Geographic Pay Differential

“Geographic pay differential” refers to the practice of adjusting employee salary based on location. For organizations that employ workers in more than one location, this practice is widely used to account for variations in labor rates and to support employees’ cost of living. Approaches to determining compensation differences may include defined base pay structure by location, supplemental adjustments to base pay, or periodic individualized adjustments. Geographic pay differential may be calculated using a combination of cost of labor data, cost of living analyses, inflation data, and employment/unemployment trends; however, most companies focus on cost of labor data to determine differentials.