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Fair Compensation Dilemma: Should Remote Workers Be Paid Less?

Fair Compensation Dilemma: Should Remote Workers Be Paid Less?  

As the preference for remote work continues to rise among employees, businesses are now finding themselves in a new quandary: should full-time remote workers be compensated equally to their in-office counterparts? What is the best approach to address this situation appropriately?

The Economics of Location-Based Salaries Debate

The debate about reducing pay for relocating employees began in August 2021, when Big Tech firms, such as Amazon, Meta, or Microsoft, announced they will initiate pay cuts for remote employees who decide to move to less expensive areas. The primary rationale behind the decision was that the wages were set to reflect the prevailing high costs of living in Silicon Valley.  

There were mixed reactions to the announcement, as most hiring managers say that compensation should not be based on the employee’s geographic location; but rather on levels of education and years of experience. Because remote workers perform the same kind of work, requiring the same skill, effort, and responsibility as their in-office counterparts, location-based salaries would segregate employees and give rise to between-workplace inequality. 

What Are the Potential Long-Term Implications of Implementing Location-Based Pay in the US?

  1. Lower Engagement Scores and Higher Employee Turnover: Salary reductions have a negative effect on employee morale, resulting in decreased productivity and the quality of work produced. Employing location-based salaries could affect corporate culture and diminish the brand value as an employer for those who have departed, those who remain, and potential future employees.  
  2. Legal and Ethical Implications: Salary reductions based on location have the potential to trigger legal concerns related to discrimination and compliance with equal pay standards. Companies sued for employment discrimination not only suffer reputational damage but also encounter significant challenges in rebuilding their image and attracting prospective talent to join their workforce. As such, it is crucial for employers to familiarize themselves with two important concepts that can help prevent civil and criminal discrimination lawsuits: disparate treatment (occurs when an employer treats an employee or candidate differently than other similarly situated individuals based on factors such as race, skin color, age, sex, or national origin) and disparate impact (occurs when a seemingly neutral policy is applied in a discriminatory manner). 
  3. Compromised Talent Acquisition Strategy: Amidst a highly competitive job market environment, implementing a location-based compensation strategy without accompanying benefits for relocating remote workers could hinder the company’s talent acquisition efforts. Survey results from the recruitment company Robert Walters Group indicate that almost one-third of individuals are willing to change jobs to keep the option of working remotely. By setting arbitrary limits on salary increments for new hires, companies may fail to attract top talent and lose out on valuable candidates. 

Can the Employer Legally Cut an Employee’s Pay in the Netherlands?

In the Netherlands, employers can include a non-compete clause in the employment contract, granting them the right to change contract terms, but only with the employee’s consent. Without a unilateral change clause, any amendments are subject to the reasonableness test. The employer must supply a valid justification showing that a series of unforeseeable circumstances have created a justifiable need for altering the terms of employment. After presenting its rationale, the employer must extend a fair offer to the employee, who then has the autonomy to accept or reject the revised terms. 

How Do Foreign Companies Pay Remote Workers in the Netherlands?

Businesses that have a fully operational company in the Netherlands have three options to pay their remote teams: 

  • Via a Dutch branch office or subsidiary (‘nevenvestiging’ or ‘filiaal’) listed in the Dutch Business Register (Handelsregister) at the Netherlands Chamber of Commerce (KVK). 
  • Via a global employment partner which would take the responsibility that falls heavily on navigating Dutch employment and labor laws. Such agencies can serve as external HR business partners and handle various aspects of international staff salaries, including calculations, payments, and tax deductions. 
  • Via independent contracting, employers can hire a self-employed professional for short-term projects. Because under Dutch Law independent contractors are not treated as employees, employers do not have to withhold or pay any taxes on payments. 

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