Pay Transparency: Learn the Basics and Set Your Business Up For Success

Employees have long had the protected right to discuss salaries with each other. Even still, these conversations could be sensitive, puzzling, and sometimes hurtful. The lack of clarity and accountability that existed in the workforce had the potential to negatively impact employees doing similar work, even where unintentional. Now, several states and cities are passing pay transparency laws with the goal of standardizing salary expectations based on work-related levels and scope.

Employers have long been covered by laws that require internal pay equity, such as the Federal Equal Pay Act (EPA), but these laws traditionally did not require public accountability. Plus, most of these laws historically only touched on pay equity based on sex, leaving anti-discrimination laws to address only intentional pay discrimination based on other legally-protected characteristics.

In this post, we'll dive into some of the trends around pay transparency and pay equity in the compliance landscape, and offer some tips to help you set your business up for success.

The History of Pay Equity

In essence, pay transparency laws are a new approach by policymakers attempting to address gender, racial, and other wage gaps. Historically, there have been a few waves of legislation aimed at addressing pay equity. The first started in the 1960s with the federal EPA and state-law equivalents, which at the time focused mostly on gender pay disparities occuring internally at companies. In recent years, many states have amended their EPAs to cover additional protected characteristics covered by state anti-discrimination laws and to close certain loopholes in the federal EPA.

More recently came a trend of states and cities banning employers from asking candidates about their salary history or relying on such information when making compensation decisions. Now, several states and cities are once again experimenting with a new approach, enacting legislation that requires transparency from employers in how they set pay.

How Pay Transparency Can Benefit Your Company

Pay transparency can provide wins for both employers and employees. For one, it can reduce noise in the hiring pipeline by being upfront about expectations that don’t align. It takes pressure off of candidates arbitrarily coming up with their own target or getting rewarded simply for being good negotiators. Read more about this sentiment from Justworks' Senior Vice President of People, Allison Rutledge-Parisi in CNN Business.

Demonstrating how pay is anchored in work duties, responsibilities, and expectations also removes the perception of individualized bias in the calculation, and provides clarity that often helps workers feel set up for success. Employees can focus on the work rather than the assumptions, allowing them to be less distracted and more productive.

On an individual level, compensation is one of the loudest forms of feedback employers can give their employees. And without the greater context of a compensation range, employees have often been left guessing how this value was determined. Pay transparency helps to alleviate the anxiety and cognitive labor around pay adjustments during the course of an employee’s tenure, and gives individuals a much clearer understanding of how the organization budgets for a specific role within the greater context of duties and level.

On a company-wide and interpersonal level, compensation decisions can seem nebulous and protected by the employer, often with no expectation of illustrating the broader structure. With these new laws, employers have the opportunity to build trust by sharing more about decision-making at the organization. This can help employees understand what the company values, and can boost their level of confidence in leadership. How you choose to speak to this topic can create productive and lasting impacts.

Check State & Local Laws

It’s important to note the most proscriptive pay equity laws currently in effect have been enacted at the state or local level, and that their specific requirements can vary widely. With respect to pay transparency obligations, many companies are approaching these postings by creating a single policy that complies with the most transparent and stringent requirements of any jurisdiction where they may hire candidates.

Aside from states that require compensation information be noted directly in job postings, others require that you provide this information upon request. Still other states require benefits and other information be included alongside compensation information in job postings. As these laws are especially complicated to navigate if you hire remotely, be sure to consult your employment counsel to understand which requirements apply to your business. Check out this interactive map for more detailed information.

Beyond pay transparency in job postings, there are also pay data reporting requirements that may impact you both on the federal and state level. For example, certain employers in California and Illinois are required to comply with annual reporting requirements that include pay data reporting.

Some Common Questions to Consider

With the emergence of pay transparency laws, some businesses are struggling to understand how this will impact real-world scenarios they anticipate. Some common examples include:

Can you ever go outside of the range for a stellar candidate?- In certain cases, you may be able to exceed your posted range for a candidate provided you posted a range reflecting your reasonable expectations for the job at the time of posting. However, you should consult with counsel about the particular legal requirements applicable to the job posting in question. Hiring outside of the posted range may call into question whether you made the requisite effort to define the pay range before posting the position.

Do you have to disclose compensation on a social media post about a job opening?- You should consult with your employment attorney as each law may interpret this differently. In NYC, for example, there is guidance on what qualifies as an advertisement, and you may potentially be able to include a link to the advertisement in the social media post without including every detail from the advertisement.

How broad can you make salary ranges?- In general, many of these laws contain guidance that the range be posted in ‘good faith’, and what one might reasonably expect to pay for the role. Again, we recommend having your legal counsel review your decisions. Certain companies have attracted public attention lately for posting wide ranges that raise an eyebrow.

For remote roles, can my business say we’re not hiring in one of these places to avoid the requirement?- When the Colorado Pay Transparency Act was first effective, some employers excluded Colorado residents from being eligible to apply for posted jobs. Colorado amended its law to prohibit this kind of activity. So if you are already covered by one of these laws, exclusion clauses may not be effective.

Next Steps for Your Business

Here are some actionable steps you can take to move forward with pay transparency with confidence:

• Start with a general pay audit to compare how similarly-situated workers are being paid, and correct any discrepancies immediately. Even if you’re not subject to pay transparency laws currently, you may be in the future, and equal-pay requirements still apply. Either way, it’s better to get your house in order before you are required to start posting pay ranges.

• Create and define your compensation philosophy. Make sure your leaders are aligned on the factors you consider, and where you want to land against the market on base comp, equity, and total rewards.

• Use third-party market data to support the creation of internal levels and corresponding salary ranges. There are several high-quality platforms that you can partner with to gain access to market data. Some of these provide free data as long as you participate in the survey, and others offer more comprehensive and interactive features that have data visualization and compensation planning features.

• Consider creating level descriptors that clarify expectations of your employees based on their level. This will also illustrate what will be expected of them as they grow their career with you.

• Train recruiters and managers on the new levels and how they translate to specific expectations at your company so they can hire and retain the best talent for your organization.

• Determine your compensation cycle and how often you will formally review compensation. This can also apply to determining when promotions can be approved.

• Ahead of your cycle, conduct another pay audit and identify where your current team falls against your compensation bands. Make a plan for addressing those who are under and over band.

• Communicate out to the company and provide avenues for feedback, questions or concerns.

• Make sure every role posted has a clear job description that aligns to the level of expectation from the team.

• Make the level and compensation discussions part of onboarding.

• Regularly review your ranges against the market data you are using and consider when you will conduct internal reviews.

• Consider this playbook when diving into planning mode so you can follow along and consider all angles.

• Work with employment counsel to review for compliance.

These steps can span months, as they require a lot of thoughtful planning, both philosophically and tactically. Beyond the requirements of the law, taking these steps can send a really strong signal to your team and future employees and starts with leadership alignment and a unified process everyone can champion.