Share this entry
Navigating Pay Transparency Laws
Why, where, and how companies should comply
Pay transparency has become a hot-button issue recently. Thirty-three percent of job seekers now say they would only interview after knowing the salary an employer is planning to offer.1 Furthermore, 68% of employees have said they would switch employers for greater pay transparency.2 In other words: pay transparency isn’t just a compliance and legal issue but an important driver of talent recruitment and retention.
We recently hosted a discussion for members of The Circle to learn about pay transparency legislation across the country. Two experienced employment lawyers led the conversation: Kristin Pedersen, Partner & Co-Founder of Daijogo & Pedersen LLP, and Nima Rahimi, Senior Counsel at Thumbtack (a Founders Circle portfolio company).
While the complete deep-dive on geo-specific pay transparency laws and associated risks is reserved for members of The Circle community (apply to join), here are the high-level Takeaways:
Disclosing Pay Ranges in Job Postings
Several U.S. cities and states have recently introduced or enacted laws requiring employers to publish pay scales (salary or hourly rate) for job postings offered in those locations.
An important “watch out” for employers is that places like Colorado and New York City require job disclosures for in-person and remote positions where an employee could hypothetically live or move to that location. The level of compensation detail also varies by jurisdiction. For instance, Colorado requires employers to publish an additional description of any commissions or other forms of compensation and benefits (other than minor perks) included with a position.
While the language is still being interpreted in many places, legal experts expect disclosure requirements to apply not only to traditional job postings but also to any external announcements or private solicitations going through a recruiter or another third party.
Similarly, the language around what constitutes a “reasonable” pay range to disclose for a position is open to interpretation, which may cause some anxiety for leaders. “You may be worried about what happens if you end up going above or below the published range,” said Kristin. “Keep in mind that companies are expected to act in good faith, which means only publishing pay ranges that are commensurate with the role and level of seniority you’re actually planning to hire for.”
Disclosing Pay Ranges to Applicants and Employees
In addition to job posting disclosures, more states are enacting laws requiring disclosure of wage or salary ranges to job applicants and current employees. These disclosures may be required upon request or offered proactively in some cases.
Leaders should pay particular attention to the timing requirements around when pay ranges must be shared with job applicants. In Nevada, for instance, pay ranges must be provided upon completion of the first interview, whereas some states only require them once an offer of employment has been made.
Companies may be required to disclose pay ranges for an employee’s current position and any promotion or transfer they have applied for. California’s new sweeping law applies to companies with 15 or more employees. Also, it requires employers to retain every employee’s wage history and job title throughout and for three years after employment.
Penalties for Non-Compliance
Penalties for failing to comply with pay transparency laws will vary by jurisdiction. In California, penalties can range from $100 to $10,000 per violation; however, additional damages, attorney fees, or other relief a court deems appropriate may be assessed if an employee brings a civil action or a series of violations are flagged as part of a class action lawsuit.
In many states, violations can be identified by government agencies or via written complaints from individuals and employees, effectively broadening the level of risk for companies regardless of their size. The good news is that if a government agency in California, Colorado, or New York City flags a violation of the disclosure requirements, employers may have an opportunity to address it before a penalty is imposed.
Embracing a Culture of Pay Transparency
While much of the current focus is on pay transparency compliance, leaders shouldn’t overlook how pay transparency is perceived across their organizations. “The enactment of these laws is starting to shift the culture,” said Nima. “There’s going to be a higher expectation for transparency among job applicants and employees.”
The biggest challenge that People and Finance leaders are grappling with is a drastically accelerated timeline. In many cases, new legislation’s effective dates are rushing what should be a thoughtful change management process within the organization. “While getting into compliance sooner rather than later is important,” said Nima, companies should prioritize the necessary pre-work of having a thoughtful compensation philosophy, analyzing pay equity across the business, and training managers and recruiters on what and what not to say.”
Several CFOs and CHROs present during the discussion have begun a more formal pay transparency communication strategy. One CHRO shared that her organization has been hosting educational seminars to help managers and employees understand how their compensation philosophy works. Providing that context helps employees understand where they sit within various pay bands and how they might theoretically move up higher in the range.
Embracing pay transparency can increase the likelihood of employees feeling dissatisfied with their compensation. It’s essential to train managers and people leaders to approach those employee conversations with honesty and empathy while equipping them with as much data and background on pay structures as possible.
With pay transparency laws taking effect or expanding in various jurisdictions, company leaders must assess their compliance risks and think more holistically about how they embrace pay transparency internally and externally. Keeping a constant eye on labor trends and relying on their legal counsel can help these leaders avoid unintentional violations and make the necessary organizational changes to use pay transparency to their advantage.
Want to keep a steady pulse on compensation, talent, and HR strategies as you scale your company? Apply to join The Circle and gain access to a private community of leaders you can leverage to get insights, ideas, support, and answers.