The COVID-19 pandemic radically transformed how and where many of us work. Offices emptied out as remote work became the norm for knowledge workers. Now, as we move into the post-pandemic era, hybrid work models that combine in-office and remote work are becoming increasingly common. A survey by McKinsey found that 9 out of 10 organizations will be combining remote and on-site working in the future.
But this hybrid future of work brings new complexities, especially when it comes to employee compensation, benefits, and payroll. How do you determine fair pay when some employees are in high cost-of-living cities while others work remotely from lower-cost areas? What benefits and perks make sense in a hybrid environment?
Here's a deep dive into the key issues and solutions that HR and payroll teams need to navigate as hybrid becomes the dominant model:
Pre-pandemic, location-based pay was relatively straightforward. Compensation was typically determined based on the cost of labor for a given role in the metropolitan area where an office was located. Employees working in high cost-of-living cities like San Francisco or New York received higher pay than those in lower-cost areas.
But when employees are no longer required to live near the office and may relocate to less expensive areas while working remotely, determining fair compensation becomes trickier. If an engineer moves from San Francisco to Sacramento while working remotely, should their pay be reduced even though the value they provide to the company hasn't changed?
Some argue that pay should be based on the value of the work rather than location, and that reducing compensation penalizes employees for taking advantage of the flexibility that remote work offers. Others believe that it's fair for those working in lower cost areas to receive commensurately lower pay.
There's no easy answer, but the prevailing approach seems to be shifting toward a more flexible, nuanced model where pay is still somewhat tied to location but with more bands and a smaller differential between them. For example, rather than paying based on specific metropolitan area, some companies are moving to a regional pay model with just a few buckets like "high cost regions," "medium cost regions," and "lower cost regions."
This allows for some geographic differential while preventing major pay discrepancies between employees doing similar jobs. It can also make compensation fairer for remote workers who may live in lower cost areas but occasionally travel to high-cost headquarters.
Another challenge of hybrid is that employees may split time between working at home and in the office. This can create payroll administration headaches, especially for global companies.
If an employee lives in New Jersey but spends part of the week working at their company's New York City headquarters, to which state do you withhold payroll taxes? What about an employee who works remotely from a different country for part of the year?
As hybrid work becomes the norm, companies will need robust systems for tracking employee work locations, dynamically adjusting tax withholdings, and ensuring compliance with local regulations. Many may opt to outsource global payroll to specialist firms to reduce risk and administrative burden.
Beyond just pay, the shift to hybrid is an opportunity for companies to reevaluate their total rewards and rethink the benefits and perks they offer employees.
Obviously, offering flexibility for employees to work remotely as they choose is table stakes for any organization embracing hybrid work. But progressive companies are going further, providing benefits to improve the work-from-home experience. These include:
Employee wellbeing has become a top priority as rates of stress, burnout and mental health challenges have risen during the pandemic. With a distributed hybrid workforce, traditional in-office perks like gyms and healthy snacks don't cut it.
Instead, leading companies are prioritizing holistic wellness benefits like:
While these types of benefits were already gaining traction pre-pandemic, they've become essential for supporting employee wellness in a hybrid environment.
Hybrid work also creates an opportunity to offer innovative benefits that help employees juggle work and personal responsibilities.
For example, some companies are providing emergency childcare benefits and concierge services to help working parents. Others are giving employees access to virtual tutoring, pet care, and errand running services.
The key is offering flexibility and choice. A one-size-fits-all benefits approach no longer works for a diverse hybrid workforce with varying needs and preferences.
Perhaps the greatest challenge of hybrid is fostering the human connection, camaraderie and mentorship that naturally occurs when people work together in person. Without intentional effort, hybrid and remote workers can feel disconnected and left behind.
Smart companies are experimenting with solutions like:
The most successful hybrid cultures will be those that go out of their way to create equitable and engaging experiences for all employees, no matter where they're working. This requires empathetic leadership, open communication, and a willingness to experiment and adapt.
Ultimately, getting hybrid right is about more than just payroll logistics and cool remote work perks. It's a matter of equity and inclusion.
We know that underrepresented groups, especially women, were disproportionately impacted by the pandemic. Women have shouldered more of the burden of childcare and homeschooling and dropped out of the workforce at higher rates.
Hybrid work could be a massive opportunity to retain and advance diverse talent by offering the flexibility to balance work and life. But if poorly managed, it also risks creating new equity gaps.
For example, if plum assignments and promotions favor those who spend more facetime in the office, remote workers could miss out. Proximity bias is a real issue that hybrid organizations will need to combat.
HR, payroll and business leaders need to approach every aspect of hybrid work - from pay structures, to benefits, to performance management - with an equity lens. Soliciting frequent feedback from employees and monitoring people analytics to spot demographic discrepancies will be key.
Getting it right won't be easy, but it's a business imperative. Companies that build equitable, inclusive hybrid work cultures will have a massive talent advantage in the years ahead.
We're entering a brave new world of work. Hybrid is here to stay, and companies that embrace the change will thrive. But navigating this new landscape requires fully reimagining how we manage payroll, benefits, culture and inclusion.
It won't happen overnight. It will require extensive listening, experimentation, investment in new tools and technology, and a willingness to adapt and iterate. But bit by bit, we have an opportunity to make work better, fairer, and more flexible than ever before.
One thing is certain: hybrid work is the future. And that future is now. The smartest business leaders aren't waiting to adapt - they're acting with urgency to build the hybrid workplaces of tomorrow, today. Will you be one of them?
