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Geographic pay differentials are the gap in pay for the same role between two locations, and for a remote team they are a business choice, not a legal requirement: no US federal rule sets salary by a worker’s home address. The laws that do reach the decision are disclosure rules, and they have teeth: Colorado’s Equal Pay for Equal Work Act has drawn 3,049 complaints and $841,500 in citation fines since January 1, 2021, per the Colorado Department of Labor and Employment’s enforcement table, updated October 2026.
Most private employers pick from three models: location-based pay anchored to each worker’s local market, pay zones that group locations into two to four bands, or one location-independent national band. The public sector often adds a fourth shape, a fixed percentage or dollar differential on top of base salary for listed locations. Whichever model you run, states with pay transparency laws, including Colorado, Washington, California and New York, put the ranges in job postings where current and future employees can read them. Setting the model is one of the first calls in hiring remote workers after headcount and budget.
How location-based pay works
| Model | How pay is set | Suits teams that |
|---|---|---|
| Location-based | Salary anchored to the local market rate for each worker’s address | Hire in a few distinct local markets and want offers that match each one |
| Pay zones | Locations grouped into two to four zones, each with its own band | Cover many locations and want less admin than per-address pricing |
| Location-independent | One national band for a role, set regardless of address | Compete for the same talent nationally and value simple, equal pay |
| Government-style differential | Base salary plus a fixed percentage or dollar amount for a listed location, the shape New York State uses | Run public-sector or unionized pay under a published schedule |
The model choice turns on the talent market you compete in, the admin cost you can carry, and the retention signal you send. Location-based pay puts every offer at the local rate, which wins candidates in expensive metros and takes the most maintenance as people move. Zones trade some of that precision for a structure a small team can actually run. A national band is the cheapest to administer and the easiest to explain, at the cost of overpaying in low-cost markets and fielding offers that lose in expensive ones.
The same choice decides where your salaries land against office pay: whether remote jobs pay more than office ones depends mostly on which model the employer picked, not on remote work itself.
However you set the model, say it out loud internally. Teams talk about pay, and a zone structure nobody has explained reads as favoritism faster than a flat national band ever does. A short policy page naming the model, the zones and how moves are handled does most of the defensive work before anyone asks.
Follow the cost of labor
The difference between cost of labor and cost of living decides a geographic pay differential. Cost of labor is what employers in a location pay for a role; cost of living is what a worker pays to live there. A pay differential follows the cost of labor, not the cost of living, because pay competes with other employers rather than with a worker’s rent. The cost of labor and the cost of living move at different times and for different reasons: a city can get more expensive while the market rate for a role stays flat, and a low-cost region can host a hot labor market that pushes wages up.
Compensation surveys publish the two as separate numbers, which is the practical shape of the split: ERI, a compensation data publisher, builds its differentials from salary survey data and reports them as a percentage difference from a base location.
Cost-of-living indexes exist and look temptingly objective, but a pay cut calculated from one tracks no market: it lowers a salary by an amount no competing employer has set. If the local rate for the role hasn’t moved, the cut saves money and hands the worker a reason to shop for a new job. Living-cost data has a narrower and safer use as a tiebreaker inside a band you already set from market pay.
Remote hiring stretches the same logic rather than breaking it. When a role can be done from anywhere, the relevant market is wherever the qualified candidates actually live, which is why location-independent bands pair naturally with national recruiting, and location-based pay pairs with hiring concentrated in a few metros. The model and the recruiting strategy have to agree, or the pay structure will contradict where the hires actually come from.
Pay transparency laws by state
| State | Effective date | Who it covers | What postings must show |
|---|---|---|---|
| Colorado | January 1, 2021 | Employers with employees in Colorado | The compensation and benefits, in every posting and internal notice, under the Equal Pay for Equal Work Act |
| Washington | January 1, 2023 | Employers with 15 or more employees | The wage scale or salary range and a general description of benefits, under RCW 49.58.110 |
| California | Amended January 1, 2026 | Employers with 15 or more employees | The pay scale, a good-faith salary or hourly wage range, in any job posting, under Labor Code section 432.3 |
| New York | September 17, 2023 | Employers with four or more employees | The compensation range for jobs performed at least partly in New York, including remote roles reporting to a New York supervisor, office or work site, under Labor Law section 194-b |
Washington’s threshold and date come from the state’s Labor and Industries bulletin on the 2023 law: employers with 15 or more employees must provide the wage scale or salary range plus benefits information in each posting.
City rules layer on top of the state ones. In New York City, every advertised job, promotion and transfer opportunity has needed a good-faith minimum and maximum salary range since November 1, 2022, under the NYC Commission on Human Rights salary transparency rules.
The ranges go public either way, which is the part that reaches your pay model: Colorado’s Equal Pay for Equal Work Act has drawn 3,049 complaints since January 1, 2021 and $841,500 in citation fines, per the CDLE enforcement table updated October 2026. Once a range is posted, your own team can compare it with every other range, so the internal bands need to be consistent before the posting goes up. Posting ranges across states is also where multi-state payroll obligations start, because the state a worker performs the job in is the state whose payroll rules apply.
How to build pay bands
Building pay bands for remote employees is a sequence you can run in a working week: anchor to one base market, price the role from real data, group locations into zones, set the spread, write the model into policy, and put the review on a calendar. Done in order, each step produces a number you can defend later.
1. Pick a base market to anchor salaries against
Anchor every band to one location’s market rates, usually your headquarters city or the talent hub you hire most from. Every other location then reads as a percentage or dollar difference from that base, which keeps comparisons consistent across the team. Changing the base later re-prices everyone, so pick one you expect to keep.
2. Price each role from survey or posting data
Price each role and level from compensation survey data, or from the posted ranges the transparency laws now publish, which cost nothing and arrive as ranges already. Record the source and date for each number, because ranges get challenged internally as often as externally. Where survey data and posted ranges disagree, the survey data reflects the whole market and the postings reflect what employers chose to advertise.
3. Group locations into two to four zones
Sort the locations you hire in into two to four zones by how differently the market pays for the same role. More zones buy precision and cost admin; two or three carry most teams a long way. Start coarse and split a zone only when you keep hitting its edges.
4. Set each zone’s band spread
Set each zone’s difference from the base band from the market data, then set the spread within the bands the same way in every zone so level progression stays comparable. A zone with a wider internal spread than its neighbors quietly becomes a different pay system. Keep the differences round enough that managers can explain them without a spreadsheet.
5. Write the model into your pay policy
Write the model, the zones and the relocation rule into your pay policy before you hire into a new zone. A written rule answers the question of why a colleague in another zone earns more, and it is what stops every move becoming a negotiation. The policy is also the document your transparency postings have to match.
6. Review the zones every year
Put the zones and their differences on a yearly review calendar, because market rates in each location move at different speeds. Zones set once and never revisited drift into overpaying some locations and underpaying others, which is the inequity the model exists to prevent. The review is also the natural moment to fold in any new state or city posting rules.
When an employee relocates
A remote employee relocation changes pay only through the model: under location-based pay, a move into a different market re-prices the role; under zones, a move across a zone boundary re-zones it; under a national band, nothing changes. The relocation pay adjustment is a policy decision made before anyone moves, not a call you make on moving day.
Put the rule in writing inside the remote work agreement each hire signs, so it travels with the contract rather than living in an HR inbox. A pay cut on a move is contract-sensitive in the US: no federal rule requires notice of a pay change, but some states do, so check the wage-notice rules in both states involved before the move date. An unannounced cut has a way of turning into a claim, and an announced one into a resignation, so timing matters as much as the figure.
A cross-border move changes the job itself rather than its price: the new country brings its own employment contract, statutory benefits, payroll and tax rules, and usually ends the old employment relationship. Cross-border moves therefore run through the same process as hiring foreign remote workers in the first place: a new contract and a payroll in the new country, not a percentage change on the old salary.
Benchmark the destination before the offer goes out, and keep moves and promotions on separate levers: a promotion moves the worker up within their zone’s band, a relocation re-zones them at the same level. What counts as competitive pay also differs widely across the best countries to hire remote workers, and a figure that looks generous against one market can sit below the floor in another.
FAQ
Yes, when the market you compete in for the role is local, and no, when you recruit the same talent nationally. The choice is a business one about which labor market sets your prices: location-based pay, pay zones and a national band each answer it differently. What is not a choice in the states above is hiding the range, because the transparency laws put it in the posting either way.
For New York State employees, it is additional compensation on top of base salary for positions in listed locations where recruitment or retention is difficult because other employers pay substantially more for similar work. The State Comptroller’s payroll manual on geographic pay differentials sets it either as a percentage of basic annual salary or as a fixed dollar amount, and it is paid separately from basic salary. Private employers borrowing the shape would call it a location premium.
It means the location pays 20% against the base location’s rate for the same role: a job that pays $100,000 at the base pays $120,000 at a location 20% above it. Survey data expresses differentials exactly that way, as a percentage difference from a base location. The base location is whatever the employer or the survey named as the anchor, which is why the figure never stands alone.
Start from the role and its level, priced against your base market, then apply your location model’s adjustment: nothing more under a national band, the zone difference under zones, the local market rate under location-based pay. That is the whole calculation: role and level first, location model second. The numbers that feed it come from survey data or from the posted ranges the state laws publish.
Geographic differentials, which adjust pay for where the work is done, and job-based differentials, which adjust pay for the work itself, such as shift, hazard or level premiums. The geographic kind is the one a remote pay model has to decide on. Job-based differentials come from the role’s demands and sit outside the location question entirely.
