Sample Geographic Pay Differentials Policy

Sample_Documents

DISCLAIMER: This is a sample template provided for informational purposes only. It does not constitute legal, tax, or financial advice. Organizations should consult their own legal and tax advisors and tailor this document to reflect their specific business needs, geographies, and applicable laws.

Document Header

Document Title	Document Type	Category	Organization	Version	Effective Date	Supersedes	Next Scheduled Review	Owner	Approvers
Geographic Pay Differentials Policy	Policy	Base Compensation	<Company Name>	<Version Number>	<Effective Date>	<Prior Version and Date>	<Review Month and Year> or annually	Total Rewards, <Company Name>	CHRO, CFO, Head of Total Rewards, Legal Counsel

Purpose and Objectives

Establish a consistent, equitable, and market-aligned approach to administering pay based on employee work location.
Ensure base pay reflects relevant labor market differences in cost of labor across geographies where <Company Name> operates.
Provide clear rules for new hires, transfers, relocations, remote work changes, temporary assignments, and promotions or demotions.
Support pay equity, regulatory compliance, and prudent financial stewardship.
Enable agility in hiring and retention by defining a transparent differential schedule and review process.

Scope and Applicability

In Scope

Regular employees (full-time and part-time) of <Company Name> whose pay is administered on salary ranges and job architecture overseen by Total Rewards.
Roles benchmarked to external market data, including individual contributor and management positions.
Base salary administration and geographic differentials applied to base pay, with related guidance for allowances where applicable.
Locations across <Country> and other countries where <Company Name> has established entities or hires employees directly.

Out of Scope

Contractors, consultants, agency workers, and interns paid under separate agreements.
Union-represented employees where a collective bargaining agreement governs pay.
Executive compensation programs covered by separate policies.
Sales incentive plans and commission structures, except where base pay is explicitly referenced.
Employer of Record arrangements administered by <Vendor Name> unless explicitly opted into this policy.

Applicability

This policy applies to all in-scope employees hired, transferred, or whose work location changes on or after <Effective Date>.
Existing employees may transition to the new schedule under the migration guidelines in this policy or at the next annual review cycle.

Policy Statement

<Company Name> pegs base salary to the labor market of the employee’s official work location. Geographic pay differentials are used to adjust base pay to market where justified by reliable external data.
Differentials are determined using a structured zoning approach and applied consistently by job level and family.
Any change to an employee’s official work location may result in a pay adjustment according to this policy, subject to legal considerations, notice requirements, and equity impacts.
Pay will not be reduced below the local minimum of the assigned salary range. Pay decreases due to location changes follow the rules in this document and applicable law.

Guiding Principles

Market based: Set and maintain pay using reputable market data sources reflecting cost of labor, not cost of living.
Equity: Apply rules consistently, monitor outcomes for adverse impact, and remediate disparities.
Simplicity: Use a manageable number of zones and rules that are easy to administer and explain.
Transparency: Make the methodology and differential schedule accessible to managers and employees.
Compliance: Adhere to wage and hour, pay transparency, and anti-discrimination laws in all jurisdictions.
Fiscal responsibility: Balance competitiveness with financial sustainability and budget controls.
Stability with agility: Update differentials on a predictable cadence while allowing mid-cycle updates for material market shifts.

Definitions

Official Work Location: The location designated by <Company Name> that determines an employee’s applicable salary range and differential.
Cost of Labor: The prevailing market rate for talent in a given geography for specific jobs, levels, and industries.
Geographic Pay Differential: A percentage adjustment to the national or reference salary structure to align pay to local market rates.
Zone: A grouping of locations with similar cost-of-labor characteristics to which a common differential applies.
Reference Market: The baseline market (e.g., national median) to which differentials are applied.
Compa-Ratio: The ratio of an employee’s pay to the midpoint of the assigned range.
Temporary Assignment: A short-term work arrangement in a location different from the official work location that does not change the employee’s salary range.

Methodology for Determining Geographic Differentials

Data Sources

Use at least two reputable market compensation surveys (e.g., <Vendor Name 1>, <Vendor Name 2>) covering the jobs and locations relevant to <Company Name>.
Prioritize industry-relevant and size-relevant data cuts (e.g., technology, <Revenue Range>, headcount <Number>).
Use weighted medians across surveys to dampen volatility and ensure comparability.

Reference Market and Anchors

Reference market is the <Country> national median, unless otherwise defined by <Company Name>.
For global roles, the reference may be the country-level market in which the employee is employed.
For hard-to-recruit roles, market premiums may be handled via job-specific ranges rather than geographic differentials.

Zoning Approach

Group locations into discrete zones based on a location factor index derived from survey data.
Target 4 to 7 zones to balance precision with simplicity.
Use standard deviation bands or quantiles of the location factor distribution to assign zones.
Refrain from city-by-city micromanagement if a metropolitan statistical area grouping is sufficient.

Location Factor Calculation

Calculate a location factor as the ratio of the local market midpoint to the reference market midpoint for a representative job basket aligned to <Company Name>’s workforce.
Basket includes core roles across job families and levels, weighted by internal incumbency for relevance.
Differential percentage equals location factor minus 1 (e.g., factor 1.15 equals +15 percent).

Cadence and Thresholds

Refresh differentials annually with the broader salary range update cycle in <Month>.
Consider mid-cycle adjustments if a location factor shifts by more than <Percentage> (e.g., 5 percent) across the job basket or due to material changes (e.g., law, macroeconomics).
Apply rounding rules (e.g., to nearest 1 percent) to avoid over-precision.

Governance of Data and Decisions

Total Rewards owns methodology, calculations, and recommendations.
Finance validates budget impact; Legal reviews compliance risks; HRBPs align on change management.
Approvals follow the matrix in the Governance section.

Geographic Differential Schedule (Illustrative)

Replace illustrative data with <Company Name>-specific schedule before publishing.

Zone	Location Criteria (Illustrative)	Differential vs. National	Example Locations
Zone A	Location factor 1.15 and above	+15 percent	<High-Cost Metro 1>, <High-Cost Metro 2>
Zone B	Location factor 1.06 to 1.14	+8 percent	<Metro 3>, <Metro 4>
Zone C	Location factor 0.97 to 1.05	0 percent	National median areas, <Metro 5>
Zone D	Location factor 0.90 to 0.96	-5 percent	<Regional City 1>, <Regional City 2>
Zone E	Location factor below 0.90	-10 percent	<Rural Area 1>, <Rural Area 2>

Country Variations

For multi-country operations, establish a separate zone schedule per country using that country’s reference market.
Cross-country comparisons should not be used to set differentials across borders due to currency, statutory, and market structure differences.

Work Location Determination

Official work location is the address specified in the offer letter or transfer letter, aligned to an approved <Company Name> site or a remote-eligible location approved by HR.
Hybrid employees default to the designated hub if they are expected to commute there on a regular cadence (e.g., at least <Number> days per month).
Fully remote employees’ official work location is their home address if remote work is approved in that jurisdiction.
Employees must notify HR and obtain approval prior to moving to a different jurisdiction that could affect pay, taxes, or benefits.
Total Rewards validates location and assigns the appropriate zone prior to any pay adjustment.

Eligibility and Exclusions

Eligible for Geographic Differentials

All in-scope salaried and hourly employees whose base pay is set using <Company Name> salary structures.
Newly hired employees, internal transfers, and employees who change official work location.

Not Eligible or Special Handling

Temporary interns, contractors, and consultants.
Employees on short-term temporary assignments under the threshold defined below.
Roles compensated under location-specific collective agreements.
Sales roles where base differential is embedded in plan design; refer to Sales Compensation Governance for details.

Pay Administration Rules

Salary Structures and Midpoints

Each job family and level has a salary range tied to the reference market. Geographic differentials are applied to the midpoint and range minimum/maximum.
Example: If the national midpoint is <Amount> and Zone B is +8 percent, the Zone B midpoint is <Amount> x 1.08. Range width remains constant unless otherwise approved.
Maintain employee compa-ratio relative to the new midpoint when moving between zones, subject to range minimum and maximum.

New Hires

Offers are extended using the zone aligned to the official work location stated in the offer letter.
Managers may not offer outside the approved differential without exception approval.
Offer ranges should reflect the zone-adjusted salary range and internal equity.

Transfers and Relocations (Same Country)

Pay is recalculated based on the destination zone effective on the transfer date or the start date at the new location, whichever is later.
Increases for moves to higher-cost zones are effective on move date; decreases follow the Decreases section below.

Remote Moves Initiated by Employee

Employee-initiated moves to a lower-cost zone may result in a pay decrease.
Employee-initiated moves to a higher-cost zone may result in a pay increase if role remains unchanged and work continues from the new location.
Moves require prior written approval from the manager, HR, and Legal to ensure compliance with employment, tax, and work authorization laws.

Temporary Assignments and Travel

No change to official work location or base pay for temporary assignments lasting up to <Number> days in a rolling <Number>-day period.
For longer temporary assignments, consider a temporary allowance instead of adjusting base pay, in alignment with Mobility policy.
Travel per diems and expense reimbursement follow <Company Name> Travel and Expense Policy.

Promotions and Demotions

Apply the location differential of the future official work location in conjunction with the promotion or demotion guidelines.
When both a promotion and a location change occur, reprice first to the new zone midpoint, then apply promotional increase guidelines.

Merit and Market Adjustments

Annual merit increases are calculated from the zone-adjusted base pay and ranges.
Market adjustments may be used to address compression or attraction risks but must not circumvent the zone schedule.

Pay Decreases and Notice Requirements

For moves to lower-cost zones, pay may be decreased to maintain the same compa-ratio within the new range, not to exceed a reduction of <Percentage> in a 12-month period unless otherwise required or permitted by law.
Provide at least <Number> days written notice prior to any pay decrease, and comply with state or country-specific notice rules.
Pay is never reduced below the minimum of the new zone’s salary range for the role and level.

Leaves and Extended Remote Work Outside Official Location

Periods of remote work beyond <Number> days from a non-approved jurisdiction may trigger a location review and differential change or require cessation of remote work.
Extended leave does not change base pay or official work location unless explicitly agreed in writing.

Cross-Border and International Considerations

Cross-border moves generally require a new employment contract under the destination country’s entity and salary structures.
Do not apply domestic zone differentials across countries. Set pay using the local country market data and currency.
Consider exchange rates, inflation, statutory benefits, and employer on-costs when modeling cross-border offers.
International assignments follow the Mobility policy (e.g., home-based balance sheet or host-based approach) and may not use zone differentials.

Equity, Compliance, and Risk

Conduct pre- and post-change equity analyses to assess potential disparate impact by protected class, job family, and level.
Follow pay transparency laws requiring disclosure of pay ranges and geographic factors in job postings where applicable.
Maintain documentation of methodology, data sources, approvals, and employee communications for audit purposes.
Adhere to minimum wage, salary threshold, and overtime rules in each jurisdiction.
Apply differentials consistently and avoid ad-hoc one-off adjustments outside the governance process.

Roles and Responsibilities

Total Rewards
- Owns methodology, data sourcing, zoning, salary structure alignment, and policy maintenance.
- Provides guidance, tools, and calculators to HR and managers.
HR Business Partners
- Advise managers on policy application and change management.
- Escalate complex cases to Total Rewards and Legal.
Managers
- Initiate requests for hires, moves, and exceptions.
- Communicate outcomes to employees in collaboration with HR.
Payroll and HRIS
- Configure location codes, ranges, and differential logic in systems.
- Validate effective dates and ensure accurate pay calculation and taxation.
Legal and Compliance
- Review policy for legal risks and country-specific constraints.
- Advise on notice requirements and employment law implications.
Finance
- Review budget impacts, approve significant cost changes, and support forecasting.
Employees
- Seek approval before relocating and keep HR informed of address changes.
- Review and acknowledge pay change communications.

Implementation Guidelines for HR and Managers

Standard Process Flow

Confirm the employee’s proposed official work location and whether the jurisdiction is approved by <Company Name>.
Determine the applicable zone using the current Geographic Differential Schedule.
Retrieve the salary range for the role and level at the new zone (minimum, midpoint, maximum).
Calculate the target compa-ratio based on the employee’s current compa-ratio or per promotion/demotion rules.
Reprice the employee’s base pay to maintain the target compa-ratio within the new zone range.
Validate outcomes against minimum and maximum of the new range and apply caps or floors as required.
Assess equity impacts and internal alignment with similarly situated employees in the new zone.
Secure approvals per the Governance matrix.
Communicate the change to the employee in writing, including effective date, rationale, and new range.
Update HRIS, payroll, cost center, and reporting; schedule follow-up checks after the first payroll.

Example Calculation Steps (Illustrative)

Item	Value
Current zone and range midpoint	Zone C, midpoint <Amount>
Current compa-ratio	0.95
Destination zone and differential	Zone B, +8 percent
Destination zone midpoint	<Amount> x 1.08
Target pay	Destination midpoint x 0.95
Apply range min/max	Adjust to min if below; cap if above

Tools and Controls

Use the <Company Name> Geo Pay Calculator in <System Name> to reduce manual error.
Maintain an authoritative location-to-zone mapping file updated annually by Total Rewards.
Implement HRIS validations that block transactions missing zone assignments or approvals.

Systems, Payroll, and Reporting

HRIS Configuration
- Store official work location and zone as master data elements effective-dated.
- Tie salary ranges to zone via structure codes for automated range selection.
Payroll
- Validate jurisdictional taxes align with official work location.
- Prorate pay for mid-period effective dates according to payroll policy.
Reporting
- Provide quarterly dashboards on headcount by zone, total cash impact, and equity indicators.
- Enable job posting integrations that display zone-adjusted ranges where required by law.

Governance, Exceptions, and Approvals

Standard Approvals

Scenario	Required Approvers
New hire within zone range	Manager, HRBP
New hire above range midpoint or scarce skill premium	Manager, HRBP, Total Rewards
Location change with pay decrease	Manager, HRBP, Total Rewards, Legal (as required)
Exception to zone or differential	Manager, HRBP, Total Rewards, Finance, CHRO
Mid-cycle zone schedule change	Total Rewards, Finance, Legal, CHRO

Exception Handling

Exceptions must include documented business rationale, data support, and duration (temporary or permanent).
Temporary exceptions should include a sunset date and review plan.
All exceptions are logged by Total Rewards for audit and trend analysis.

Notice and Documentation

Provide written notice of any pay change at least <Number> days in advance, including the effective date, new pay, and applicable range.
Maintain signed acknowledgments where legally permissible.
Store documentation in the employee’s personnel file and in the case management system.

Review Cycle and Document Control

Effective Date: <Effective Date>
Scheduled Review: Annually in <Month> or earlier if market conditions materially change.
Owner: Head of Total Rewards at <Company Name>
Change Log: Total Rewards maintains a version history with a summary of updates and approvals.
Sunset of Prior Policies: This policy supersedes prior geographic pay policies as of the effective date.

Risk Management and Compliance Considerations

Legal Compliance
- Confirm that pay reductions and notice periods comply with local employment laws, including wage notice requirements.
- Verify compliance with pay transparency laws for job postings and internal communications by jurisdiction.
Data Integrity
- Validate survey data relevance, currency, and sample sizes; avoid single-source dependence.
- Apply consistent methodology to prevent manipulation or bias.
Equity Monitoring
- Quarterly audits for pay equity across protected classes; remediate as needed.
- Review geographic patterns for unintended adverse impact.
Operational Risks
- Control remote work approvals to avoid creating payroll nexus or permanent establishment in new jurisdictions.
- Ensure immigration and right-to-work considerations are handled before location changes.

Migration and Transition Rules

Incumbents as of <Date> retain current base pay unless the new schedule places them below the new minimum or above the maximum.
Bring-to-minimum adjustments for below-minimum cases occur on the effective date of the new schedule.
Red-circle pay above maximum is frozen except for structural increases or promotions, subject to policy.
Gradual Adjustment Option
- Where pay decreases would exceed the annual cap, phase in over successive review cycles.
- Communicate the schedule and rationale clearly to affected employees.

Budgeting and Forecasting

Annual workforce budget incorporates expected zone mix and growth assumptions reviewed with Finance.
Hiring plans specify headcount by zone and anticipated average differential.
Sensitivity analyses model headcount shifts across zones and the impact of mid-cycle schedule updates.

Audit and Metrics

Key metrics include percentage of workforce by zone, average compa-ratio by zone, variance to market, exception rate, and equity indicators.
Internal Audit may review adherence to approvals, documentation, and system configurations annually.
Findings and action plans are tracked to closure by Total Rewards.

Glossary

Balance Sheet Approach: An expatriate compensation method maintaining home-country purchasing power.
Differential Cap: Maximum permitted decrease or increase due to location change within a defined period.
Location Index: Numerical factor indicating relative cost of labor for a location compared to reference.
Red-Circle: Pay that exceeds the maximum of the range and is frozen until aligned.
Reference Market: Baseline market used to price ranges and calculate differentials.
Zone Schedule: The set of geographic groupings and associated differential percentages.

Appendices

Appendix A: Illustrative Zone Mapping Snippet

Replace with <Company Name> authoritative mapping.

City or County	State/Province	Country	Zone	Notes
<City 1>	<State 1>	<Country 1>	Zone A	High-cost metro core
<City 2>	<State 2>	<Country 1>	Zone C	National median area
<City 3>	<State 3>	<Country 1>	Zone E	Rural/low cost

Appendix B: Decision Tree for Location Changes (Textual)

Is the move within the same country and an approved jurisdiction
If yes, does the move change the zone assignment
If zone increases, reprice to maintain compa-ratio in new zone and process increase on move date
If zone decreases, follow decrease cap and notice requirements
If no zone change, confirm no pay change; update address and taxes
If move is cross-border, engage Mobility, Legal, and Total Rewards; reoffer under local entity
If temporary and under threshold days, no pay change; consider temporary allowance if needed

Appendix C: Sample Employee Communication Notice (Template)

Subject: Update to Your Base Pay Due to Work Location Change
Effective Date: <Date>
Summary: Your official work location will change to <New Location>, which aligns to Zone <Zone>. Your salary range for your role and level in this zone is <Min> to <Max> with a midpoint of <Mid>. Based on our Geographic Pay Differentials Policy, your new base pay will be <Amount> effective <Date>.
Additional Information: This change reflects market differences in the cost of labor for your role. Your benefits, title, and duties remain unchanged unless otherwise specified. Please contact <HR Contact> with questions.

Communication to Employees and Managers

This section is intended to be shared with employees and managers. It explains the policy in plain language and how it affects you.

At <Company Name>, we want our pay to be competitive and fair in every place we work. Labor markets vary across cities and regions. A salary that is competitive in one location may be above or below market in another. To keep pay aligned with local markets, we use geographic pay differentials. These differentials adjust base salaries up or down relative to a national or country baseline depending on the cost of labor in your official work location.

What does that mean for you If you are hired into or move to a higher-cost area, your pay may increase to reflect that market. If you move to a lower-cost area, your pay may decrease. We apply these changes using a standard schedule of zones. Each zone groups locations with similar market rates and has a set percentage adjustment. For example, our highest-cost zone (Zone A) carries a larger upward adjustment than our national baseline zone (Zone C). Our lowest-cost zone (Zone E) carries a downward adjustment.

Your official work location is the address in your offer or transfer letter. If you regularly commute to an office on a hybrid schedule, the office location is typically your official work location. Fully remote employees may have their home address as their official work location if remote work is approved in that jurisdiction. If you are thinking about moving, please talk with your manager and HR before making plans. Some locations are not approved for employment due to legal, tax, or business constraints.

Here is what to expect in common situations:

New hire offers. We will quote your base salary using the zone for your official work location. We will also share the salary range for your role in that zone when required by law and, where possible, as part of our commitment to transparency.
Employee-initiated moves. If you plan to move, we will check whether your new address changes your zone. If it does, we will explain how your pay would change and when. We comply with notice requirements and will not reduce pay below the minimum of the new salary range.
Company-initiated moves. If we ask you to move for business reasons, we will apply the zone for the new location. In some cases, we may offer temporary allowances or relocation support according to our Mobility policy.
Temporary assignments. Short-term travel or temporary work in another location usually does not change your base pay. If you expect to work away from your official location for an extended period, we will review whether a different approach is needed.
Promotions. If you are promoted and move locations at the same time, we will first align your pay to the new location’s market and then apply promotion guidelines.

We strive for fairness and consistency. We use independent market data to define our zones and update them regularly. We also monitor outcomes to make sure our practices support pay equity. We will communicate any changes that affect you in writing, including your effective date, new base pay, and the salary range for your role in your zone. If your jurisdiction has pay transparency rules, we will follow them.

If you have questions about your pay, your zone, or a potential move, please reach out to your manager or <HR Contact>. We are here to help you understand how the policy works and what it means for you. Our goal is to give you clarity before decisions are made, so you can plan with confidence.

Important reminders:

Tell us before you move. Some locations are not approved for employment. A move without approval can create legal and tax issues and may affect your ability to work for <Company Name>.
Keep your address current. Your address in our HR system must reflect where you actually work.
Understand the timeline. Pay changes related to location generally take effect on your move date, with appropriate notice for decreases.

Thank you for helping us keep our pay practices fair, transparent, and market-aligned across all the places we work.

Document Information:

Document Type: Geographic Pay Differentials Policy
Category: Base Compensation
Generated: August 24, 2025
Status: Sample Template
Next Review: <Insert Review Date>

Usage Instructions:

Replace all text in angle brackets < > with your company-specific information
Review all sections for applicability to your organization
Customize content to reflect your company's policies and local regulations
Have legal and HR leadership review before implementation
Update document header with your company's version control information
At bottom of the document you find a short example on how the content could be communicated to end-users, for instance employees.

This sample document is provided for reference only and should be customized to meet your organization's specific needs and local legal requirements.