Beyond COVID, What’s the Future of Employee Compensation?
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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowOn top of the catastrophic human cost of COVID-19, the Coronavirus Pandemic has also shifted the foundations of American employment. Many employees were laid off or terminated as the economy faltered, others worked from home in record numbers, and workers from both groups generally reassessed their next moves in the business landscape. Suddenly, new rules are in play for “living wage,” remote work incentives, and “gig” work.
Living Wage
“Living Wage” is defined as a wage high enough to maintain a normal standard of living. It is not a federal or state-mandated minimum wage; however, it is the real-world minimum income necessary for a worker to meet their basic needs of food, housing, clothing, and other essentials. Living wage information for almost any city and state is available with a simple online search; with data presented for a single adult with no children, two adults (one working) with three children, etc.
As the seemingly never-ending debate over raising the federal minimum wage carries on, employers increasingly offer wages at or above living wage rates. Why? Because in an employment market where workers suddenly set the rules, it’s the new baseline for attracting and retaining employees.
Incentives for Remote Workers
The second “new normal” for employers is the use of incentives for remote workers. The pandemic shifted millions to working from home and it gave employees the ability to move wherever they want. Suddenly in control of their own geography, they are now taking advantage of programs where communities pay workers to relocate there. For example, MakeMyMove.com helps employees know where and what incentives exist for workers in participating locations.
A recent InMyArea.com survey of 541 employees under age 35 found that 49% plan to move to a lower cost-of-living and safer area. Job opportunities, remote work convenience, and access to nature and outdoor space rank high on remote worker wish lists.
Also, more employers now see the benefits of remote work. Some companies who would never have adopted remote work before the pandemic are now doing so. For companies unwilling to offer flexible remote work, a potential tidal wave of departures is already swelling (known as the “Turnover Tsunami”). This is especially true in the tech sector. A recent survey conducted by Blind, an online community where more than 4 million professionals connect anonymously, indicates that 51% of tech employees are satisfied with their companies work-from-home policies, but 36% said those policies make them want to leave.
What’s more, the average worker would reportedly take a small pay cut to work from home two to three days per week. In fact, tech employees at some of America’s largest employers are willing to forgo a $30,000 annual raise to permanently work from home.
Geographical differential adjustments, which are typically based on cost of salary, are also gaining attention due to many employees now working remotely. These adjustments factor in costs where a worker lives. Does a company still provide these geo differential adjustments if an employee chooses to move on their own? If so, how will employers keep track of voluntary moves vs. required moves and provide equitable salary adjustments? Another quandary lies in the scenario of making salary adjustments for a worker who comes into the office in a higher cost-of-salary area vs. one who works in the suburbs in a lower cost-of-salary area. Various remote work situations can complicate the already complex area of employee compensation. The bottom line for employers is that remote work flexibility and fair allocation of incentives will likely be required for effective worker attraction and retention.
Gig Workers
According to the ADP Research Institute, 1 in 6 workers is now paid as a 1099 employee. These “gig workers” are often hired for a needed skill set or to work short-term on a project basis. Gig workers tend to be highly educated and choose to work on projects they enjoy. Sixty percent of surveyed gig workers say they will continue to “gig” for the next three years, with flexibility driving their motivation.
The top three industries using gig workers are Recreation, Construction, and Business Services, but companies across nearly all sectors are increasingly turning to tenured skilled workers and retirees to meet growing demands for talent in a tight labor market. The 30% of 1099 workers who are 55+ use gig work to supplement retirement savings.
The new work parameters and employee compensation realities ushered in by the pandemic are likely here for the foreseeable future. Agile companies that can adapt to this radically different employment landscape will be able to outpace the competition and become employers of choice.
Cassandra Faurote is the CEO of Total Reward Solutions, a compensation consulting firm and author of Compensation Sense 101: Common Sense Answers to Your Questions About Employee Compensation and Total Rewards. Reach her at cassandra@totalrsolutions.com.