Location-Based Pay: Pay Zones, Single Rates and Relocation Rules

Location-based pay means paying different salaries for the same job depending on where the employee works, usually by applying a percentage differential to the range of an anchor location. The alternative is location-agnostic pay, one salary for the same job everywhere, and most companies end up somewhere in between with a small number of pay zones.

This guide helps you choose between the three models, explains why cost of labour (not cost of living) should drive the differentials, walks through a worked pay-zone example, and sets out relocation rules you can copy into a policy. It also shows TalentUp data on how large city pay gaps really are in 2026: big in the UK, moderate in France, and surprisingly small in Spain.

What Is Location-Based Pay? Three Models Compared

Every multi-location employer applies one of three models, explicitly or by accident:

Location-agnostic pay can be national (one rate for all of Spain) or global (one rate for all countries). National single rates are common and often reasonable, as the data below shows for Spain. A global single rate is rare outside companies that compete for scarce talent and can afford the top-market rate everywhere.

Location-Based, Location-Agnostic or Hybrid: How to Choose

Start from your compensation philosophy: what market you want to pay against and where you want to sit in it. Then answer these questions:

Many companies mix models by job family: a single global rate for a few scarce engineering roles, and zones or local ranges for everyone else. That is legitimate as long as the rule is written down and applied to every job in the family. For remote-specific allowances and tax rules, see our guide to remote work compensation in Europe.

Cost of Labour vs Cost of Living

The most common design mistake is building differentials from a cost-of-living index. Cost of living measures what a basket of goods and housing costs in a place. Cost of labour measures what employers actually pay for a specific job there. They are related, but they are not the same thing:

The role dimension is what cost-of-living indices miss. In our UK data, an administrative assistant in Manchester is advertised about 10% below London, but a software developer about 31% below. A single cost-of-living multiplier would get at least one of those wrong. That is why differentials should be priced per job family, or at least checked against it, using market data such as TalentUp’s salary benchmarks.

How Big Are City Pay Gaps? TalentUp Data 2026

Source: TalentUp job postings database, January–September 2026. Same role, same pay period, cities proper only.

We compared advertised salaries for the same role between each country’s capital and its other large cities. For every role with at least 10 ads in both cities, we took the ratio of the two medians and averaged the ratios across roles. This removes most of the effect of different job mixes between cities.

Three patterns stand out:

• London is a real pay zone of its own. In 74–88% of the roles compared, other UK cities advertise lower pay than London.
• Paris carries a moderate premium, larger for professional roles. For some hourly roles, such as secretaries, the Paris and Lyon medians were identical.
• Spain’s big cities are almost flat. Barcelona advertises slightly more than Madrid for most roles. A plausible reason is that a large share of advertised pay in Spain clusters around collective agreement levels, which limits city differences in the roles that publish salaries most often.

City Gaps by Role

The gap depends heavily on the role. Medians are annual gross advertised salaries in EUR; percentages compare each city with the capital for the same role (n = number of ads; cells under 30 ads are not shown).

United Kingdom (vs London)

Spain (vs Madrid)

France (vs Paris)

The pattern repeats: highly mobile, professional roles show the biggest city gaps (software developers in the UK, accountants in France), while administrative and customer service roles move much less. In Barcelona and Málaga, the customer service premium partly reflects multilingual roles for international hubs, a reminder that a job title is not always the same job.

Gaps Between Countries Are Much Larger

For remote-friendly tech roles, country differences dwarf city differences:

A single global rate set at the UK level would pay a Spanish software developer more than twice the local median. That is why truly global location-agnostic pay is rare, and why cross-border pay usually needs country ranges or wide zones. For a full method, see international salary benchmarking.

How to Build Pay Zones in Six Steps

1. Choose the anchor. Usually the location where most employees sit or where you hire most, often the headquarters city. Price your salary bands there first.
2. Measure each location’s differential against the anchor for the same jobs and levels, using cost-of-labour data. Use several benchmark jobs, not one.
3. Decide the number of zones. The step between zones sets the count: with a 5-point step you get more zones and a closer fit; with a 10-point step fewer zones and simpler administration. Two to four zones are enough for most European employers.
4. Slot each location into the closest zone. For borderline locations, look at the jobs most of your people there actually do.
5. Apply the zone percentage to the whole range (minimum, midpoint and maximum), not only to the midpoint.
6. Check current employees against their new range, then plan corrections over one or two review cycles. Review differentials at least once a year.

Worked example (illustrative). A UK company anchors on London and uses the city gaps above to set three zones for professional roles:

The figures are an example, not a recommendation: software developer data above suggests a larger gap for tech roles, so this company might run steeper zones for engineering and flatter ones for support functions. A Spanish employer looking at the same data would more likely choose one national range for its big cities. Whichever you choose, balance zone pay with internal equity and watch for pay compression when new hires in a high zone overtake longer-serving staff elsewhere.

When Employees Relocate: Rules to Write Down

Relocation is where location pay policies fail most often, because the rules are improvised case by case. Decide them up front:

Red-circling is the safer option in most of Europe. In most European countries, reducing contractual pay requires the employee’s agreement or a formal contract-change procedure, so take local advice before cutting anyone’s salary. Whatever you choose, state the notice period, the effective date and how range penetration will be reviewed after the move.

Moves Across Borders

Cross-border moves add a legal floor that a pay zone cannot override:

• Host-country rules. For an employee who habitually works in another country, that country’s mandatory employment protections generally apply even if the contract chooses another law (Rome I Regulation, Article 8). That includes statutory minimum wages and applicable collective agreements.
• Posted workers. Employees sent temporarily to another EU country must receive the host country’s mandatory remuneration elements, not just its minimum wage, and after 12 months (18 with a motivated notification) almost all host-country employment terms apply (Directive 2018/957).
• Tax, social security and permanent establishment risks are often bigger than the pay question; check them before agreeing to a move.

Location Pay and the EU Pay Transparency Directive

The EU Pay Transparency Directive (2023/970) had to be transposed by 7 June 2026, and its obligations apply through national laws once transposed in each member state. It does not ban location-based pay, but it changes how you must be able to defend it:

• Objective, gender-neutral criteria. Article 4 requires pay structures that let employers assess work of equal value on criteria such as skills, effort, responsibility and working conditions, plus other factors relevant to the job. Location is not one of the four core criteria, so treat a differential as a documented market factor and apply it identically to everyone in the same job and location.
• Categories of workers. Gender pay gap reporting looks at gaps within categories of workers doing the same work or work of equal value. If location changes pay, document how location is reflected when you group and compare workers.
• Reporting and joint pay assessment. Employers with 250+ workers report yearly from 7 June 2027; 150–249 every three years from 7 June 2027; 100–149 every three years from 7 June 2031. If an unexplained gap of 5% or more in a category of workers is not remedied within six months, a joint pay assessment is required.
• Burden of proof. In pay discrimination claims, the burden shifts to the employer. A location differential that is applied case by case, or negotiated individually, is hard to defend.
• Pay ranges in job ads. Candidates will be entitled to information on the initial pay or its range. With zones, publish the range for the location of the job.

In practice: write the zone methodology down, link it to market data, apply it to every hire and move, and include location in your pay equity audit. For a wider checklist, see how HR teams can prepare for the Directive and our pay transparency resource page. To compare markets before choosing your zones, TalentUp’s European Salary Benchmark Report and plans give you city- and country-level data.

Sources

• TalentUp. Job postings database, January–September 2026: about 132,000 deduplicated employee job ads with an advertised salary, geolocated to cities in seven European countries; country comparison of software developer, DevOps and data engineer ads in nine countries (see methodology above).
• European Union. Directive (EU) 2023/970 on pay transparency. EUR-Lex.
• European Union. Directive (EU) 2018/957 amending Directive 96/71/EC concerning the posting of workers. EUR-Lex.
• European Union. Regulation (EC) No 593/2008 on the law applicable to contractual obligations (Rome I), Article 8. EUR-Lex.