Can a company save money with remote work?

Remote work is known for having various benefits for employees such as better work-life balance, increased job satisfaction and more. In addition, enabling employees to work remotely and thus saving them the daily commute into the office, is beneficial for the environment by reducing greenhouse gas emissions considerably. 

But what are the actual benefits of remote work for companies - apart from happier and more productive employees? In a Gartner survey of April last year, 74 percent of CFOs questioned said they were intending to shift at least some of their workers to permanent remote work positions. Gartner Finance practice vice president describes their decision as “an opportunity to realize the cost benefits of a remote workforce”. So how do companies save money with remote employees? That’s the question we will answer in this article by looking at the costs and savings of remote work.

Providing office space, internet, electricity, water and more to have employees working on site is a big cost factor for businesses. Let’s have a look at what expenses companies can cut by allowing employees to work remotely.

Real estate, utilities and cleaning services

When companies intend to save money by going remote-first, they actually refer to cutting down on real estate costs, utility bills, office furniture etc. It is estimated that the average office space cost per employee is around $18,000 per year. Multiply this cost with the number of employees working for big companies such as Google or Apple and you will get an idea of the cost savings remote work can make possible. Also, not having employees working from company offices means not having to pay for office cleaning services either.

Food

This may only be a relatively small savings opportunity but it should still be mentioned. Having a remote workforce means not having to provide coffee, snacks or the occasional lunch or dinner, nor having to stack up on supplies for meetings. The same goes for the operation of an on-site cafeteria.

Travel expenses

It only takes one look at the average expenses of a business trip - according to Runzheimer, the cost of an average business trip in 2019 was $1,293 - to realize that having a fully remote organization can significantly reduce travel expenses. Even companies that usually don’t send their staff on business trips can save money with remote work as allowing employees to work from the comfort of their own home, thus making the daily commute unnecessary, also puts an end to travel allowances.

Until now, it looks as though the question “Do companies save money when employees work from home?” needs to be answered with yes. But if you think that all these financial benefits of allowing employees to work remotely sound too good to be true, you are not completely wrong. This is because remote work does not only lead to employers saving money but it also triggers new costs that weren’t there before.

Software, tools, data security

As promising as the prospect of sending all your employees into remote work mode sounds, it’s not as easy as that. If you want your remote team to be successful, you have to provide them with adequate software solutions and tools to facilitate effective collaboration. Other aspects to think about include: technical support for employees who are facing IT problems, sufficient data plans for employees based in areas with unreliable wifi connection, cyber security and data protection.

Remote work allowances for setting up a remote workplace

Providing your remote team with the necessary software is, however, not enough. Think about how well office spaces are usually equipped and you will soon come to the conclusion that having remote workers spend 8 hours a day sitting at their dining table is not a viable option. Well on the contrary. Remote workers also need a proper work setup, including laptops, extra monitors, ergonomic chairs and proper desks.

While it’s not mandatory to contribute to the remote work equipment costs - only few countries currently have a legislation governing the costs of remote work, for example Spain - offering remote work stipends is definitely something you might want to consider. Twitter, Facebook and Google have recently set an example by providing a flat $1,000 to cover the expenses their employees have when setting up for working remotely. Other possible remote work stipends include monthly allowances for co-working space memberships.

Until now, we’ve only looked at the immediate financial impact of remote work, both in terms of savings and expenses. However, there are other aspects to consider which only become visible in the long run.

Pay cuts due to employee relocation

Companies like Facebook, Twitter and Stripe have recently made the news announcing pay cuts for remote employees who decide to relocate to less centralized and therefore less expensive areas. While it’s possible to disagree with this strategy, the majority of employees seem willing to accept pay cuts in return for increased work flexibility. Offering remote work options as benefits to employees is a much cheaper way to keep them happy and retain talented workers than offering massive salaries.

Increased profitability thanks to higher productivity and happiness levels, reduced absenteeism and better employee retention

As mentioned before, remote work has several key benefits which include increased productivity levels, greater job satisfaction and lower turnover rates. Together with the fact that flexible work schedules reduce absence times, this means that remote work has a positive impact on a business’s profitability. 

In fact, a Gallup study shows that companies with a highly engaged - i.e. enthusiastic, happy and committed - workforce are 21 percent more profitable than those with less engaged employees. Also, as remote employees are less likely to quit their job, remote companies can significantly reduce their costs of recruiting and training new employees, as LinkedIn’s attrition cost calculator illustrates.

Larger talent pool and cheaper employment costs when hiring abroad

Running a successful business means having to build a strong team of employees who are not only committed to their work but who also have the right skill sets. Unfortunately, talent shortage has become a severe problem in many countries and regions. Organizations that rely on geographically defined talent pools lose out on huge hiring opportunities. 

In contrast, remote-first companies can tap into a global talent pool and find the perfect match for open positions without having to worry about physical distance. What’s more, having a globally distributed workforce can also lead to a significant decrease in employment costs as hiring workers in foreign countries often means lower wages and less payroll tax.

The assumption of CFOs that remote work is an efficient way to reduce costs is backed up by several studies which show that organizations that decide to go remote experience large financial benefits. For instance, calculations from Global Workplace Analytics suggest that companies can save around $11,000 per employee per year if they allow their employees to work remotely 50 percent of the time - taking into account productivity levels, lower real estate costs, reduced absenteeism and turnover. They also offer a calculation tool for companies to calculate potential remote work savings for their business. 

Meanwhile, Flexjobs estimates that US employers were saving $30 billion every day throughout the coronavirus pandemic while their employees worked remotely. And if these estimates aren’t enough, here are some examples how much real companies are currently saving thanks to remote work:

• Flexjobs says they’ve saved $5 million from remote work.

• IBM reduced real estate costs by $50 million.*

• McKesson indicates savings of $2 million a year.*

• Sun Microsystems’ real estate costs have sunk by $68 million a year.*

*Data retrieved from Global Workplace Analytics’ overview of costs and benefits of remote work.

So, coming back to our initial question of whether or not organizations can actually save money by having their employees working remotely, the answer would definitely be yes. Even after considering the additional investments needed to create an appropriate remote workplace and technological infrastructure, the savings in overhead costs are significant enough to make remote work a great option for companies who want to cut down their expenses. In addition, other known benefits of remote work such as increased employee productivity and happiness influence a company’s profitability in the long run.

Looking for a way to grow your remote team and start saving? Lano makes it easy to hire full-time and freelance talent in over 170 countries all over the world. From contractor management tools to payroll for your global team, we’ve got you covered.

Get in touch with us today and let us help you build the best remote team on the planet.