Employers say they are reviewing employees’ location pay, as some may now be living in an area that no longer qualifies for the additional payment.

More than two thirds of companies currently offer location pay – which is to compensate those staff that live in high cost areas. For example, people living in London receive a median location payment of £3,775 on top of their salary. Those in outer London could receive a median of £3,250.

No changes to location pay

However, data from XpertHR shows that 44 percent of UK organisations are ‘unsure’ about the future of their location pay arrangements. Since the start of Covid-19 and the subsequent shift to hybrid working, 79 percent of companies have made no changes to their location pay.

Sixty nine percent of employers say they believe the additional amount helps keep salaries competitive. However, others say that since many employees have relocated to less expensive areas, the location pay options need to be reconsidered.

Pay and reward editor at XpertHR, Sheila Attwood says because remote working is likely to be long term, companies should continue to offer location pay. She said: “Remote working is here to stay, and because of its role in recruitment and retention of staff, so too is location pay. 

“With some employees no longer operating from the high-cost areas that originally qualified them for a location allowance, employers need to choose how to best adapt their offerings to reflect the current pandemic-influenced labour market.”

Attitudes are positive

Despite the pivot to a remote, and now hybrid work environment, in the two years since the start of the pandemic four in five (79 percent) organisations have opted to make no alterations to their existing location pay policy – perhaps because of its role in the recruitment and retention of staff.

Overall attitudes towards location pay are positive, with nearly nine in 10 (86 percent) rating it as effective in meeting organisational needs. The uncertainty from the remainder is rooted in how arrangements should be adapted to better reflect the post-restrictions workplace, or whether it needs adapting at all.

Options currently being considered by employers include changing allowances to be based on living location not work location, reviewing payments for employees who work remotely and have relocated away from the place that initially qualified for additional pay, incorporating the location element into salary, or removing the separate allowance.

Ms Atwood advises: “Transparency and consistency of any location pay changes is key, including clarity on why it is or is no longer being paid. Employers would benefit from benchmarking their location pay against the market so that it remains cost-effective and they avoid falling behind competitors.