United States: Large companies such as Google and Facebook use location-based salary models and drastically reduce the salaries of many home office employees. What is the background to this practice – and would such an approach also be possible in Germany and other countries?
Standard at many companies. Employees around the globe not only feel better protected from the virus by this modern way of working, but also enjoy other benefits of their new way of working. No more time- and money-consuming commutes, a plus in freedom with regard to employer controls, and plenty of rest for important projects are some of them. In short, there’s more flexibility in how they organize their day, and that also helps when it comes to taking care of personal obligations. And besides: who doesn’t enjoy booting up the PC in the morning, completely relaxed and accompanied by soft music, and possibly starting their day’s work in sweatpants and slippers?
However, working from the office at home also has its downsides; lack of contact, lack of separation between work and private life, and the danger of dwindling discipline are among them.
But now real trouble is looming for “homeworkers,” at least in the United States. The giants Google, Facebook and Twitter have in some cases severely cut the pay of their home office employees. Other US corporations have also introduced location-based pay models. How is that possible?
Location-dependent wage model
The Corona outbreak also prompted the powerful tech company Google to make major changes to the way it organizes its work last year; the company’s top management reacted quickly and sent all its employees into home offices. In the meantime, the situation has changed, and many employees are once again doing their jobs on Google’s premises. But many others have stayed at home to work – and that has consequences. Google now uses a location-based wage model that is permitted in the U.S., and as a result, many employees in the home office are losing part of their salary. But Google is not alone in doing this in the United States; other giants such as Facebook and Twitter are also taking a similar approach. What’s the deal with this pay model? Do companies like Google want to sanction home office work and force employees back into the company’s premises?
The situation in the USA
In the USA, it is customary to add a kind of location surcharge to salaries. Google has also calculated the salaries of its employees in this way. It is extremely expensive to live and work in the vicinity of Google’s headquarters. The prices for real estate and rents are high, and even leisure activities have a higher price than elsewhere. So Google has factored these location disadvantages into salaries.
Now, when employees relocate to other parts of the U.S. through permanent home offices, in many cases they save themselves a lot of money – for housing and commuting, for example. The cost of living goes down and the entitlement to the location-based components of the salary is effectively forfeited.
Consequently, companies like Google don’t want to punish anyone, but rather to establish actual salary equity – after all, some of Google’s employees continue to live in the expensive environment of the company’s headquarters and perform work directly at the company.
However, there are also business management considerations, because lower salaries naturally save costs for part of the workforce. In addition, Google has also noticed negative effects of mass homeworking; productivity has dropped measurably in recent months. So the side effect of increasing the number of people returning to the company’s premises is not likely to be unwelcome.
Further, the truth is that the deductions are not actually deductions in every case. They are graduated by place of residence and are related to the local cost of living. Some places are “cheap” and those who work for Google from there can lose up to a quarter of their salary. On the other hand, those who live in expensive New York, for example, receive the same salary from Google as before.
Salary cut for staff who work from home
What is the situation in our country with regard to salary reduction for home office? Does Germany also have salary models that depend on the employee’s place of residence?
First of all, they do not exist in the form described for the USA. However, the Federal Republic of Germany also has salary differences that are related to the place of residence and the place of work. The salaries of civil servants have taken these factors into account for many years, so as not to disadvantage civil servants in expensive cities such as Munich or Stuttgart. This practice has been reviewed by the courts and found to be in compliance with the law. We are also familiar with similar agreements from many collective bargaining agreements. Furthermore, employers in costly metropolitan areas generally pay higher salaries to compensate for the corresponding location disadvantages with money. This is no wonder, because otherwise many jobs would remain unfilled in German agglomerations.
Building the location factor into salaries is therefore not unknown in Germany – and it is also permitted in principle under labor law. Although the General Equal Treatment Act (AGG) stipulates equal treatment of comparable employees by the employer, residence is not listed as a discrimination criterion in this law.
The situation in Germany for remote workers
A reduction in pay due to permanent work from the home office is generally not possible in existing employment relationships without the explicit consent of the employee, not even via a change notice. The only exception is the very unlikely case that exactly this is already regulated in the employment contract.
The situation is different, however, in the case of new hires. The employer can stipulate lower compensation in the employment contract if the employee works predominantly or exclusively from the home office and justify this with lower living costs and saved expenses for commuting to the workplace. But there are two catches: first, the employer has to find candidates who are willing to accept such an employment contract, which is likely to be extremely difficult in times of a glaring shortage of skilled workers in many industries. Secondly, such an adjustment to the salary system is subject to co-determination, at least in companies with a works council.
It remains to be said: Location-dependent remuneration models are also permitted in principle in Germany and do not constitute a violation of the AGG. A corresponding employment contract agreement may therefore be concluded, provided that both sides sign the contract and the works council is involved where appropriate. In addition, there are already companies in our country whose salary structure already includes a “place of work” component – the best-known example is SAP. The Group takes into account the different cost of living at the various locations in Germany when remunerating its employees.
Discussions about pay cut for homeworkers in Switzerland
In our tranquil neighboring country of Switzerland, the topic of home office in relation to salary also plays a role, albeit a different one. Unlike in the U.S., existing salaries are not cut. Instead, many companies in Switzerland lure their employees into their offices with special payments or early salary increases. This strategy has to do primarily with the factors of productivity, motivation and communication – all of which, according to widespread opinion, are significantly better when employees are regularly present at company headquarters than when they work decentrally from their home offices. So those who prefer to work from their home office have to reckon with less money in the medium term – and a career setback in the long term.
Importance of home office and location-based salary models
The importance of home office, which has risen sharply as a result of Corona, will remain even after the pandemic – and the discussion about location-based salary models will grow in this country. But this debate must be conducted honestly, because on closer inspection, widespread home office also delivers some benefits for companies – think of the elimination of costly office space.
In an economy that is increasingly determined by mobile and flexible work, compensation structures that are dependent on location or place of residence are likely to face some headwind, because good employees will hardly be won over with such proposals in a labor market that is tight in many areas – the magic word is employer branding. Those who can do something and would like to work from home will turn to those employers who do not penalize home offices with deductions from their salaries.
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