Pardew, who takes his Newcastle United side to the Madejski Stadium on Saturday, employed McDermott as chief scout when he was in charge of the Royals between 1999 and 2003.
"I'd never been chief scout before. I was working incredible hours, but I loved it. Alan was paying me about £2.50 per hour, so he got his money's worth," McDermott told Sky Sport News.
"Alan was very good for me personally and for Reading as a football club. He's been very successful at a number of clubs since."
Pardew signed a neweight-year deal with the Magpies on Wednesday.