2021 is the year of transition as economies rebound after the easing of Covid-19 restrictions. Many businesses are now determining whether or not to continue with some degree of homeworking, or ask employees to return to the office full time.

Now, reports suggest tech giant Google may issue pay cuts to US staff who choose to work from home permanently, particularly if they are living in cheaper cities – cuts should reflect the cost of living, the Silicon Valley firm said.

Could location-based pay cuts be the future? Would employees still choose to work from home if so?

A continuation of remote working 

While Google said it currently has no intention to implement the policy in the UK, the ‘pay calculator’ scheme has been widely condemned in the UK, where mixed messages have recently been thrown in the mix by the public sector.

An unnamed Cabinet minister this month said pay cuts for remote working would incentivise civil servants to return to the workplace. This was condemned by the business secretary, Kwasi Kwarteng, who said flexible working was “here to stay”.

In January, research by cloud technologies company Citrix, found that three in four UK office workers would accept a salary reduction if it meant they could continue working remotely. The majority of those polled said an average 14 per cent cut would be acceptable.

While it is clear a large portion of UK office workers would rather continue working remotely, would it fair to pay a worker based on their location?

The future of regional differentials

Many companies adjust salaries depending on location to offset higher living costs. The London weighing premium, for example, is £4,000.

A January Incomes Data Research found that out of 102 businesses surveyed, 29 paid a location premium. The poll revealed that no organisation had made changes to their pay scale, and just 1 per cent had “temporarily reduced or removed them”. A further seven per cent said they were considering removing or suspending these premiums.

This comes as one in seven Londoners wanted to leave the city as a result of the pandemic in August 2020, according to a London Assembly survey, yet those who left may still be paid the “London wage”, as initially included in their employment contract. Should they be penalised for it?

Implications for HR and company culture

From the remote workers’ viewpoint, they are carrying out the same roles and responsibilities as office workers. For many, who have had to invest in new set-ups for remote working during the pandemic or had to rethink childcare while working longer hours, location-dependent pay cuts may seem unfair.

Firms should carefully consider the potential challenges that cuts may bring – namely retaining and recruiting top talent. With job vacancies rising in UK firms, allowing remote working with performance-based pay means businesses have access to a wider pool of candidates and can attract talent from different areas.

Imposing pay cuts on remote workers might hinder the bottom line as a lack of motivation could damage productivity. Pay cuts would also penalise and impact certain groups more, including carers, women or those less able to travel for physical or mental reasons. Because company culture is one of the top priorities for jobseekers, organisations need to value and protect remote workers in the same way as in-house staff, and build an employer brand based on inclusivity and diversity and a greater work/life balance.

As we navigate the months ahead, we expect more noise around the pay debate. If you would like to discuss how to attract and retain the best talent – remotely or not – please don’t hesitate to contact us.