2023 is looking to be the year of pay transparency. While employees’ rights to discuss their compensation have long been federally protected by the National Labor Relations Act, employers have held pay information close to the chest. But recently, several states and cities began calling on employers to show their hands, adding significant compliance issues for staffing firms with multistate operations.
What is pay transparency? Most often, the phrase “pay transparency” describes a legal requirement binding upon or a voluntary practice of an employer to openly share compensation practices, pay rates, pay progression criteria, benefits, bonus plans and similar compensation-related information.
While some employers have voluntarily and proactively initiated various pay transparency practices, pay transparency legislation is in effect as of Jan. 1 in seven states (California, Colorado, Connecticut, Maryland, Nevada, Rhode Island and Washington) and several other locales (Cincinnati; Toledo, Ohio; Jersey City, New Jersey; Ithaca, New York; New York City; and Westchester County, New York).
Meanwhile, a statewide pay transparency law is expected to go into effect in New York this fall, and other legislation is pending in Massachusetts and South Carolina. The application of each location’s law to a particular situation and the corresponding risk associated with noncompliance vary greatly, and consultation with an experienced legal advisor is recommended.
Why it matters. Pay transparency laws are largely driven by increased public and employee-side pressure for pay equity. Pay equity is important to organizational culture and reputation, to employees and to the public at large. Pay transparency laws are a natural progression to the salary history bans that were enacted by so many states in response to the #MeToo movement, a pivotal point for pay equity concepts and demands.
Pros and cons. Like any standard practice or compliance initiative, there will be various individualized business-side benefits and challenges experienced at varying levels.
Among the benefits to companies that have pay transparency policies is an increased number of relevant inbound applications, which help reduce time and investment in processing candidates who may be outside the position’s pay range. Further, such policies demonstrate support for organizational “open door” communication policies, as they help build trust between employers and employees.
But companies can still face challenges. For example, the patchwork of state and local laws can increase compliance burdens for staffing firms with operations in multiple states. Not communicating well or completely in itself is a risk. There’s also a potential negative reaction by current employees if there is no clear organizational policy in place regarding pay progression and new employees are being offered a higher rate of compensation. This can lead to company culture challenges and increased turnover.
Laws’ impacts. The impact of the various laws upon staffing firms will vary widely by location. Different states have different requirements, limitations and exclusions. Various staffing firm locations face varying labor-related pressures and market conditions. The patchwork of pay transparency laws may require a staffing firm to provide applicants with the pay range for a particular position at a certain point in the hiring/application process, provide employees a pay range upon request or include pay ranges in job postings, or they may exclude a staffing firm (entirely or in part) from certain portions of the jurisdiction’s requirements.
The writing is on the wall that pay transparency is here to stay and is increasingly a foundational candidate expectation. As of December 2022, 45% of job postings on Indeed included pay information. So, even if your firm is entirely outside of a jurisdiction with a pay transparency law, you should consider evaluating and weighing the risks versus the rewards of not having some level of pay transparency and pay progression policies in place.
Meanwhile, staffing firms that do operate where a pay transparency law is in effect should take immediate steps to ensure their job postings are consistent with what the law requires and that hiring managers are properly trained to comply in the field. While there certainly are challenges to overcome, employers of choice will find ways to use pay transparency to achieve better and more efficient hiring results and enhance their competitive advantages.