Understanding economic benefits for work-from-home employees

November 20, 2020

According to Mercer’s last global survey, How are companies flexing for the future and returning to the workplace, 90% of organizations are now looking to implement their flexible working policy at a greater scale than they were prior to the pandemic. With all the focus on how, another important question is how much — Can we support a flexible or remote work environment, while also being cost conscious?

Organizations may want to consider the relationship between cost of living, the cost and benefits of working remotely, and employee compensation and get creative about their approach.

Cost containment is not a new topic but it has become a point of focus as many organizations are looking at steep budget cuts until business picks up again. More and more, we are finding that organizations are looking at creative ways to lower their costs while also keeping their workforce engaged and productive in a remote environment. That, in juxtaposition with newly remote employees asking questions about how their organization supports their new flexible work needs (e.g., phone, internet, office equipment), it can be easy to get overwhelmed finding the balance between employee support and cost containment efforts.

Due to the rise in inquiries around this double-barreled question, we think it’s important to use the “all things considered” method and assess a wide range of data points to inform compensation and benefits strategies for remote workers. So, what exactly does this mean?

Many North American organizations have built their compensation models based on talent cost in a given area, which considers cost of labor within that market. However, with the new flexible work environment, the considerations given to cost of living (which mainly focuses on housing costs) are not going to cut it, since new benefits like reducing employee commute time, adding a stipend for phone and internet, and potentially increasing employee tax benefits are all new factors to consider. The largest potential savings benefit to the employee is the reduction in time spent commuting as well as the associated cost (gas, parking, train tickets, etc.) and the potential tax benefits of working in the location of their choice.

In a recent study Mercer conducted on The Impact of Working From Home on Employee Spending, our Global Mobility research team set out to build an extended model, which would reflect potential employee savings within the framework of work from home across 11 major U.S. cities. We focused on savings per employee (not family) driven by commuting and associated costs.

Based on our analysis, we found that employees in these cities are saving between $220 and $1,000 a month, with those commuting by car having higher savings than public transport commuters. In the context of overall compensation, it is important that organizations take a close look at where their remote workforce is based and use it as a lever to inform any adjustments to their compensation model. This also might directly support cost containment efforts. For example, instead of providing additional stipends for internet and phone, there may be a case to say these costs are already accounted for in the savings employees are experiencing as a result of working from home.

As you will note below, the savings vary from city to city and take into consideration three key contributors in the goods and services spending that are associated with working in an office: food (away from home and at home), personal care, and commuting (car, rail, and public transportation) costs.

Total Monthly Savings for a Work-From-Home Employee
  Car Commuter Rail Commuter Public Transport Commuter
Atlanta -$532 No Commuter Rail -$233
Boston -$686 -$479 -$258
Chicago -$589 -$334 -$258
Dallas -$412 -$329 -$233
Houston -$410 No Commuter Rail -$220
Los Angeles -$504 -$345 -$274
Miami -$440 -$245 -$247
New York City -$999 See New York Metro -$285
New York Metro -$456 -$425 See New York City
Philadelphia -$559 -$268 -$220
Washington DC -$588 -$279 -$225

Model Assumptions:

  • All figures are expressed as monthly amounts.
  • All expenditures are for employee only, i.e., figures only apply to employee's individual spending on themselves.
  • Model developed based on the average expenditure profile of the U.S. consumer, sourced from the latest data available from the U.S. Bureau of Labor Statistics.
  • Adjustments applied to select goods and services that are directly affected by a full work from home status only and not by the COVID-19 pandemic.

You will note the highest savings opportunity is for employees who would normally be going into an office in New York City. These employees could further increase those savings by moving out of the New York City area altogether and into a neighboring county or even state to save from paying the city-specific income taxes. In other words, these savings figures are only the beginning to understanding the full potential cost savings of a remote working environment. These savings can vary but are significant, with ranges from $2,700 to as high as nearly $12,000 annually, without even considering any tax benefits that are dependent on each individual’s prior tax liability. There are certain U.S. states where this tax benefit is more pronounced than others. For example, Texas, Florida, Washington, South Dakota, Nevada, and Wyoming are all states that have chosen to forego collecting any individual state income tax.

If you are looking at your current policies and need help understanding the total employee cost in a flexible work environment, please complete this form and we will reach out to set up a time to connect. We would love the opportunity to work together to help develop a plan forward where everybody at your organization wins.