21 May Do Return-to-Office Mandates Improve Company Performance?

Do Return-to-Office Mandates Improve Company Performance?

Introduction

The mandate from employers is clear: “Show up or ship out.” With layoffs on the rise and no sign of retreating from return-to-office plans, the power pendulum has swung decisively back to employers. Recent data suggests that over 90% of companies with office space plan to enforce office returns by year’s end, with a third ready to terminate non-compliant employees. But is mandating a return to the office truly in their best interest?

The Strategic Oversight

While the benefits of in-person work are almost universally touted by proponents of the return to office, this stance often overlooks significant associated costs—not just financial, but also cultural and strategic. The assumption that returning to pre-pandemic norms involves negligible cost is as outdated as the notion that brick-and-mortar stores could revert to pre-e-commerce strategies without consequence.

The Hidden Costs of RTO

1. Direct Financial Costs: An in-person job paying $60,000 is not equivalent to a remote job at the same salary when considering the out-of-pocket expenses for commuting, meals, and childcare that can sum up to over 30% of their salary.
2. Implicit Costs: Beyond dollars and cents, the commute translates into lost time—equivalent to an extra two weeks of vacation annually. This time penalty devalues the in-office job further, especially for those weighing work-life balance.

Strategic Game Theory Application

Dropbox’s cofounder and CEO Drew Houston said, “[Companies] keep mashing the go-back-to-2019 button, and they see it’s not working, then they just push harder and then you have this really toxic relationship.” So what can be done to avoid the business downfalls of toxic culture and high turnover? Like any other business decision, RTO decisions should be viewed through a comprehensive strategic lens to identify optimal strategies that consider employee preferences and market dynamics. A unilateral push to return without accommodating employee concerns is unsustainable in the long run.

Employer Solutions to Support Transition

The very real cost employees face in RTO situations must be compensated by employers who wish to remain competitive for top-tier talent with fully remote companies.

1. Flexible Work Arrangements: Offering options such as flexible days and hours helps balance work and personal life. As more employers make the bold transition to a four-day workweek, consider if this promising option may be suitable. Flexible work schedules are especially beneficial to parents trying to minimize the costs of childcare.
2. Financial Assistance Programs: Subsidizing commuting and childcare costs can offset some of the financial drawbacks of in-office work. There are numerous costs associated with returning to an office that an employer can offer assistance for. Like, in a recent study, 72% of respondents thought their work should cover the cost of parking.
3. Professional Development Opportunities: Don’t just say RTO is better for career development, prove it through mentorship programs and intentional actions
4. Employee Assistance Programs: Supporting personal and financial well-being to ease the transition. Offering access to mental health programs can help alleviate some of the stress caused by the return to office.
5. Increase Benefits to Offset Additional Costs: This could come in the form of additional paid time off, an increase in employer contributions to retirement, or any other way to help offset the added costs.

Conclusion: A Call for Strategic Reflection

Companies must consider their RTO policies from a multifaceted perspective that encompasses not only the immediate benefits, but also the broader impacts on corporate culture, employee engagement, and talent retention. An effective strategy will balance operational needs with the realities of a changed world, ensuring that the move back to the office bolsters, rather than undermines, both competitive edge and employee satisfaction.

 

Appendix: Detailed Cost Analysis

Explicit Costs of Returning to Office

According to recent findings from Owl Labs, workers are shelling out an average of $51 per day to be present in the workplace, covering expenses such as:

• Lunch ($16)
• Commuting ($14)
• Breakfast and coffee ($13)
• Parking ($8)
• For those with pets, an additional $20 per day goes toward pet care.
• For households with both parents working remotely, with companies that offer flexibility in work hours and the ability to work at separate times, a return to a hybrid setup will likely require them to enroll in childcare services. In Mecklenburg County, average weekly prices for childcare range from $169 to $309, and can get even higher.

For people with pets and kids, this could bring the annual expenses to more than $18,718 for 3-day hybrid workers.

When you consider that these expenses are paid with post-tax income, the pre-tax amounts needed to equal these numbers climb to $23,441** for 3-day hybrid workers. We will discuss this more below.

Implicit Costs of Returning to Office

Now let’s look at the implicit costs. As the saying goes, “time is money” and it’s no secret that commuting to an office takes more time than not. The chart below shows that a 3-day hybrid worker in Mecklenburg County spends just over 130 hours on the road.

Data Source: 2022 American Community Survey 1-Year for Mecklenburg County

A recent Forbes article showed that the average American worker receives 88 hours of paid time off a year. This means that a 3-day hybrid worker spends 42 hours more a year on the road than they receive in paid time off.

The second implicit cost comes in the form of employee morale. It’s no surprise that people don’t want to return to the office. According to a recent study, 99% of companies that returned to office saw a decline in employee morale. Another study has shown that not even the most desirable employers are immune to this, with companies like Apple, Microsoft, and SpaceX seeing a drop in employment following a return-to-office mandate. So, employers deciding to force workers back into an office must accept that this comes at the cost of lowering morale and potentially losing experienced workers.

While each situation is unique and not every person will have the same increase, there’s no denying that a return to the office comes with a multitude of costs that aren’t associated with working remotely. At worst it can cost a worker over $20,000, at best it can lower employee morale.

How a Return to Office Weakens an Offer of Employment

We’ve discussed the costs of returning to office work for an employee. Now let’s look at what this means for an employer, specifically, how this can hurt attracting new employees through a weakened offer.

We will use an example of a remote worker with children and pets. They are currently making $60,000 a year. With the cost breakdown from above, if they were to receive an offer from a 3-day hybrid employer, they would need to make $83,441 just to match their current salary. To experience the average 14.8% salary increase from switching jobs, they would need to receive a new salary of $92,321.

In addition to the financial costs of returning to the office, the remote worker will also lose around an hour a day from the commute.

While every situation is different, this example illustrates how the additional costs accrued from working in an office and the time wasted commuting can hurt a company wanting to attract talent, while also increasing the cost of the same work for the employer.

 

*Annual work estimated at 49 weeks.

**Average federal tax rate of 14.9% and an average state tax rate of 5.25%, for a combined average tax rate of 20.15%.

 

By: Kevin Loux, Chief Impact Officer

Ryan Nelson, Data Analyst