Home Compliance Pay Transparency — It’s Not Just Good for Workers

Pay Transparency — It’s Not Just Good for Workers

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As more cities and states adopt laws mandating a degree of salary transparency, companies may face a regulatory patchwork to contend with. But ADP’s Helen Almeida believes being open about compensation is good — for businesses and the workforce.

Pay transparency has been a hot topic among employers and employees over the past few years. Colorado, New York City, Washington and California were the first large jurisdictions to mandate pay transparency in job postings, but there is no sign that this trend is slowing down. As more cities and states consider and adopt pay transparency laws, employers and employees are laser-focused on pay and how transparency will impact them.

Pay transparency laws are a new phase in the ongoing push for pay equity, which has included landmark legislation like the Equal Pay Act of 1963, amendments to the Civil Rights Act of 1964 and numerous other federal and state laws. While there has been some improvement over the past several decades, the gap remains. According to the ADP Research Institute, in 2022 women earned only 83% of what men did. And U.S. Census data shows that gap is even wider for women of color.

In the latest approach to achieving greater equity, lawmakers are looking to mandatory transparency as a way to level the information playing field and shed light on unequal pay practices. Much of the focus is on starting pay. If employees and applicants have access to information about pay ranges for a particular role, employers are less likely to make lowball offers and applicants are more likely to negotiate for a package within that range. Over a career, this change could help women and other underrepresented workers close the persistent pay gap

Not just a single-state issue

California, New York and more than a dozen states in between have laws focused on increasing pay transparency, including:

  • Mandatory pay range disclosures on jobs postings or during the recruitment process
  • Prohibitions on employers asking applicants about salary history during recruitment
  • Requiring regular submissions of pay data to state agencies
  • Protecting employees who choose to discuss their pay with colleagues

Colorado was the first to put a law in place about proactively disclosing pay ranges in a job posting, followed by New York City, California, Washington and, later this year, New York state. But whether as a result of the pandemic or of changing workplace needs, many companies today have employees who aren’t just located in one state or jurisdiction. More job opportunities are remote, which means more employers have to meet the challenge of complying with pay transparency laws in multiple jurisdictions, whether they plan to hire across state lines or not.

Staying compliant

To deal with the checkerboard of pay transparency laws across the country, each with its own set of requirements, some companies may choose to adopt a nationwide approach to transparency, by, for example, including pay ranges in all job postings, regardless of location, and eliminating salary history questions from their recruitment and job applications for all roles.

To help stay compliant, employers need to ensure they are working with their HR and legal teams on areas like:

Pay data reporting

California and Illinois both have legislation requiring employers to file reports with a state agency detailing all company wages by several categories, such as race, gender or ethnicity.

  •  In California, the rules apply to companies in the state with at least 100 employees, even if not all 100 work in California. The California regulatory agency uses the example of an employer with 50 employees inside California and 50 employees outside California during the reporting year. Because they have 100 employees in total, this employer would be required to report.
  • In Illinois, private employers with 100 or more employees must submit a pay data report to the Illinois Department of Labor to obtain an equal pay registration certificate.

Businesses must certify that they follow federal and state laws on equal pay, and if there are any disparities, the company is obligated to correct them.

Pay secrecy

In most circumstances, employers cannot legally ask employees to keep their pay secret. Under the National Labor Relations Act (NLRA), salary secrecy has been against federal law for several years, but many states are now enacting laws that strictly prohibit salary secrecy. The number of states that have such laws is only continuing to grow.

While laws vary from state to state, they generally prevent employers from retaliating against employees who discuss their wages with other employees. They also prohibit employers from requiring a non-disclosure agreement as a condition of employment. While these laws don’t cover all employees (for example, employees in the public sector), employers must know the law and how it applies to their business.

Salary history

Asking candidates for their salary history in many states is illegal. Some have enacted laws prohibiting employers from asking candidates for information about their prior salary history because this practice can promote and extend past pay disparities. While not all states have enacted bans on salary history questions, more and more states are moving in that direction. Employers are welcome to ask applicants about their salary expectations (e.g., What do you hope to earn in this role?).

Both employers and employees can benefit

Pay transparency laws are generally focused on giving employees and candidates more information about compensation, but employers can benefit, too. Leaders can use this opportunity to start an open and honest conversation with employees about pay, pay equity and what the company’s philosophy is on making compensation decisions. They can address concerns around pay with conversations about up-skilling, leadership training or other benefits the organization may offer. Going above and beyond with transparency can help build a culture of mutual trust within an organization.

When searching for job candidates, compensation benchmarking data will become key for leaders and for HR to make sure they are staying competitive in the market. While many pay transparency laws for candidates focus on disclosing salaries, HR can use this as an opportunity to voluntarily discuss other benefits or bonuses that may make your organization stand out from the pack as well. According to a study by the ADP Research Institute, 71% of employees would like more flexibility as to when they work. Such benefits could be a differentiator to a candidate who otherwise might just be looking at salary ranges.

Pay transparency expectations are here to stay, and employers across the country should be ready for the conversations they will bring to the workplace. By taking the opportunity to be proactive on transparency, employers can help accelerate pay equity and foster trust with both employees and job candidates. Leveraging existing real-time data sets on pay will be key to enabling employers to navigate the shifting compliance landscape and set themselves up for long-term growth.

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