Cost Benefits of Work From Home Arrangements

Cost Benefits of Work From Home Arrangements

The advantages of telecommuting are multifold. These include providing individuals a better opportunity to achieve work-life balance, enabling organizations to mitigate better the risks related to calamities, and helping lessen the environmental impacts of day-to-day business operations. However, one of the most notable benefits of work from home arrangements and other similar remote work setups centers on associated cost savings.

Both employees or individual professionals and organizations or employers can save financial resources by building capabilities that would allow them to lessen or completely eliminate the need for face-to-face interactions, as well as the need for reporting in a worksite or a traditional brick-and-mortar workplace. The cost savings from remote work arrangements can become an integral part of personal and organizational financial management strategies.

Cost Benefits of Work From Home Arrangements for Individuals

Regular Commute or Transportation Expenses

Research conducted by real estate services provider Clever revealed that Americans spend more than USD 16 billion a year on commuting. For those who regularly use vehicles to report to work, each of them spends USD 1249 annually on fuel and vehicle maintenance expenses. This estimation is based on the average work-related travel distance of 23 miles per day.

However, commuting also has an opportunity cost due to the time spent on the road that could be otherwise channeled toward income-earning activities. The same research showed that the average individual spends more than 200 hours traveling to and from work. The opportunity cost of this lost time is estimated to be about USD 5200 per year.

Clever generated these figures based on an analysis of data from the American Community Survey of the U.S. Census Bureau, Bureau of Labor Statistics, U.S. Department of Transportation, County Health Rankings and Roadmaps, and the Boston-based technology company and file price information provider GasBuddy.

The average individual who works from home can save and generate around USD 6300 per year. Note that this value can be either higher or lower. A longer distance between the workplace and residence translates to higher work-related transportation costs. It is also important to factor in the health implications of long commutes.

Coffee and Other Food Items Purchases

Purchases related to foot items comprise a considerable portion of the total living expenditures of an individual or a particular household. Of course, when it comes to these purchases, it is also important to take into consideration the difference between expenses for household food items such as groceries or pantry supplies and takeout meals, and expenses for dine-outs.

Those who travel and report to a workplace incur expenses from buying food and other related items outside. The 2012 “Workonomix” survey from Accounting Principals, an accounting and finance staffing services provider, showed that 50 percent of their respondents spent USD 1000 a year on coffee and 66 percent spent nearly USD 2000 a year buying their lunch.

Note that the composition of the survey respondents was intended to paint a real-world picture of how much American workers spend on food during their workweek. Based on the aforesaid results, the average individual spends around USD 3000 per year. Of course, this value might be higher or lower depending on the location or country.

Traditional work arrangement undeniably has added out-of-pocket costs to individuals. Note that food purchases on a given day can be minimal. A cup of coffee can costs around USD 5. Most individuals would not be able to monitor these expenditures because they are only spending a few dollars at a time. However, small but consistent expenses will add up over time.

Wardrobe and Regular Haircut Expenses

Reporting and appearing to a workplace require wearing proper attire. Some industries and sectors have company-provided uniforms while other employers provide their employees with a clothing allowance. However, in most cases, including in white-collar or desk-based jobs, expenses for wardrobes come directly from the pockets of employees.

Depending on the particular nature of work, female employees need to have an allocated budget for dresses and shoes, as well as for bags. Males also need to spend money on business attire or smart casual attire. Regular shopping for wardrobe is not a necessity. Some can go on with their professional lives wearing the same apparel all through the year.

Clothing items have some longevity. Some can last for years. But they are still subjected to wear and tear. Those who are conscious about their appearance, especially client-facing professionals or those in high-profile corporate roles, are often compelled to have a variety of apparels. Others are simply enticed and lured to purchase new clothing items.

Aside from wardrobe expenses, there are other expenses needed to maintain a presentable appearance. These include regular haircuts, makeup or cosmetics, and other personal care products. There is some pressure to look good whenever an individual has to report to work. Telecommuting or remote work has less of this pressure.

Possible Tax Reduction and Other Implications

Another cost benefit of working from home is the possible savings from taxes. In the United States, depending on the work status of an individual, they can write off a portion of their office for a tax break. Tax deduction is based on the percentage of the home office square footage and home-related expenses such as rent, repairs, and insurance.

Those who do freelance or work as independent contractors can also include several components of their home-related expenses to include phone bill, internet service expenses, other utilities such as electricity and water supply, and the purchase of work-related tools such as computers and workstation items in their tax declaration.

Freelancers are also entitled to include expenses related to professional development, advertising and marketing, business travel expenses, membership dues for professional organizations, health and life insurance, and accountant fees, among others, in their tax deduction declaration. These expenses collectively represent business-related expenses.

Cost Benefits of Work From Home Arrangements for Organizations

Reduced Cost from Lesser Real Estate Footprint

One of the primary cost benefits of work from home or telecommuting arrangements to organizations is the cost savings from a reduced real estate footprint. Remote work capabilities can be a source of competitive advantage. Startups can take advantage of telecommuting to channel their financial resources in other mission-critical expenditures.

Setting up and maintaining a worksite can be costly. Note that the average office price per square foot in Kansas City is around USD 1.5.60. Jersey City has a USD 50.00 average office space cost per square foot. The cost can be higher in prime locations and cities. Note that the average office space cost in Manhattan is around USD 77 per square foot.

A 2009 paper from the Wharton School, University of Pennsylvania showed that 25 percent of corporate assets are invested in real estate, which represents 5 to 8 percent of gross sales or 40 to 50 percent of net income. These assets are used primarily to house the workforce. The bulk of the expenses come from rents and other expenditures needed to maintain the facilities.

Specific Cost Savings of Organizations from Telecommuting

Global Work Analytics also showed that the average employer can reduce USD 11,000 in costs per employee per year for every person who works remotely half of the time, and USD 10,000 per worker per year in real estate costs alone. Take note that there are other estimates to indicate how much organizations can save from telecommuting.

A 2014 article from The Carbon Trust, a business-led publicly-funded organization that provides advisory roles to the government and business organizations, produced estimates based on different office types and three geographic locations: Cardiff City in the United Kingdom, Manchester in New York, and London in the United Kingdom.

Naturally ventilated and cellular workspaces can save organizations in Cardiff about GBP 100,000 per year. Those who have naturally ventilated and open-plan offices located in Manchester can save GBP 121,000 annually. On the other hand, those who have air-conditioned and standard office plans in London can have a yearly savings of up to GBP 195,000.

The cost savings from not having to maintain an office space or a large workspace represent reduced expenditures from the cost of office space rentals, as well as the use of utilities, including expenses for communication equipment and services, facilities and upkeep, and climate control tools and bills, among others.

More Efficient Human Resource Strategy and Capability

Remote work allows organizations to capitalize on the advantages of outsourcing to include cost reduction in recruitment and hiring activities while accessing a larger talent pool due to the absence of geographic constraints. Recruitment and hiring personnel have cost implications due to the need to deploy specific recruitment strategies and tactics.

Employers are fundamentally competing for talents. Some of them resort to offering higher compensation in an attempt to outcompete other employers in certain areas with a limited pool of workers. Access to a larger pool of workers due to the absence of geographic constraints allows organizations to provide the most cost-effective compensation package.

These organizations can also hire employees from other countries in which labor is cheaper. Furthermore, they can also opt to contract freelancers or independent contractors instead of regular employees. Outsourcing freelancers are considerably inexpesnive because there is no need for organizations to offer legally mandated employment benefits.

Cost Implications of Work From Home Arrangements for Individuals and Organizations

Working from home can be costly for individuals. Those who do not have suitable equipment would need to purchase computer systems and required workstations. Some might need to upgrade their internet services to run bandwidth-intensive applications. These costs are almost always true for freelances or independent contractors.

Home energy consumption can also increase home-related expenses. Consumption from computers or technology-enabled tools is minimal. According to a report by The Carbon Trust, the majority of electricity consumption comes from the climate control requirements of home-based professionals such as heating and air-conditioning.

A 2020 survey by revealed the cost implication of work-from-home trends due to the COVID-19 pandemic. Results showed that American households spent about USD 108 more per month. Some of these expenses come from higher utility costs, while others come from purchasing non-necessity items such as online purchases.

For organizations, they need to build capabilities to enable a substantial portion or the entirety of their workforce to telecommute. These entail investing in technological infrastructures, including the purchase of technological tools and applications, as well as the deployment of relevant information technology and information systems resources.

Video conferencing platforms such as Zoom Cloud Meetings, Google Meet, and Microsoft Teams have initial costs of around USD 150 per year. Adding to this is the need to subscribe to information systems platforms, as well as cloud computing services or purchase infrastructure for cloud computing capabilities with a total initial cost of around USD 100 per month.

A 2020 report by the Dai-ichi Life Research Institute concluded that work from home arrangements would cost businesses in Japan a collective JPY 1.3 trillion or USD 11.9 billion. These expenses come from the need of these organizations to build telecommuting capabilities and provide their employees with the necessary communication tools.

Nevertheless, the potential cost-related drawbacks or challenges of work from home arrangements can be determined and managed through a well-executed plan aimed at building and implementing required capabilities. Some of these costs can be minimized and eliminated through proper financial planning and financial management.

Of course, the costs mentioned can still be considered as part of operational expenses, as well as an investment. In situations that render organizations unable to operate a physical worksite and prevent individuals from reporting to work, such as in the case of a pandemic or other calamities, working from home provides a solution to keep businesses afloat.


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