Historically, compensation has been something of a taboo topic. Most employers aren’t forthcoming about compensation to job applicants, and many employees feel uncomfortable discussing how much they make.
But new legislation is trying to change that. In an effort to create a more equitable workplace, pay transparency laws have been picking up some serious steam. Disclosing salary ranges on job openings is already mandated across California, Colorado, and Washington, and a newly proposed bill may expand that federally.
Rippling’s recent webinar How to (Legally) Manage Pay Transparency in 2023 explored the current state of pay transparency, how employers are managing it, and actionable steps to prepare for broader adoption. Read on for some of the key takeaways.
What is pay transparency?
Pay transparency is exactly what it sounds like: employers disclosing compensation information to job applicants and current employees.
Legislation around pay transparency originated in California in 2018, and from there, many US states, and even other countries, have followed suit. New bills proposed in March 2023 would require many US states and countries worldwide to reveal this information from behind closed doors.
Pay transparency laws can take many different forms, from ensuring employees’ right to discuss their salaries, to preventing employers from making compensation decisions based on a person's salary history, to requiring businesses to disclose pay ranges in job postings for new positions.
The current state of pay transparency
Today, there are 11 US states that have passed laws requiring wage ranges to be disclosed at some point during the interview process. However, these requirements vary by state.
On one end of the spectrum, there’s Colorado, which requires every job description to include the pay range along with other elements of the compensation package—like benefits and commission. On the other end, there’s Connecticut, where providing a range is only required at the applicant’s request. Then there are states like Rhode Island, where employers are required to provide a range both at the time of hire and when employees undergo internal transfers to new positions within the company.
Some cities even have municipal requirements, adding complexity to whatever standards are being enforced at the state level:
- In Jersey City and New York City, the wage range is required to be on job listings.
- Employers in Cincinnati or Toledo must disclose the pay range upon the applicant's request.
While most states don’t currently have legislation mandating the disclosure of salary information during the hiring process, the majority are making strides in that direction. So far, 29 states have passed laws that ban employers from asking a candidate about their salary history. These laws vary from state to state and city to city as well:
- In New York state it’s illegal to inquire about an applicant’s salary history at any point.
- In Maine and Maryland, those protections against asking about salary history only apply before an offer is made.
- In South Carolina, Columbia and Richland County are the only jurisdictions that prohibit asking about pay history.
Why do pay transparency laws exist?
In short, these laws exist to address unequal pay. Pay transparency enables employers to detect and avoid salary inequities, which tend to happen as a result of unconscious bias and systemic discriminatory practices.
Salary negotiations have notoriously been unfavorable toward women. According to a 2021 Hired.com survey, women in tech are offered a lower salary than men 63% of the time when interviewing for the same job. Moreover, the US Department of Labor reported that a woman’s annual earnings were 82 cents to a man’s dollar as recently as 2020. That gap is even wider for many women of color.
Introducing legislation that incentivizes employers to tighten up pay parity practices—equal pay for equal work—is one way to help close this pay gap, and could prevent wage disparities based on gender, race, sexual orientation, age, religion, and more. To make sure your company is less prone to errors and individual biases while implementing these practices, it’s best to build pay equity into your internal processes. With Rippling, you can track pay data for any employee’s position in real time and report on compa-ratios across any employee attribute to quickly run pay equity analyses and spot trends or outliers in compensation.
What do pay transparency laws require?
As mentioned earlier, pay transparency laws may vary from state to state and even city to city—making it tricky for HR and recruiting teams to keep up with all the location-specific requirements.
Here are some key themes that pay transparency legislation encompasses:
- Salary information: Some states are required to disclose wage ranges, but what those ranges look like and at what point they need to be shared can vary. Many states require companies to include a salary range in the job listing, but in other states, they are allowed to wait until the first interview.
- Total compensation: Beyond pay scales, some states require disclosure of other elements of the compensation package, such as bonuses, commission, and a description of benefits.
- Remote employees: Some states require pay transparency for remote employees, while others only require it for in-office and hybrid roles. For example, Colorado requires pay ranges for remote jobs, while New York City only requires them for in-office and hybrid roles.
Consequences of non-compliance
There is a range of penalties for employers who don’t comply with their state laws or local jurisdiction. Requirements vary by location, and so do the consequences—ranging from small fines to large fines, and even jail time.
Here are a few examples of the penalties for violating pay transparency laws in different cities and states:
In California, each violation may result in a civil penalty of no less than $100 and no more than $10,000.
In Nevada, it costs employers $5,000 for each violation, in addition to investigative costs and attorney fees.
New York City
In NYC, first violation complaints won’t incur penalties as long as the employer remedies the violation within 30 days. For any violations that aren’t rectified or any subsequent violations, employers face penalties of up to $250,000.
In Jersey City employers found guilty could face up to 90 days of jail or community service.
To avoid these repercussions, employers need to be aware of—and stay up to date with— local laws across all the locations where they hire.
How employers are adapting
So far, companies have typically dealt with pay transparency in one of two ways: ceasing to hire from locations that require it altogether or overhauling their processes around comp bands, headcount planning, and job postings to support pay transparency by default.
Companies really shouldn’t be ignoring recruiting from certain states—it reduces your talent pool and as more states adopt pay transparency laws, it’s at best a short-term solution.
Director of Recruiting Operations at Rippling
Not only is considering pay transparency as part of your recruiting strategy the smartest way to adapt, but it can also offer some unexpected benefits. Next time you post an open role on LinkedIn or any other job board, including a salary range can save your team time by filtering out candidates with mismatched salary expectations from even applying, or at least sparking the pay conversation earlier in the hiring process to avoid misalignment later.
New legislation could speed up the adoption of pay transparency
In March 2023, the Salary Transparency Act and Pay Equity for All Act were proposed in US Congress. If passed, the former would require employers to disclose the wage scales associated with all employment opportunities across the nation, and the latter would prohibit employers from legally asking about an applicant’s salary history.
Even if these new bills don’t pass anytime soon, pay transparency is on the rise. It’s likely that more states, and even other countries, will continue to set regulations in the coming years.
Pay transparency laws are spreading across the globe
While pay transparency is primarily in the US right now, sweeping bills like these will likely influence nations worldwide. Other countries have already started to enact pay transparency legislation—adding a whole new level of complexity for global companies.
For example, in an effort to increase pay equity and close the gender pay gap, the EU Parliament adopted the EU Pay Transparency Directive, which went into effect on June 6, 2023. This directive introduced a wide range of pay transparency regulations to the EU, including mandatory gender pay gap reporting, pre-employment pay transparency requirements, employee rights to pay data, and a ban on pay secrecy clauses.
Companies are hiring more international talent than ever before, so global employers will need to closely monitor pay transparency legislation outside their home countries as new laws continue to pass around the world.
Steps to prepare for widespread pay transparency
If the Salary Transparency Act and Pay Equity for All Act pass in the US, every employer will need to be ready to adopt pay transparency into their recruiting and compensation strategies.
Watch our on-demand webinar for actionable steps your company can take to prepare for a seamless adoption of widespread pay transparency. You’ll learn:
- How to create fair salary ranges using compensation benchmarking data
- How to factor in pay progression and location adjustments to your ranges
- How to enforce comp bands and automate approvals
- How to review compa-ratios and spot pay inequities
Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.