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Latest NewsPay & benefitsPay structures

Future of location pay remains uncertain, says XpertHR

by Jo Faragher 23 Feb 2022
by Jo Faragher 23 Feb 2022 The most common location allowance is a London weighting on top of basic salary
Shutterstock
The most common location allowance is a London weighting on top of basic salary
Shutterstock

Almost half of UK employers are unsure about whether to offer location-based pay in the future, according to XpertHR.

Although location pay is offered by more than half (55%) of the organisations XpertHR surveyed, 44% are uncertain whether this will continue thanks to the shifts in working practices brought about by the pandemic.

The most common form of location-based pay is a London allowance on top of basic pay to account for the higher cost of living in the capital. This is offered by 40% of organisations. Just over a third (36.1%) work on national location-based pay scales depending on where employees are.

The median London weighting payment for inner London employees is £3,775, and £3,250 for outer London. Other common locations for standalone allowances tend to be located in south-east England, such as Reading and Guildford.

Two-thirds of organisations offer location pay in high salary areas because they believe it keeps salaries competitive and helps to recruit staff. One in 10 said they used it to “push down pay bill costs in areas where salaries are lower”.

Location pay

Location pay: XpertHR survey 2022

London weighting contract clause

Despite the move to more remote and hybrid working over the past two years, 79% of companies have made no changes to their location pay. Almost nine in 10 (86%) believe it to be effective in meeting organisational need.

The other 14% are considering how to adapt arrangements to reflect new workplace practices now restrictions are being eased.

Other options include changing allowances so they’re not based on location, reviewing payments for employees who work remotely, and looking at how to support people who have relocated during the pandemic.

Sheila Attwood, pay and reward editor at XpertHR, 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.

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“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.”

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Jo Faragher

Jo Faragher has been an employment and business journalist for 20 years. She regularly contributes to Personnel Today and writes features for a number of national business and membership magazines. Jo is also the author of 'Good Work, Great Technology', published in 2022 by Clink Street Publishing, charting the relationship between effective workplace technology and productive and happy employees. She won the Willis Towers Watson HR journalist of the year award in 2015 and has been highly commended twice.

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