If you had employees who moved away during the COVID-19 pandemic, here’s how to approach salaries, tax implications, and more.
A lot of people moved over the course of the pandemic, especially away from big cities and metropolitan areas. When shelter-in-place orders went into effect, and the perks of living in a city — museum visits, eating out at restaurants, going to see live music — quickly disappeared. Many people wondered, “What’s the point of paying top dollar to live in a city when you can’t do anything that makes it worthwhile?”
Others moved to have more living space, to be closer to family, or to check out a spot they’d always wanted to visit. Since we were all working remotely, location hardly seemed to matter.
But now, as businesses are calling employees back to the office, companies are having to navigate how to handle their now far away employees. Here are some considerations businesses should make around long distance employees.
Why not let them stay remote?
Most knowledge workers have already worked from home since March of 2020. If they’ve met their goals and successfully completed the tasks and responsibilities of their jobs, why not allow them to continue working remotely?
Additionally, companies looking to draw a hard line with employees may find themselves in a staffing bind. According to research firm Ipsos, a quarter of employees are planning on leaving their jobs post-pandemic, and 35% of employees say they’ll leave their job if they cannot continue working remotely, according to a survey of 3,000 employees by Blind, an anonymous professional network.
It’s likely that the numbers among employees who have moved are much higher.
Should you adjust salaries for employees who have moved?
It depends on who you ask.
Since a geographical area’s cost of living directly influences a worker’s pay, the question has some merit. Companies based in metro areas with high costs of living, like the San Francisco Bay Area or New York City, pay employees high salaries to offset the cost of living there.
“If a company is in the Bay Area and an employee moves to a more rural part of California, there would be no need for them to receive a Bay Area-level salary.”
“If a company is in the Bay Area and an employee moves to a more rural part of California, there would be no need for them to receive a Bay Area-level salary,” said Daivat Dholakia, Director of Operations at Force by Mojio, a fleet tracking app.
Mark Zuckerberg seems to agree. He announced that almost all Facebook employees can continue working remotely if they like. However, for employees who have moved, Facebook will adjust salaries to reflect the cost of living in the employee’s new location.
But not everyone is on the same page. Those against adjusting worker pay say employers will suffer long term for their lack of flexibility.
Should going remote result in less pay?
Steve Cadigan, Linkedin’s first-ever CHRO and current talent strategist said competitive employers “are the ones that are most flexible and provide the most psychological safety.” He noted that flexibility will be the most sought after trait in employers moving forward — regardless of whether employees want to work from home because they’ve moved, or they’d simply prefer more of a hybrid schedule. “Going remote should not result in less pay, and it surely should not result in employees feeling pressure from their bosses to return full time to the office.”
Alina Clark, cofounder and marketing director of software company Cocodoc said her company has employees who have moved out of the LA area over the course of the pandemic, but they won’t be calling employees back nor cutting pay — and she certainly doesn’t recommend the practice. “Changing the salary structure when people go remote creates massive inequities between employees,” Clark said. Rather than penalizing remote employees, Clark recommends supporting in-office employees with transport or commuting.
Ultimately, businesses have to make the decision that best suits their specific needs. If employees are migrating from high cost of living areas to those with much lower expenses, the decision to adjust salaries may make sense. Especially when considering that new remote hires in similar locations won’t benefit from the same elevated pay. But for those there the difference is minimal, adjusting employee pay is likely to come off as punitive and inflexible.
“Changing the salary structure when people go remote creates massive inequities between employees.”
What are the tax implications?
They vary. Employers are responsible for paying employee wages and contributing the employer portion of payroll tax. If employees have moved across state lines, this could become more complicated for companies.
Early in the pandemic as offices closed and employees had to work from home, states scrambled to clarify regulations for paying employees who live and work in different states. Some states, like NY and NJ, had existing reciprocal tax agreements. These arrangements are common among neighboring states and allow individuals who live and work in different states to only pay tax to the state in which they live.
But with different states enacting different regulations for employees who have moved out of state during the pandemic, businesses should check state specific resources, as well as refer to comprehensive resources like the American Payroll Association’s compliance page for helpful tips on various rules and regulations.
Perhaps most importantly, work with a payroll provider that takes the guesswork out of paying employees — regardless of where they live.
Returning to work raises a lot of questions, but small business owners don’t have to rely on guesswork to find solutions. Instead, join the 60,000 other small business owners who lean on Workest’s weekly newsletter to guide their transition back to the office.