Pay Transparency Laws: What Are They, What States Have Them, and What Do They Mean For Employers?
May 6, 2022
May 6, 2022
You’re in a screening call for a role you’re really interested in. You’ve done your due diligence; reading the company website and blog, talking to people who work at that company, and preparing examples of how your skills match what’s in the job description.
Because of your research, everything is going smoothly until the recruiter inevitably asks, “Just so our expectations are aligned, what salary range are you looking for?”
Knowing what to say is always a challenge. Ask for too much, and you’re out of the running. Don’t ask for enough, and you limit your negotiation power. But with very little insight into the company’s budget or other considerations, you’re forced to guess what’s reasonable一and that’s where the real harm lies. Women and minorities tend to ask for less or target less compensation, leading to pay inequity. In these situations, women and minorities often end up with lower base salaries and suffer the consequences of pay inequity for years to come.
Finally, this disturbing pattern has caught the attention of state lawmakers. Many of them have already enacted, or plan to enact, pay transparency laws. And that means new requirements and hard deadlines for employers. So how can companies prepare? Read on to learn more about pay transparency, the types of laws that protect it, and what employers need to do to stay compliant.
In theory, pay transparency is making employee compensation, the rationale for pay decisions, or pay bands for specific roles, known. Some companies, like Stack Overflow and Whole Foods, have made their salaries public. Others have begun formulating and communicating a compensation philosophy to explain how the company determines salary, equity, and benefits, even adopting a compensation management platform to ensure fair pay across the board.
But most companies haven’t taken pay transparency that far. Keeping pay a secret has helped employers avoid employee backlash and gain a leg up on their competition when attracting and hiring candidates. Without knowing how much to ask for, candidates continue to ask for too little, to their detriment. Years of not sharing compensation figures have caused an undeniable wage gap. Today, women only earn 82 cents for every dollar men earn, black men earn 87 cents for every dollar a white man earns, and Hispanic workers earn 91 cents for every dollar a white man earns.
Pay equity is the idea that employees with the same title and responsibilities should be paid equally, regardless of their race, gender, sexual orientation, or any other factors. It's illegal to pay people unfairly, but despite that, pay gaps persist.
As discussed in the last section, much of this has to do with how little pay transparency there is in the US workforce. Without any meaningful change in pay transparency, pay inequity will continue to persist.
There are obvious moral reasons as to why employers should care about pay transparency, as it contributes to pay equity. But beyond that, promoting pay transparency and equity can have a dramatic impact on a company’s bottom line.
When an employee does not feel valued, 76% look for another job opportunity. And usually, that amounts to roughly a 10 - 20% pay bump. Leveling the playing field increases employee satisfaction, engagement, and retention, not only enhancing productivity but saving companies the high costs associated with turnover. If all companies start to promote transparency and equity, there could be a hugely positive effect on the US economy.
Long-term, a lack of pay transparency has had lasting effects on pay equity that new legislation is attempting to reverse. The content of these laws varies widely among states and even cities. Below, we’ve grouped them by category and linked to further information for employers to consume and incorporate into their pay transparency strategy.
Even just a few years ago, employers were allowed to pass over candidates who inquired about salary ranges or would not provide their previous pay history. Now, this practice is illegal in many states, including:
Keep in mind, this is the baseline legislation for pay transparency. The other states listed in the categories below have this clause in their laws in addition to other stipulations.
Several states have put the onus of asking for a salary range on the candidate:
Rhode Island hasn’t fully adopted this law yet, but it is set to take effect in January 2023.
While they aren’t required to post salary ranges on their job descriptions, companies in these states must present a salary range when they extend an offer:
Note that Nevada employers are required to share salary ranges automatically after a candidate’s first interview. In addition, many of these laws also apply to internal candidates who are switching roles or who are up for a promotion.
Right now, there is only one state that requires an Equal Pay Registration certificate: Illinois. These certificates verify that the employer has provided employee-level pay and demographic information. The state is working directly with businesses to ensure applications to obtain a certificate are logged properly.
Some states and cities demand that employers include compensation bands in any job postings. These laws are rarer; only Colorado and New York City are legally bound to do so.
Washington is slated to institute similar laws starting January 1, 2023.
Pay transparency laws are already underway, and if anything, they are likely to get broader over time. So what should employers do to get ready for changes in their state?
First, they must review their current practices and institute a compensation philosophy. Having a single source of truth for approaching employee leveling, location-based pay, and equity is key to embracing and maintaining pay equity in perpetuity.
Once that philosophy is in place, organizations need to clean up and streamline the logistics. They need a solid job architecture with clear salary bands for every role so that when hiring managers or HR personnel need to publish or reveal those bands, everyone has a consistent story. When companies are preparing to extend an offer, they should consider using a tool like Assemble's Illustrative Offers to make the position’s salary range, equity, and benefits abundantly clear.
Lastly, companies need to establish a process and gather the paperwork for their annual submissions to the state.
For additional information, reference our blog posts on NY, CO, CA, and IL requirements.
Pay transparency laws aren’t going anywhere. Every year, more and more US states are adopting a version of a pay transparency law, and even the EU is considering pay regulation. In fact, Inc. called 2022 “The Year of Pay Transparency,” and LinkedIn listed Pay Transparency among its “Ideas that will change the world in 2022.”
And really, pay transparency laws are just one aspect of the ongoing conversation about pay equity. Right now, the SEC is actively considering disclosures around the diversity of board member nominees, with more shareholders requesting that companies release diversity data. Even the Institutional Shareholder Services (ISS), a firm that provides data analytics to investors, proposed benchmark policy changes for 2022 going so far as recommending against companies in the Russell 3000 and S&P 1500 that have no diversity on the board.
The pay transparency revolution is just beginning, and employers need to be prepared with the right tools and strategies to tackle the incoming challenges head-on. Make sure your company sets off on the right foot by downloading our comprehensive pay transparency law checklist or visiting the Assemble website for equity and compensation resources.