The growing trend of pay transparency laws and their impact on employers

ARTICLE | June 02, 2023

Pay transparency has become a hot topic in recent years as an increasing number of states and local jurisdictions have enacted legislation requiring employers to disclose information about employee compensation standards. This trend is driven by the belief that greater pay transparency can help reduce pay inequities, promote pay equity, and ultimately prevent wage discrimination. As more and more states adopt pay transparency laws, employers need to understand the implications of these laws and how they can adapt their practices to comply.

What is Pay Transparency?

Pay transparency refers to the practice of employers sharing information about employee compensation either internally or externally. The concept is not a one-size-fits-all approach; instead, it operates on a spectrum, with employers choosing varying degrees of transparency based on state and local mandates or their own pay strategy. 

As of 2023, eight states and six local jurisdictions have enacted pay transparency laws, with varying requirements and degrees of disclosure. These states include California, Colorado, Connecticut, Maryland, Nevada, New York, Rhode Island, and Washington. Additionally, cities like Cincinnati, Ithaca, Jersey City, New York City, Toledo, and Westchester County have enacted their own pay transparency laws.

While the specific requirements of these laws differ across jurisdictions, they generally share these common features:

• Employers must disclose wage rates and salary ranges upon request by a job candidate or employee.

• Employers must list pay ranges internally for existing employees and externally in job postings.

Failure to comply with these pay transparency laws can result in fines and penalties for employers, making it crucial for businesses to understand the laws in their jurisdiction and ensure compliance.

State-by-state breakdown

The following summaries provide an overview of pay transparency laws in various states as of the time of writing. However, it’s important to understand that these summaries are not exhaustive and do not account for every possible nuance or aspect of the law. For the most accurate and comprehensive understanding of the laws relevant to your circumstances, it’s recommended to consult with legal counsel or a labor law expert. 

California: Employers with 15 or more employees are obligated to include pay scale data in their job advertisements. This requirement extends to all roles, irrespective of whether they can be executed remotely, as long as at least one employee is based in California. California also enforces a Pay Reporting Obligation, which mandates employers to submit pay data, including the median and mean hourly wage rates for each combination of race, ethnicity, and gender within each job category, to the state.

Colorado: If an employer has a minimum of one Colorado-based employee, they are required to reveal compensation ranges, benefits, and incentives for all job positions advertised. This law extends to any job that can be performed within Colorado, even if the job is primarily remote.

Connecticut: Employers with one or more employees in Connecticut are mandated to provide pay scales to job applicants on request or to employees when they receive an employment or promotion offer. Connecticut is contemplating a bill that would broaden this mandate to include compulsory pay scale information in all job listings. 

Maryland: Any employer engaged in business in the state is required to share the wage range for the position for which an applicant applies upon request. 

Nevada: Any employer engaged in business in the state is required to share the wage or salary range for a position, promotion, or transfer. For job applicants, the information must be shared after the interview. For employees, the range must be shared when the employee applies for a promotion or transfer, has been interviewed or offered a promotion or transfer, or upon request. 

New York: Employers with four or more employees must share compensation or a range of compensation data in job postings or advertisements. 

Rhode Island: Any employer with at least one employee in the state must share the wage range for the position for which an applicant is applying. For applicants, this information must be shared prior to discussing compensation or upon request. For employees, wage information must be shared at the time of hire, when the employee moves into a new position, or upon request. 

Washington: Businesses with at least 15 employees and a minimum of one employee in Washington are required to disclose wage scales for job positions in their advertisements. This applies to any job that can be executed in Washington or remotely.

The National Women’s Law Center has indicated that there are ongoing considerations to pass similar legislation in 16 additional states and Washington, D.C. This would bring almost half of the country under the purview of pay transparency laws.

The Benefits of Pay Transparency

Research has shown that pay transparency can help reduce pay inequities, as it enables employees and job candidates to have a better understanding of the salary range associated with a particular role. This knowledge can prove invaluable during salary negotiations, helping to level the playing field for all parties involved. Moreover, a recent survey by the Society for Human Resource Management (SHRM) found that 73% of U.S. workers are more likely to trust organizations that provide pay ranges, and a similar percentage is less interested in applying for jobs without listed pay ranges.

While pay transparency may be a shift from traditional hiring practices, this openness can help attract candidates who are serious about the role and better align with the company’s compensation structure. It may also bolster a company’s reputation and improve morale among existing employees. 

Implications for employers

Pay transparency can also pose challenges. If an organization’s pay scales are not competitive enough, it could deter potential applicants. Thus, to remain attractive to talent, businesses may need to reevaluate their compensation packages in relation to market standards and ensure they provide fair and equitable pay. 

These laws essentially require companies to ensure that their pay scales are not just market-competitive but also equitable across roles, departments, and levels. This means businesses may have to conduct regular audits of their compensation practices and reassess wages, benefits, bonuses, and perks. 

As a result, the operational impact of pay transparency laws can be significant. To ensure compliance, businesses may need to invest in new systems or processes. For instance, employers might need to implement robust human resource information systems (HRIS) to track and report on compensation data accurately. Additionally, staff training on pay transparency and related practices will become essential to ensure that all levels of the organization understand and adhere to these new requirements. 

Finally, if not managed correctly, pay transparency could lead to internal discontent, especially if significant pay disparities exist within the organization. Therefore, alongside introducing pay transparency, employers must be prepared to manage these conversations, justify their pay scales, and address any concerns that arise. 

Preparing for Pay Transparency Legislation

With the growing trend of pay transparency laws, it is crucial for employers to stay informed and develop a plan to comply with these regulations. Here are some steps organizations can take to prepare:

1. Understand the specific pay transparency laws in your jurisdiction, including any differences between state and local requirements.
2. Review and update your compensation policies to ensure they align with pay transparency requirements.
3. Develop a strategy for disclosing pay ranges, both internally and externally, in a manner that complies with the law and reflects your organization's values and brand reputation.
4. Train HR professionals, managers, and other relevant personnel on the importance of pay transparency and their role in ensuring compliance.
5. Monitor developments in pay transparency legislation, as more states and jurisdictions are likely to adopt similar laws in the coming years.

By proactively adjusting to this changing legislation, businesses can maintain compliance, foster a fair workplace, and enhance their attractiveness to prospective talent. 

This article is intended to provide a brief overview of pay transparency laws. It is not to be construed as legal advice, nor is it a substitute for speaking with one of our expert advisors. For more information, please contact our office.