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In this part of our hiring remote series, you’ll get a crash course in what the cost of living is, how it’s measured, how each state ranks, and any outliers you should be aware of.
Hopefully, you have headcount and you’ll be considering hiring out of state. If that’s the case, you want to make sure you’re familiar with all of the different laws and regulations for the state that you’re hiring in. After all, it’s the state where the employee lives and works that counts, not the state where you’re based as the employer. One of the things to take into consideration when hiring remotely is the cost of living from state to state - a reasonable salary in one state may not be the same in another state, and you want to make sure you’re acting in the best financial interest of both your company and your employee.
What goes into the cost of living and the cost of living index?
Cost of living (COL) is exactly what it sounds like - it’s the average cost of maintaining an average lifestyle in any given area. The factors that make up an area’s cost of living tend to be things like housing, groceries, healthcare, transportation - things that the average person needs to spend money on to live comfortably.
While there’s no official federal cost of living index, the national average is widely accepted as a base of 100. This means that anything indexed above 100 is considered to be more expensive than the national average, while anything below 100 is considered to be cheaper than the national average.
Don’t take a state’s COL index at face value.
It’s important to remember that a state’s cost of living index is only an average. In states with large cities, there may be an extreme difference between two different areas in the same state.
If you’re going to be making an offer to someone in another state, you want to make a fair offer to your company and your prospective employee. Cost of living is a great benchmark to use when making an offer.
For example, Manhattan, New York is famously expensive for those who live there. The cost of living in Manhattan comes in at a whopping 258.3 on the cost of living index. Buffalo, New York comes in on that same index at 79.5. These cities are both in the state of New York (120.5 on the index), but a salary of $100,000 will provide a very different standard of living for individuals in these two places.
For another example of this, you can look to California. Los Altos Hills, California, is indexed at 667.9. Simi Valley, California, is indexed in 149.9. That’s an enormous difference.
Paying the same salary to someone in Manhattan as you would in Buffalo just doesn’t make sense. A three bedroom, two bathroom house right outside of New York City costs significantly more than one in Buffalo does, so unless that changes, you should pay your employees based on the cost of living for where they are.
You can use this calculator here as a guide, but use this as a barometer and not a definitive rule. As an example, this is telling you that $100,000 in New York equals $40,000 in Buffalo, that doesn’t mean you should pay your prospective employee only $40,000 - maybe meet somewhere in the middle, but you be the judge depending on what your overall offer is going to be. Use this as a weighted guide to help you make a more educated decision when putting together offers. Using this as a guide along with overtime and paid sick leave will help you to determine your fiduciary responsibility to your organization while also being fair and true to your prospective employee.
If you’re going to be hiring in a different state, especially in a large city, you should do extra research to figure out what a reasonable rate is for your employees based on where they live. It’s the best way to keep both you and them happy.
States in Order of Cost of Living Index -
50. Hawaii - 170.0
49. California - 149.9
48. Massachusetts - 127.2
47. Alaska - 125.8
46. Colorado - 121.1
45. New York - 120.5
44. New Jersey - 120.4
43. Washington - 118.7
42. Oregon - 113.1
41. Maryland - 113.0
40 Utah - 110.8
39. Rhode Island - 110.6
38. Nevada - 110.5
37. Connecticut - 107.8
36. New Hampshire - 105.4
35. Virginia - 103.7
34. Florida - 102.8
33. Delaware - 102.7
32. Arizona - 102.2
31. Wyoming - 98.1
30. Idaho - 97.7
29. Minnesota - 97.2
28. Maine - 96.5
27. Vermont - 95.2
26. Montana - 94.0
25. Texas - 93.9
24. Georgia - 93.4
23. Illinois - 93.4
22. Pennsylvania - 92.5
21. Wisconsin - 90.9
20. North Carolina - 90.6
19. North Dakota - 89.9
18. Michigan - 89.6
17. Nebraska - 89.1
16. South Carolina - 88.5
15. New Mexico - 88.4
14. South Dakota - 88.3
13. Tennessee - 87.6
12. Louisiana - 86.9
11. Missouri - 85.9
10. Iowa - 83.7
9. Oklahoma - 83.7
8. Kentucky - 83.6
7. Kansas - 83.1
6. Alabama - 82.3
5. Ohio - 82.6
4. Indiana - 82.1
3. Mississippi - 81.1
2. Arkansas - 79.0
1. West Virginia - 78.1
It might not be a state, but it’s still something you should consider.
While Washington D.C. technically is still not a state, it is still a bustling metropolis with great opportunities and great working professionals. It also falls on the cost of living index at 152.1, which falls below only one state - Hawaii (170.0). It’s definitely worth considering the high cost of living that you’ll find in D.C. if you’re looking to hire someone in that area.
Doing your research on the cost of living in each area is the best way to ensure that you get the most bang for your buck when hiring as well as ensuring that whomever you hire gets an offer that will keep them happy and working for your company for as long as you’d like them to stay.