be harder to monitor with remote non-exempt workers but employers should implement systems to do so."
Taxes are another potential area of concern. When it comes to remote workers, employers' primary obligations are corporate income tax filings and payroll tax withholdings, said Zach Gladney, partner at Alston & Bird, who specializes in tax issues.
Companies typically must file corporate income tax returns in states in which they have nexus, Gladney said, "nexus" being a certain level of connection between a jurisdiction and an entity such as an employer. Employers generally have nexus with a given state if they have a full-time employee working in that state, Gladney noted, and would therefore need to file state corporate income tax returns in the state.
Due to the pandemic, however, some states have issued emergency guidance indicating that this does not apply under certain circumstances, particularly when employees are working from home in a neighboring state due to public health orders. New Jersey, for example, which has many citizens who work in New York and Pennsylvania, issued guidance stating that the state treasury "will temporarily waive the Sales Tax nexus standard which is generally met if an out-of-State seller has an employee working in this State" as a result of COVID-19.
But it is potentially another story if an employee decides to move remote even after the pandemic, Gladney said; "In that case, the company is going to have a nexus and therefore income tax filing obligations in those states." The need to be aware of workers' movements may become a "hot-button issue" for tax purposes once emergency orders are lifted, he added.
That also has implications for employees. A May report by The Wall Street Journal noted that workers, too, may need to file tax returns with certain states in which they work remotely, if they are not already doing so. Only a selection of states announced they will not tax remote workers during the pandemic, per the report.
There is even ongoing litigation in this area as the pandemic continues. Gladney noted that New Hampshire filed an original action with the U.S. Supreme Court against neighboring Massachusetts over the issue of income tax collected by Massachusetts from remote workers operating in New Hampshire during the pandemic. New Hampshire, which does not collect income tax, said in its filing that the collection "ignores deliberate and unique policy choices that are solely New Hampshire's to make."
Apart from the potential pitfalls, there may also be incentives for employees to move to a certain state while remote. Hawaii, for example, launched a temporary residency program to attract U.S. workers who live outside the state. The program, Movers & Shakas, will offer discounted hotel space, co-working space and other incentives.
Asked about what impact workers who take advantage of the program might see on their pay, Movers & Shakas organizer and kWh Analytics CEO Richard Matsui said in an email to HR Dive that any such changes "are between [remote workers] and their employer."
Matsui also offered advice to applicants that could very well apply to remote workers beyond those accepted by Movers & Shakas: note the new location's cost of living, and plan accordingly before making the move.