A wave of pay transparency laws is sweeping the nation to promote greater equity around compensation. With the trend picking up steam, additional states and localities are expected to follow suit and enact their own pay transparency policies. Employers will benefit from staying ahead of the curve and understanding the full implications of what these laws entail. This blog focuses on what employers need to know about the new salary transparency laws and how they will impact organizations across the country.
A number of states and localities—among them California, Connecticut, Colorado, Maryland, Nevada, Rhode Island, Washington State, Ithaca (NY), New York City (NY), and Jersey City (NJ)—have already enacted pay transparency laws. These laws vary in both scope and enforcement, but all aim to promote greater fairness in the workplace by requiring employers to publicly disclose compensation information to prospective and current employees on job postings or during the hiring process.
The intent is that by making this information known, it will decrease persisting pay gaps for women and minority employees which research shows are more likely to receive and accept lowball offers.
The new salary transparency laws have significant implications for employers. First and foremost, employers will need to provide greater clarity around their compensation practices. In affected jurisdictions, salary data will be made available to applicants, new hires, and existing employees—potentially influencing their interest to work for an organization and causing internal strife. Employers will need to be more intentional and proactive about examining salary bands and job categorizations, staying abreast of market intelligence, and providing workers with regular updates on their compensation and bonuses.
One thing is certain: the new regulations have made HR, talent acquisition, and compensation departments more complex and time-consuming. Employers now have to spend more time researching appropriate salary ranges for open positions, updating job postings accordingly, and keeping records of pay structures.
Being an early adopter of changing employment regulatory trends, like pay transparency, can give employers a leg up on their competition. Candidates prefer transparent communication and are taking a firmer stand in favor of salary disclosure, according to a study reported by the Society of Human Resources Management. The study, conducted by a job search engine, found that one-third of job seekers would not attend a job interview before knowing the salary the employer is willing to offer. Lack of clarity, the study highlights, is one of job seekers’ biggest frustrations when it comes to job searching.
There are a few steps that organizations can take to ensure compliance with applicable pay transparency laws.
Employers need to conduct a comprehensive review of current contracts and job descriptions, as well as any policies and procedures around compensation to identify areas that need updating. The organization’s pay practices should be transparent and easy for workers to understand. Where applicable, some companies will be required to maintain records of the history of pay rates and job descriptions for each posted position.
Managers, supervisors, and HR departments need to be trained in relevant laws and best practices for compliance. HR and talent teams must regularly communicate any changes made to the business’ compensation practices. In addition, organizations should consider implementing processes for responding to ongoing employee requests for information about their compensation or the compensation of other employees.
Companies should utilize market data to benchmark the salaries of their employees against those of similar workers in the same industry and region. They should conduct regular salary reviews to ensure that workers are being paid at or above market rates.
Organizations will also benefit from conducting regular audits of payroll records to ensure there is no disparity in pay between different groups of employees. They should also provide employees with a mechanism for reporting concerns about unequal pay.
It remains to be determined what the consequences of violating pay transparency laws will be. Each state will need to determine how to manage violations. Experts anticipate the fall-out will be different across states and are keeping eyes on the New York City workforce.
Employees who are the victims of wage discrimination may be able to bring individual or class action lawsuits against their employer seeking back pay, damages, attorney fees, and more. In addition, states and localities may impose fines or civil penalties for violating pay transparency laws.
Fines, at least in New York City, will be judged on a case-by-case basis, but companies could incur fees up to $250,000, per violation.
Violating pay transparency laws may also undermine the trust and confidence of your workforce.
The new pay transparency laws will change the landscape for payroll and HR teams across the country. Employers will need to review their compensation practices and policies to ensure compliance with the new laws. By taking these steps, companies can create a more equitable workplace for their employees while protecting their businesses from potential legal fallout.
Pay transparency compliance can be a complex and daunting task for businesses. The landscape of wage transparency will continue to evolve, and it can be difficult for leaders to keep up. At LevelUP, we are committed to helping organizations build compliant talent strategies through highly customizable workforce solutions. Our team of talent solution specialists can help you keep ahead of changing market conditions, are well-versed in wage transparency laws across various locations, and can provide guidance on how to stay compliant. Contact us today to get started.