Geographic Salary: How Location-Based Pay and Pay Zones Work

Key Takeaways

• Geography-based salary, also called location-based or geographic pay, sets different pay for the same job depending on where the employee works. The most direct form takes a base salary range for the job and applies a percentage differential for each location.
• Geographic salary data comes in two kinds. Cost-of-labor data shows what employers pay for a job in a market, and cost-of-living data shows local prices. In the United States, the Bureau of Labor Statistics (BLS) publishes wages for about 830 occupations by metro area, and the Bureau of Economic Analysis (BEA) publishes price levels by state and metro area.
• Prices differ sharply inside one country. In BEA's 2024 figures, the San Francisco metro's price level is 115.6 against a national 100, and the Austin metro's is 98.1, about 15% lower. BEA says housing rents are often the main driver of these gaps.
• Pay zones group locations that share one salary range, with the top zone for the highest-cost markets. The number of zones, their labels, and their percentages are company choices, and no law sets them for private employers.
• The legal floor also moves with location. For 2026, Seattle's minimum wage is USD 21.30 an hour against the USD 7.25 federal minimum, and Vietnam's Region I minimum is VND 5,310,000 a month against VND 3,700,000 in Region IV. A location differential cannot take pay below the floor that applies.

Geography-based salary means paying people in the same role different amounts depending on where they work. A location-based pay policy sets a base range for each job, then adjusts it by a percentage, called a geographic differential, for each location or group of locations.

Differentials are built from two kinds of data. Cost-of-labor data tells you what employers pay for the job in that market. Cost-of-living data tells you what it costs to live there. This guide covers where each kind of data comes from, how pay zones group locations, the 2026 minimum wages that already differ by city and region, and what changes when an employee moves, including across a border.

What Geography-Based Salary Means in Practice

Pay policies for a distributed team come in three basic designs:

• Localized pay. Each location gets its own range, built from local market data. It tracks each market most closely and takes the most upkeep.
• Pay zones. Locations with similar labor costs share one range, and each zone is set as a percentage of the top zone. It trades some precision for a policy that is easier to run and explain.
• One rate everywhere. The same range applies wherever the employee lives. Pegging it to a high-cost market means no one earns less for living somewhere cheaper, at the price of a higher payroll everywhere else.

Reddit described a mix of these in an October 2020 post on its workforce. It said it was eliminating geographic compensation zones in the US and tying US pay to the ranges of high-cost areas such as San Francisco and New York, regardless of where employees live. Outside the US, it said it had one pay range per country. So even under a location-agnostic US policy, the country itself stayed a pay boundary.

Across countries, the salary is only one part of what a role costs. Currency, income tax, and statutory employer costs all change at the border, so the same salary costs the employer a different amount, and leaves the employee a different net amount, in each country.

Where Geographic Salary Data Comes From

Cost of labor: what employers pay for the job there

Cost-of-labor data comes from salary surveys run by compensation data providers and from government wage statistics. In the US, the BLS Occupational Employment and Wage Statistics (OEWS) program publishes employment and wage estimates for about 830 occupations, for the nation, each state, and metropolitan and nonmetropolitan areas. Its latest estimates are for May 2025, released on May 15, 2026. That makes it a free starting point for comparing what one job pays in two US metros.

Cost of labor is the data compensation teams have historically leaned on. In Culpepper's 2009 Geographic Pay Differential Practices Survey, reported by SHRM, 89% of companies with geographic pay differentials used cost-of-labor data such as salary surveys to set them, 38% used cost-of-living differentials, and only 11% used cost-of-living data as their primary source. The survey is from 2009, so read the shares as a historical marker. The distinction it draws still matters, because the two kinds of data answer different questions.

Cost of living: what things cost there

For US locations, the official measure is BEA's regional price parities (RPPs). They measure differences in price levels across states and metropolitan areas for a given year, expressed as a percentage of the overall national price level, so a metro at 110 has prices 10% above the national level. BEA's latest release, published February 19, 2026, covers 2024, and the next is scheduled for December 10, 2026.

Source: U.S. Bureau of Economic Analysis, Regional Price Parities by State and Metro Area, 2024 estimates released February 19, 2026, read September 30, 2026. The housing column is BEA's price parity for housing rents. Like the all-items column, it is measured against the national all-items price level, which is why the US figure is 100.6. The highest and lowest states are ranked on the all-items level. Metro names are BEA's, from its metro-level data file.

The gap inside one country is wide: the San Francisco metro sits about 30% above the nonmetropolitan US on overall prices, and more than three times as high on housing. Housing varies far more than the overall price level, and BEA says in its February 19, 2026 release that "housing rents are often the main driver in differences in RPPs." San Jose's overall price level is below San Francisco's, yet its housing index is the highest in the table.

A worked example: San Francisco to Austin

Take an employee moving from San Francisco to Austin. Austin's price level is 98.1 against San Francisco's 115.6, so prices there are about 15% lower (98.1 divided by 115.6 is 0.85). A policy built on cost of living would cut pay by roughly that much. A policy built on cost of labor asks what Austin employers pay for the same job, and the answer comes from wage data such as OEWS, which can show a larger or a smaller gap than prices do. Which of the two your policy uses is the first thing to write down.

RPPs compare places inside the US only. Between countries, exchange rates move on top of price differences, which is one reason to set cross-border ranges country by country.

Geographic Pay Zones: How Companies Group Locations

A pay zone is a set of locations whose labor costs are close enough to share one salary range. A zone system might label its tiers A to D, with Zone A for the highest-cost markets and each lower zone set as a percentage of Zone A. The letters, the number of zones, and the percentages are the company's own choices, and no law sets them for private employers.

This example uses round numbers we chose for illustration. They are not a benchmark. Take a Zone A range of 100,000 to 130,000 in the currency you pay in. With Zone B at 90% of Zone A, its range is 90,000 to 117,000. With Zone C at 80%, it is 80,000 to 104,000.

A zone map holds up better when a few rules are settled at the start:

• Pick the data source and say so. Assign locations from cost-of-labor data, cost-of-living data, or a stated mix of the two, and apply the same source to every location.
• Refresh on the data's own schedule. OEWS publishes once a year, and BEA revised its earlier years when it released the 2024 price parities, so a zone map built once and left alone drifts.
• Decide the edge cases in advance, such as a town that sits just outside the metro area its office belongs to, before the first request comes in.
• Keep zones inside one country. A zone map built from US metro data does not carry over to Manila or Ho Chi Minh City, where the currency, the tax rules, and the employer's statutory costs are all different.

The Legal Floor Also Changes With Location

Whatever differential a policy applies, pay cannot fall below the minimum wage that applies to the job, and in several countries that floor is itself set by place. The table shows four examples in force on September 30, 2026.

Sources, all read September 30, 2026: the US Department of Labor, federal minimum wage; the California Department of Industrial Relations, minimum wage FAQ; the Seattle Office of Labor Standards, minimum wage ordinance; Mexico's National Minimum Wage Commission (CONASAMI), 2026 minimum wages as published in the Diario Oficial de la Federación on December 9, 2025; the Government of Vietnam, Decree 293/2025/ND-CP, issued November 10, 2025, with the regional amounts as reported by the Government News portal; and the Philippines' National Wages and Productivity Commission (NWPC), summary of current regional daily minimum wage rates, as of September 2, 2026.

Three of these floors are already scheduled to move. Seattle has announced USD 22.14 an hour for 2027. In the Philippines, the National Capital Region rate rises to PHP 780 on January 20, 2027, and the BARMM range to PHP 436 to 461 on December 1, 2026. NWPC also notes that the National Capital Region wage order remains subject to ongoing court proceedings.

Two rules follow for a location-based policy. First, check the floor in every location before applying a downward differential, and include city rates in the US: California's labor department notes that some cities and counties set minimums above the state rate, and the US Department of Labor notes that where a state law gives employees greater protection, employers must comply with both. Second, check which location a country's law counts. In Vietnam, the regional minimum follows where the employer, or its branch, operates, so a branch in a Region I area applies the Region I minimum. The floor matters most for hourly and entry-level roles, where a downward differential can reach it.

Pros and Cons of Location-Based Pay

For employees

Location-based pay ties an employee's salary to the market they live in, which can feel fair to someone paid in line with local peers. The same rule means an employee who relocates to a cheaper area can see their pay reduced, and two people doing the same work in different places can earn different amounts, which the offer letter and the pay policy both need to explain.

Under a single rate, an employee living in a lower-cost area keeps a salary set for a higher-cost market, and that salary goes further where they live.

For employers

For employers, the case for location-based pay is budget. Hiring outside the highest-cost hubs lowers payroll cost for the same role and widens the pool of candidates a company can afford.

The cost is upkeep and compliance. Zones and differentials need data that is refreshed, and a policy for moves, promotions, and exceptions. Every location also brings its own employment law, and every country brings its own payroll, tax withholding, and social contributions. Where the company has no entity in a country, an Employer of Record (EOR) can act as the legal employer there.

What Happens When an Employee Moves

A geographic pay policy should answer four questions about moves before the first request arrives: whether pay changes on a move, from what date, whether a move to a higher-cost location is handled the same way as a move to a lower-cost one, and whether the company approves moves in advance. Reddit's 2020 post took one clear position: it would support remote employees who moved away from a Reddit office and would not adjust their compensation down.

A move across a border changes more than the zone. The company needs a legal way to employ the person in the new country, a payroll there, income tax withholding and social contributions under that country's rules, and a view on whether the employee's work there could create a taxable presence for the company, known as permanent establishment (PE) risk. Our guide on paying remote employees in Asia without triggering PE risk covers that last question.

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Frequently Asked Questions

What is geography-based salary?

Geography-based salary, also called location-based pay or geographic pay, is a pay policy that sets different salaries for the same job depending on where the employee works. The most direct form takes a base range for the job and applies a percentage differential for each location or pay zone. The alternative is one rate everywhere, where location does not change pay.

How do companies calculate salary based on location?

They start from a base range for the job, set a differential for each location from data, and apply it. The data is either cost of labor, meaning what employers pay for that job in that market, or cost of living, meaning local prices. For US locations, government wage data by metro area comes from the BLS OEWS program, and price levels by state and metro area come from BEA's regional price parities. The result is then checked against the local minimum wage and rounded into the zone or band the policy uses.

What is the difference between cost of labor and cost of living?

Cost of labor is what employers in a market pay for a given job. Cost of living is what it costs to live there. They answer different questions, so a pay policy should say which one it uses. In Culpepper's 2009 survey, 89% of companies with geographic pay differentials used cost-of-labor data to set them, and 11% used cost of living as their primary source.

What are geographic pay zones, such as Zone A, B, C, and D?

A pay zone is a group of locations that share one salary range. A zone system might label its tiers A to D, with Zone A for the highest-cost markets and each lower zone set as a percentage of Zone A, for example 90% for Zone B and 80% for Zone C. The letters, the number of zones, and the percentages are each company's own choice, and no law sets them for private employers.

Should stipends be adjusted by location?

It depends on what the stipend is for. A stipend meant to cover a cost, such as internet access or a coworking desk, can reasonably track local prices, the same way a cost-of-living differential does. A stipend meant as a flat perk is simpler to run as one amount. Either way, check each country's tax treatment before setting the number, because a cash allowance can count as taxable pay.

How might a salary change if an employee moves from San Francisco to Austin?

On price levels alone, Austin is about 15% cheaper: BEA's 2024 regional price parity is 98.1 for the Austin metro and 115.6 for the San Francisco metro. A policy based on cost of living would reduce pay by roughly that much. A policy based on cost of labor would use what Austin employers pay for the same job, which can differ from the price gap. Some employers do not reduce pay on a move at all: Reddit said in 2020 that it would not adjust pay down for remote staff moving away from an office.

Which minimum wage applies to a location-based salary?

The minimum set by the law that governs the job, and the rule for which location counts varies by country. In the United States, federal, state, and city minimums can apply at the same time, and employers must comply with each. In Seattle, for example, the 2026 city minimum of USD 21.30 an hour sits far above the USD 7.25 federal floor. In Vietnam, the regional minimum follows where the employer, or its branch, operates.

Is it better to pay one global salary or local rates?

A single rate is simpler to explain and removes the question of what happens when someone moves, but it costs more wherever the rate sits above the local market. Local rates track each market but need data, upkeep, and a policy for moves. Reddit's 2020 policy combined the two: one US range tied to high-cost areas such as San Francisco and New York, and one pay range per country elsewhere. Across borders, currency, tax, and statutory employer costs all change at once, which makes the country the natural unit for a pay range.

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