Can employers reduce pay for permanent home working?

With commuting cost savings and an end to geographical market rates, People Management asks whether wages could fall if firms move away from office-based working

Can employers reduce pay for permanent home working?

Coronavirus has changed the way we work – or rather, accelerated changes that were slowly happening pre Covid. There is no longer any doubt in employers’ minds that remote working is not only possible, but comes with a raft of benefits. A recent CIPD report hailed home working as “one of the big success stories of the pandemic”, to the point where some businesses are asking whether their employees need to come back to the office at all.

Indeed, recent headway made returning staff to the office has proved short-lived in light of prime minister Boris Johnson yesterday (22 September) reversing his position and urging English employees to work from home where possible, as part of an attempt to avoid a second wave of the virus. This brought England more closely back in line with Scotland and Wales, with Scottish first minister Nicola Sturgeon recently promising only a review of reopening offices north of the border on 1 October, and Welsh deputy minister for transport and economy Lee Waters saying the government’s previous call for workers to return to offices where safe was “not one [they would be] repeating in Wales”.  

So, with home working firmly on the agenda for the foreseeable future and saving employees significant commuting costs, can organisations legally and reasonably cut pay for those working from home permanently? And should they?

The justification for doing so seems pretty straight forward when you consider how geographical market rates affect pay, says Dr Lisa Grover, head of reward at The Salvation Army. “Roles in London typically have higher pay, but what is the market rate for a home-based role?” she says. “Lots of businesses will be solely London based, paying a premium for working in that market and attracting people to live and work in the area. But a virtual or remote way of working might mean they don't have to pay that premium anymore.”

Real-world examples of businesses telling staff they need never return to the office even post Covid, but also that they’ll take a pay hit in line with this, are already surfacing. Twitter, for example, has told staff they can work from home “forever” as long as targets are still met. But Twitter is saying that “employees who ditched pricey San Francisco as a result of Covid and lockdown to work from home will take a pay cut commensurate with living costs in their new location,” confirms Jonathan Ratcliffe, senior broker at This scenario could be applied to “any town or city in the UK,” he says.

Grover adds there are other factors that could see home working push down wages: “It could be argued that being home based is a desirable benefit, for which individuals may be prepared to accept lower pay, creating a lower market rate for home-based roles.”

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And Charles Cotton, senior policy adviser at the CIPD, says it is “yet to be seen” whether home-based working will lead to lower wages. “As the economy starts to recover and organisations look to recruit more, salaries based on location could be something that is considered,” he says. “It is unlikely that existing staff will have their location top-up taken away, but new staff might be offered a salary that reflects the new realities of remote working.”

But setting wages based on location could have ethical and legal consequences, especially if some jobs are done by workers based overseas, he adds. It isn’t just wages that are higher in certain areas, such as London and Edinburgh, but also the cost of living, he points out: “Pay in these regions would only fall if these jobs were spread more evenly across the country – something that flexible working may facilitate. But the [regional] ‘going rate’ for the job is likely to remain broadly the same.”

Philip Flaxton, chief executive of Work Wise UK, agrees living costs will make it difficult for companies to justify cutting pay for home workers. “It would be a rocky road for an employer to try and save money by docking wages for home workers,” he says, adding that while employees may be saving money on travel, other costs – such as heating, electricity and other utilities bills – have inevitably increased.

“I think Acas would have something to say if an employer suggested cutting someone’s salary,” Flaxton says.

Joanne Frew, employment partner at DWF, adds that as well as highlighting the extra costs of working from home, employees could also argue that remote working reduces company overheads. “If productivity has not diminished, a pay cut would seem arbitrary,” she says. 

It’s not just utility bill overheads that companies will inevitably save on should more staff work from home, of course. There have been many reports in the media already of companies downsizing their office footprints, with estate agency Savills predicting at the end of August that vacancy rates in City of London office buildings, for example, will rise from 6.5 per cent this year to 7.2 per cent next year, before peaking at 8 per cent in 2022. 

Flaxton confirms some of his clients are already looking to make savings this way. “One of the big four consulting firms is currently doing a strategic review of all the leases coming up for renewal in the UK because of the pandemic,” he says, adding they will likely make “substantial cost savings” in the process. “It would be a bit silly for an organisation to save money on rent but then cut the pay of their staff,” he says.

Any organisation looking to cut pay for permanent home workers would have to make changes to employment contracts. In Frew’s view, employees are unlikely to agree to this. However, where the job role has changed, for example if parts of the role cannot be carried out away from the office, or the employee has opted to work from home, then in those situations reduced pay “may be appropriate,” she adds. 

Firms could also open themselves up to sex discrimination claims, however, says Paul Holcroft, associate director of Croner. “Offering a lower salary for home workers compared to those working from the workplace may also present a case of indirect sex discrimination if it can be shown that the majority of home workers are female,” he highlights. 

However, looking forward to an enduringly tough economic situation in the UK, Grover adds that, while immediate pay cuts are unlikely, offering lower rates for home-based working could potentially be used as a tool to avoid redundancies as the coronavirus job retention scheme comes to an end in October.