If your company isn’t impacted by pay transparency now, it may be soon. Related laws have been enacted by a number of states and local governments across the U.S. And employers who fail to comply could face financial and legal charges.
The benefits of pay transparency
On top of adhering to the law, helping with talent attraction and retention is another good reason for companies to consider adopting pay transparency practices. In fact, a survey by Glassdoor found that 63% of employees prefer a company that discloses pay information.
Of course, competitive compensation packages are also a major draw for workers. And pay transparency can be effective in ensuring fair pay and eliminating income inequality. In a PayScale study of 1.6 million survey responses collected between 2017 and 2019, director-level women were paid $0.91 for every $1 given to their male counterparts at companies reported to not be transparent. Meanwhile, companies considered highly transparent achieved equal pay.
“There are companies that are very much proactive in adopting those [laws]. And there are companies that go above and beyond,” says Niya Dragova, founder of Candor.co, a platform that helps tech employees navigate and understand equity compensation. “The companies that go above and beyond are the ones that are going to retain more talent.”
Where pay transparency is required
There are no federal laws about pay transparency in the U.S., other than the National Labor Relations Act, a 1935 law that allows employees to organize and collectively bargain and protects them from retaliation for these activities. This law also protects pay discussions.
But some job listing sites are taking matters into their own algorithms. For example, Indeed requires a salary range for postings and will populate its own estimate if one is not supplied by the employer. This could lead to an inaccurate range being displayed with a listing.
And a growing number of states and localities are requiring employers of a certain size to list a salary range in advertisements and job listings, or share ranges with candidates interviewing. As of November 4, 2022, the following 13 state and local governments have pay transparency laws.
|Location||Requirements||Affected companies||Effective as of…||Penalties|
|California||Employers must include salary ranges in job postings and share the same information with current employees.||Companies with more than 15 employees.||January 1, 2023||Between $100 and $10,000 per violation. Determined by the Labor Commissioner based on the circumstances and whether the employer has violated this law previously.|
|Colorado||Employers are required to notify employees of promotion opportunities, provide a salary range in job postings — including roles that can be done remotely from Colorado — and record all pay histories and keep it for two years. Employers are banned from asking about pay history during hiring.||Any entity employing at least one other person.||January 1, 2021||Fines between $500 and $10,000 per violation.|
|Connecticut||Employers must provide a salary range in listings, or if asked prior to the job offer. And employees may ask for ranges at any time.||Any entity employing at least one other person.||October 1, 2021||A civil penalty may be issued if a violation is found.|
|Maryland||Employers must disclose salary upon a candidate’s request.||All employers, regardless of size.||October 1, 2020||Fines of up to $300 per violation.|
|Nevada||Employers must provide a salary range to those who have completed one interview.||All private employers, including staffing agencies.||October 1, 2021||Penalty of up to $5,000 per violation.|
|Ohio – Cincinnati||Qualifying employers must provide a wage range upon reasonable request, and employers cannot ask about previous salary history.||Employers with 15 or more employees, including referral and employment agencies.||March 13, 2020||Applicants can have a “private cause of action” for “compensatory damages, reasonable attorney’s fees, the costs of the action, and such legal and equitable relief as the court deems just and proper.”|
|Ohio – Toledo||Employers can’t inquire about previous salary history.||Any employer located within the city of Toledo, specifically with 15 or more employees in the city.||June 26, 2020||Applicants can have a “private cause of action” for “compensatory damages, reasonable attorney’s fees, the costs of the action, and such legal and equitable relief as the court deems just and proper.”|
|Rhode Island||Employers must disclose salary upon a candidate’s request.||Any entity or person employing any person in the state.||January 1, 2023||$1,000 penalty for first violation, $2,500 for a second violation, and $5,000 for the third violation. No penalties issued until 2025.|
|New Jersey – Jersey City||Employers must disclose minimum and maximum wage or salary and benefits.||Employers in the city with five or more employees.||June 15, 2022||Possible prosecution.|
|New York – New York City||Employers must include with any local job listing — including roles that can be done remotely from the city — a “good faith” minimum and maximum pay range.||All employers that have four or more employees or one or more domestic workers that are covered under the New York City Human Rights Law.||November 1, 2022||Civil penalties of up to $250,000 per violation for any company that doesn’t comply after a warning.|
|New York – Ithaca||Employers must disclose a minimum and maximum wage or salary (excluding temporary work).||Employers with four or more employees.||September 1, 2022||Penalties are not specified for this particular statute, but violations are considered unlawful discriminatory practices, which are generally subject to a fine of no more than $500, imprisonment for up to 15 days, or both.|
|New York – Westchester County||Employers must disclose a “good faith” minimum and maximum pay range.||Any employer with at least four employees.||November 6, 2022||Includes back pay, front pay, damages, and civil penalties, up to and including $250,000 per violation.|
|Washington||Employers must include salary ranges in job postings.||Companies with more than 15 employees.||January 1, 2023||Up to $500 for a first violation and up to $1,000 or 10% of damages for each subsequent violation.|
How to comply with pay transparency laws
Knowing these laws is just the first step to complying with them. The next steps can sometimes be an even bigger undertaking, especially if companies aren’t ready to make the necessary changes. “It often represents a shift in the way the organization communicates to potential recruits and staff about compensation,” says Stacey Berk, founder and managing consultant at Expand HR Consulting.
“Executives, like chief human resource officers and CEOs alike, may need to address strategic questions about pay prompted by these new laws,” she continues. “The organization’s pay practices might not be evolved enough because they haven’t created or updated a pay strategy and philosophy, established a band or grade system, conducted a recent pay study (such as a recent market pricing exercise, which compares internal equity to the external market via commercial salary surveys), resolved inequalities, linked pay to performance, or formally trained managers and staff on pay practices.”
The following steps can help you make sure that your company not only complies with the laws, but is also paying competitively in order to retain talent in a challenging market.
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1. Don’t try to dodge the laws
Even as the majority of U.S. locations have no pay transparency laws, avoiding the places that do likely isn’t the answer. For example, a number of companies have attempted to exclude Colorado when hiring remote employees, in order to avoid the state’s pay transparency laws. And it sparked an uproar, eventually leading to the development of a public database called Colorado Excluded that exposes companies doing it.
Changing with the times may be a better strategy. “Employers who recruit in multiple states need to stay updated on wage laws and will likely need to adopt a transparent approach to pay in order to meet this challenge,” Berk says. “I recommend subscribing to an HR compliance listserv. SHRM and the organization’s payroll provider can also be a knowledge center.”
2. Complete a pay analysis or pay study
A pay analysis can give you a clear understanding of your current compensation grid, which is exactly what you need to make sure you’re paying competitively and equitably. Berk says her company, like most, taps consultants to assist with executing this. “We have a specialist compensation consultant who analyzes the client’s job descriptions from a library of commercial surveys,” she explains. “We use two to four commercial survey sources for each position when we market price jobs.”
3. Resolve pay inequities
From that pay analysis, you can get a better picture of pay equality across your organization and identify any gaps. Then, you can make moves to close them.
“We work with the client to explain the matches and redline any areas of differentials,” Berk says. “We discuss the potential changes they could make and how to make them — usually through the performance management process — and sometimes it’s offering them a market adjustment in addition to their merit increase.”
4. Establish pay ranges for each position
Clearly defining all job titles and functions across the organization can help ensure that each role is appropriately compensated, in compliance with pay transparency laws. A pay analysis can also help on this front. The final analysis should provide several estimates of each role’s suggested compensation, and how it compares with salary ranges from current competitors for similar positions.
5. Train managers on pay practices and keep them in check
At the front lines of pay transparency are a company’s managers. They have an up-close view of the performance of employees and, using that information, often handle things like raises and bonuses at their discretion. Barbara Baksa, executive director at the National Association of Stock Plan Professionals, sees this often in equity compensation. In fact, a survey conducted by her firm found that, at 82% of companies, managers have a lot of discretion over their reportees’ equity awards.
But these managers aren’t immune to subjectivity and bias. That’s why Baskas recommends implementing a training program to give managers more context on their decisions. “With any type of compensation where there’s discretion built in, it is really critical to have some controls in place to make sure that managers have guidelines as to how they’re supposed to use that discretion,” she says.
Also, for experienced managers, it can help to review their previous decisions. They can evaluate their own patterns, and the company can “look for situations where there might be unconscious biases playing into some of those decisions,” Baska says. “I think it’s really on HR to provide that training and to work closely with managers to make sure that they are making decisions that are fair and not based on just who they like among their employees.”
6. Include pay ranges on all job postings
HR consultants we spoke with recommend building your own pay transparency strategy around the most stringent of the state and city laws, perceived to be Colorado’s at the moment, to ensure compliance with all the rest. See the above table for a rundown of what data you’ll need to adhere to the laws.
And in case you were considering adding an arbitrary salary range to your next job posting — say, from $0 to $2 million — that won’t cut it. The range needs to be in “good faith,” as specified by laws in several locations. That means you as the hiring employer must truly believe it’s fair to pay that role within the given range.
Remember you might also need to go beyond dollar figures. For example, Colorado’s law also requires “a general description of all of the benefits and other compensation to be offered to the hired applicant” in all job postings. So, to comply, a company will need to include more than just a salary range.