August 15, 2024
Over the past five years there has been a surge in pay transparency legislation. Across the country, numerous states and municipalities have already passed pay transparency laws, with others planning to follow suit. These requirements have created new expectations for job seekers and important steps for recruitment and human resources teams. So, what does pay transparency really mean, and how does it impact your organization?
The goal of pay transparency legislation is to minimize unfair pay practices and close wage gaps by making compensation information more accessible. In general, pay transparency laws require employers to disclose pay ranges for all jobs within a defined state or municipality, as well as having that information available to job seekers and/or current employees.
Summarizing all current and upcoming pay transparency laws is a challenging task because each state and municipality has slightly different regulations and requirements. Depending on the hiring location, pay ranges must be provided either pre-emptively on the job posting, upon request by the job seeker or employee, or before a certain stage of the hiring process. For example, Colorado requires employers to proactively post pay ranges and benefits for all open job postings, while Connecticut only requires employers to provide a pay range upon a candidates’ request or before making a job offer. Because pay transparency laws vary significantly, it is tricky to summarize them without leaving out key information. That said, this Practice Pointer offers some considerations to help employers navigate the complicated and ever-changing pay transparency landscape.
Do Your Research
The first and most important step is to determine which pay transparency laws, if any, apply to your organization. As of August 2024, the states that have passed some form of pay transparency law includes California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Minnesota Nevada, New York, Rhode Island, Washington State, the District of Columbia, and most recently, Massachusetts. Additionally, several municipalities and counties have passed their own pay transparency laws. The cities of Cincinnati, Ohio, Jersey City, New Jersey, and New York City, Ithaca, and Westchester County, New York have passed pay transparency legislation, with several additional states poised to follow suit. Specific requirements for private employers vary by state and may vary depending on the number of employees.
Whether or not your organization is hiring in any of the above locations, including remote hires, employers should be aware of the fine print. For example, New York’s state pay transparency law applies to workers outside of the state if they report to a New York-based supervisor, office, or worksite. An increasing number of states are considering this type of legislation, so employers need to keep an eye on any new laws that could impact their organization.
Establish Pay Ranges
Of course, the key to complying with any current or future pay transparency legislation is to establish clear and consistent pay ranges for all roles. Many pay transparency laws require pay data to be provided to current employees as well as candidates, therefore employers should establish pay ranges for all positions in the organization, not just the open ones. The definition of “wage range” varies across different laws. Some states mandate the inclusion of anticipated bonuses and commissions, while others do not. Organizations are recommended to establish pay ranges, which include what the company reasonably expects to pay an employee in good faith for a specific position, irrespective of the state where the employer operates.
We recommend that employers use this as an opportunity to conduct compensation benchmarking for all positions. Outdated benchmarking may result in paying employees well below market rate, which can weaken recruitment and retention efforts. Regular compensation benchmarking is an important tool and best practice to ensure that your organization remains competitive in the labor market.
With up-to-date salary information, as well as reliable market payrates and salary ranges through benchmarking, an employer may also develop a compensation philosophy to determine their market position, segmentation by department or role, and geographic strategy, if applicable. Companies may also consider adding “levels” or “bands” which further define differentiating factors such as seniority, responsibilities, certifications, etc. Once all relevant data is collected, an employer will be able to create dependable pay ranges to include the minimum, midpoint, and maximum rate for each established position.
Update Policies
In theory, it should be straightforward to create a pay transparency policy that complies with all applicable laws, but there are a few potential complications to consider. The simplest scenario is that all employees work in the same state (or city, as the case may be) and are subject to the same pay transparency regulations. In that case, implementing one policy that is compliant with the applicable law will suffice. However, most organizations are more widespread than that, particularly with the rise of the remote workforce. An organization may have employees in multiple states, all with different regulations, which could result in some positions being subject to pay transparency laws and some that are not. Best practices for implementing pay transparency include clear and transparent communication with employees to explain the reasons for adopting a transparent pay policy and its benefits.
Multi-state employers could have different pay transparency policies for each state where the organization does business. However, this practice may cause frustration and negatively affect employee morale if some employees are privy to compensation information and others are not. Furthermore, it should be noted that different geographic pay policies may run afoul of pay-equity laws. Instead, employers may want to have a single policy in place that meets the strictest requirements to which the organization is subject. For instance, if the organization has employees in Colorado, Connecticut, and Texas, a company-wide policy that is compliant with Colorado’s pay transparency law would suffice for all three as it has the most complex law.
Plan Communication
Plan communication efforts, accordingly, being sure to clearly explain the company’s compensation structure, as releasing such information without relevant context can lead to more questions than answers. Train managers on how to discuss salary with employees in a transparent and fair manner. Without pay structures in place to address any pay equity issues, salary transparency may expose pay inequities rather than solve them. Providing salary information to job applicants and candidates helps them make informed decisions about whether to apply and how to negotiate their salary.
Even if your organization is not currently subject to any pay transparency laws, employers should consider reviewing policies and compensation structure as well as conducting internal equity audits. Not only are more and more states introducing these pay transparency laws, but job seekers and employees are starting to demand additional insight around compensation. As a forward-looking employer, it may be wise to get ahead of the curve on pay transparency. The trend is here to stay and will likely strengthen in coming years.
If you have any questions regarding this Practice Pointer or want to learn how Hilb Group | HR Consulting can help your organization with developing compensation strategies, please email us.