Society For Human Resource Management (SHRM) Certified Professional Practice Exam

When may geographic differential pay be offered?

1. When people are expected to work longer in certain parts of the country

2. When it costs more to access a work site in certain areas

3. When taxes are different in one place

4. All of the above

The correct answer is: All of the above

Geographic differential pay can be offered for several reasons that reflect the varying costs of living, demand for labor, and other economic factors depending on the location. Each provided choice highlights a valid reason for implementing this type of pay adjustment. When employees are expected to work longer hours in certain regions, it can create a need for additional compensation, not only to attract talent but also to reward the additional time commitment. This justifies offering extra pay in those locations. Additionally, if it costs more to access a work site in certain areas, geographic differential pay helps to offset these higher transportation or commuting expenses. This can make positions in less accessible or more expensive locations more appealing to candidates. Tax differences can also play a significant role. If employees in one area face a higher tax burden compared to another location, geographic differential pay can help to equalize the net compensation and make it more equitable across regions where living costs and tax rates differ significantly. By recognizing all these factors—longer working hours, increased access costs, and varying taxes—geographic differential pay serves as an effective tool for attracting and retaining talent based on local market conditions.