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An increasing number of states have passed or are working on pay transparency laws as a step toward pay fairness in the workplace. There are about a dozen states that have enacted laws, with California, New York, Washington, and Rhode Island being a few of the newest. In addition, the federal government introduced a bill in March of 2023 entitled the Federal Pay Transparency Bill.
What is Pay Transparency
Pay transparency states that companies must be open about the compensation provided for current and prospective employees.
WorldatWork, in their 2020 Pay Transparency Study defines it in a more expansive way. The study is about more than simply revealing what employees earn. It’s about developing pay practices and communication modes that help workers understand how business and market issues affect how their salaries are set with the goal of raising employee confidence in the fairness of their employer.
Historically, there’s been an informal norm for employers and employees to not discuss wages. Even though the National Labor Relations Act, passed in 1935, makes it illegal for companies to punish employees who talk about wages.
But, younger generations entering the workforce are much more comfortable talking about salaries and welcome these new laws. Builtin, an online community for startups and tech companies, reveals this generational gap in their research which shows that while only 53% of Baby Boomers are okay with discussing salaries, 83% of Gen Z welcome more open communications.
Enacted state laws differ from one another, so workers need to be aware of what the exact law is in their state. As an example, the Colorado law requires employers to include “a general description of all the benefits and other compensation to be offered to the hired applicant” in addition to the hourly wage or salary range for the position they are applying for. In California, employers are only required to provide the pay range in the job posting and not benefits.
In addition to current employees, in many states, it is or will soon be wrong for a company to ask job applicants to share their previous salary history.
While each of the state laws differ, at their core they are designed to close the wage gap for workers of color and women.
Benefits of Pay Transparency
Pay transparency brings benefits to both employees and employers:
· Pay Equity: With accountability comes the need for adopting fair pay practices. When companies are required to disclose their compensation stats, it becomes hard to ignore pay disparities. And, differences that are based on gender, race, or ethnicity can be identified and rectified. Payscale research has revealed that when a workplace participates in transparent pay practices, women are reporting that their pay is comparable to those of their male colleagues.
· More Positive Workplace Environment: Transparency can help build trust between employers and employees where everyone feels their pay is comparable and the process clear. Employee overall job satisfaction is raised when workers feel valued and respected. A more supportive workplace is also established when the secrecy and rumors surrounding pay are eliminated by transparency.
· Working Amongst Top Talent: Pay-transparent companies are better able to attract and retain the best and brightest. Not only can you benefit from competitive compensation, but working alongside bright peers provides a more productive and rewarding work environment.
What Pay Transparency Does Not Mean
Pay transparency is complicated. While some employees might think it means that people need to be paid the same amount, this is not so. Employees in the same role do not all have to be paid the same amount. They do need to be paid according to the same scale though, which calls for employers to have a pay structure.
Then within this structure, employees can be placed somewhere within a scale that is also linked to performance, experience, and education, among other criteria. And, an employer should be able to logically explain where an employee fits into the scale during a conversation.
Pay transparency also doesn’t mean it’s necessary to reveal what each employee earns. Employers do need to establish and communicate pay practices to help employees understand how their salary fits in the context of their work environment.
When Pay Transparency Laws Uncovers Inequities
Employees in states where pay transparency laws have been enacted as well as those in states where a law will soon go into effect might discover discrepancies in pay at their workplace.
Unfortunately, publicizing pay ranges for new positions will allow current employees to see how their salaries compare, which can lead them to conclude that they are underpaid.
Hopefully, your employer is working on a corrective plan. But, employees should know their rights when bias is suspected. If an employer cannot articulate reasons for the differences in pay, you may be able to explore a discrimination claim.
Just as the individual pay transparency laws differ, so do the penalties for not complying. In New York City and State, employees can complain to a city or state agency if employers do not provide the required information in job ads, and damages or civil penalties can be placed upon them. In California, workers can file lawsuits in addition to complaints.
Once pay transparency laws go into effect, employers who have yet to put together a plan that includes communication with current employees will become vulnerable to discrimination lawsuits. And unfortunately, according to WorldatWork’s Pay Transparency Study, while 67% of companies find pay transparency important, only 14% are dedicating more than a “moderate” amount of attention to it.
Businesses should prepare to retool and establish uniform standards and procedures if they hope to retain their employees and avoid complaints and legal actions. And, annual salary audits are an effective way to not only establish best practices but to let employees see that their employer is taking the issue seriously.
Sincere and open efforts to improve pay equity is the way employers can avoid both legal issues and a high turnover of employees.
Legal Advice for Pay Transparency Issues
Every worker deserves access to fair pay and hiring practices. Pay transparency is an important new tool for eliminating gender or racial wage discrepancies.