While some companies are calling employees back to the office, many aren’t budging — according to Stanford’s Institute for Economic Policy Research, remote work is a permanent fixture in modern employment. Gone are the days of determining the right tech stack to support your remote team or learning how to work with different time zones. Now, most teams have found the right rhythm to work together, but a critical question remains: how should location impact pay? Many companies are reconsidering their remote work compensation and evaluating location-based pay in this new era of work. At Nelson Connects, we’ll help you get it right. Our expertise as a trusted staffing partner and deep understanding of compensation models that attract top talent will support your long-term success and ensure you feel confident about whether pay localization is right for your business.
Pay localization, or offering salaries based on the cost of living where workers live instead of where a firm is based, is a common approach to compensating remote workers. But does it make sense to pay remote workers who move permanently — or those you hire for remote-only jobs — less than employees who are located near the main office? Four years ago, after the original remote work push during the pandemic, large tech companies cut worker pay for those who chose to relocate away from their Bay Area headquarters. Other organizations support relocation and have said they will provide relocation money and then adjust pay. And some companies indicate they will not reduce salaries based on location.
Determining where your organization falls on this matter is essential, especially as every year, more states are beginning to require pay transparency. Read on to explore a few key considerations to create the best pay localization strategy for your company.
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The first step in figuring out a pay localization plan is understanding the demand and average pay for each job. Salary guides can help you determine if your company’s employee salaries are competitive in different cities. Nelson Connects' 2025 Salary Guide, an annual listing of compensation across industries, is a popular resource for customized salary recommendations.
Another approach is to evaluate three items:
The cost of living where the company is based
The cost of living where the employee is based
The national average pay for the job
A Nelson Connects staffing professional can offer local market insights and detailed salary knowledge of your industry and location.
You can also consider larger industry trends to identify if location-based pay is common for remote work compensation in your sector. In 2021, WorldatWork released a report that remains among the largest resources on geographic pay policies to date. This study reported that 62% of companies have implemented geographic-based pay policies, and that up to 67% of employees expect their wages to be tailored to where they live. The majority of organizations have implemented pay localization, and this approach can be paired with a foundation of your cost-of-living considerations to ensure you set the best remote work compensation strategy for your organization.
Different types of job are more suitable for pay localization than others. For example, you might have to pay a data engineer the same amount to work in Boise, Idaho, as you would in San Francisco. Why? It’s a high-demand job that requires a specific level of education and skills, making candidates more challenging to find.
On the other hand, there are often more available candidates for entry-level customer service jobs that require less education and skills. For these types of jobs, it makes more sense to implement a pay localization plan that reflects local cost-of-living data.
To avoid inequity, be consistent with the salary approach for each job category. For example, you might offer software engineers the national market rate no matter where they live. For call-center representatives, you might align pay with local cost of living and job demand.
Base pay isn’t the only thing to consider when compensating employees who do the same job in different zip codes. Benefits are another employee expense that can be modulated based on geographic location.
It’s common to offer employees in major cities benefits such as commuting or parking reimbursement. However, these benefits likely would be unnecessary for a remote worker in Grand Rapids, Michigan. The result is that the full pay and benefits package might be different depending on where a staff member lives.
Importantly, many workers consider the chance to work remotely as a benefit. Stanford Economics professor and researcher Nick Bloom reported that surveyed workers view working remotely as equivalent to an 8% raise. For the tech field, the National Bureau of Economic Research reported that workers would accept an average of a 25% pay cut in order to work somewhere with a hybrid or remote schedule. With this in mind, the offer to work remotely can be factored into your total compensation package as a sought-after benefit.
Determining compensation during uncertain times is complicated – and that’s before considering how to pay employees working in different locations.
No matter what approach you take to pay localization, be clear about your strategy with employees: Are you basing compensation on national averages instead of averages within a regional area? Is paying remote employees who live in areas with lower costs of living a financial decision or an effort to hire workers for less money?
This transparency is even mandated in some states. Up to 14 states require pay transparency on job postings or throughout the hiring process, which amplifies the importance of developing a sound strategy that accounts for location-based pay and other key factors so you can share your range appropriately and strategically. Whether this transparency is enforced in the region you’re hiring or simply a good faith piece of knowledge for your prospective hires, being transparent can help you set up for success.
Your company may decide on and implement an approach to pay localization that initially makes sense. But you may need to rapidly change that plan if demand for a specific job goes up (or down) over time.
For example, a top employee could be talking to a competitor for any number of reasons. If you haven’t adjusted your salary approach, and the other firm offers more, you may find yourself needing to hire a replacement, and you’ll certainly need to review your salary structure in the process.
The employment landscape is changing rapidly, and what works best for your company today may not tomorrow. Keep your plan flexible and pay attention to market changes that could impact compensation for different positions across the country.
Read on: Unveiling the Hidden Costs of Hiring
Nelson Connects has helped employers find the top talent for their businesses for more than 50 years. Our expertise, combined with our thoughtful, tailored approach, makes us the ideal partner to help you navigate the hiring process and come out on top, from discovering talent to strategizing about remote work compensation and more. If you’re seeking hiring support and want to connect with a dedicated staffing expert about your needs, reach out today to get started.
Content originally written by Clea Badion and updated by Nelson Connects.