How to Determine Compensation Packages for Remote Employees

Having remote work capacity gives an employer a great deal more flexibility than strictly hiring from the local talent pool. Have a great candidate applying from across the world? No problem. With today’s technology options, accessing remote workers is easier than ever.

So now that you’ve found your talent, the hard part is over, right? Wrong. Determining an appropriate compensation package is tricky enough when you hire locally. With international hires, the process has additional nuances regarding regional, legal, and cultural differences that might be unknown to you.

While these complications might seem like a deterrent for hiring outside the area, they’re a challenge you can readily deal with. Utilizing available resources and drawing on the right expertise can make remote hire compensation decisions no more difficult than hiring someone local.  

Offload the Administration

In order to save your business money, it can be tempting to try to do all administrative functions in house. When it comes to hiring international employees and contractors, though, you’ll want to offload such functions to a third-party specialist. Unless you have vast experience in the area, navigating the employment regulations of foreign countries can be a logistical nightmare.  

Currencies and wage structures vary a great deal between countries, but that’s not the end of compensation differences. If you hire someone as an employee rather than a contractor, you may be required to offer certain benefits such as retirement and required parental leave. Use international hiring guides to learn more about benefits in other countries.

A third-party hiring administrator can help you navigate the variances between countries and help narrow your search area. Some even offer country explorers to compare regulations and filter by such things as language and minimum wage. 

By hiring a specialist, you can gain a better grasp of what wages and benefits are either required or standard for each country. If you hire an employee in a country with universal healthcare, for example, you may not need to offer health insurance. If you are hiring in a country with varying minimum wages, a specialist can help determine what salary is competitive.

Engage an EOR

Third-party assistance doesn’t end when an employee is hired, either. Ongoing services can include functioning as an employer of record (EOR) if you don’t own an entity in the country where you are hiring. An EOR possesses an entity in the target country and essentially hires the employee on your behalf. The individual functions just like any other employee of yours, but all international compliance is handled by the EOR. 

Another huge perk of using an EOR involves liability. Failing to offer certain benefits to your international employees can carry massive fines, depending on the country. Since the EOR is responsible for all compliance related to such employees, your risk is minimal. If the government ever investigates how compensation and benefits are being handled, the EOR processes the correspondence and legal documentation.

Ensure Interstate Compliance

What if your remote employees aren’t international? Maybe you just hired someone three states away. You should be able to give them the exact same compensation package as your local employees, shouldn’t you? Not necessarily.

Even if your remote employees are just located in a different state, wage and benefit requirements can vary. For example, an employer in Iowa might want to hire a candidate from Rhode Island for a remote position. If the employer offers the new hire the same medical, 401(k) and HSA package it provides to Iowans, the employer will be noncompliant. The reason for this is that, unbeknownst to the Iowa-based company, Rhode Island requires employers to provide disability insurance.

Because states have subtle differences in minimum wage, unemployment, and insurance requirements, hiring an outside payroll processor is still recommended. Having an expert make sure you are in compliance with regulations is very much worth the monthly service fees. 

Estimate Employee Longevity

Wages are usually considered to be the main component of overall compensation, but benefits can also be costly to the employer over time. Because of this, you should try to make sure a candidate is a good long-term option before offering top-tier benefits.

One possible option is a contract labor trial period. If you hire a remote contractor for a short-term project and like their work, you might be interested in hiring them long-term. Offering more expensive and immediately effective benefits to such a hire carries less risk due to the successful prior engagement. After the contractor completes a project, you should have a good idea whether they are a good fit for your business.

If you hire an unknown remote worker as an employee, you have far less information. The onboarding process for both regular wages and benefits can be costly, and high turnover multiplies this expense. Because of this, you might consider a 30-day waiting period for some benefits (if allowed) in case the employee doesn’t work out.

Alternatively, you might forgo certain benefits entirely if you hire a remote employee for a project expected to last less than two years. Some examples of common short-term employment fields include technology and event coordination. In these cases, you might pay slightly higher wages and offer such things as health insurance but not retirement benefits.    

The most important thing is to try to estimate how long a remote employee might be with you. This will give you a better idea of what their needs might be and what is most cost-effective for your business. In all these scenarios, a payroll processor can help you determine what you are legally required to provide.

Offer the Right Compensation to Benefit Everyone

With technology improving every day, the world has become increasingly accessible from a hiring perspective. Tapping into this larger talent pool carries with it some additional considerations, but the benefits can outweigh the costs. By intelligently using your resources and leveraging the right expertise, you can create compensation packages to attract remote talent and build your team.