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Equity Matters: 3 steps to prepare for pay transparency laws

| Nov 23, 2022 8:00:00 AM | By

In the new year, California and Washington employers will welcome a new compliance challenge. Laws obligating companies to include salary ranges in job posts take effect Jan. 1, 2023.

The laws come as part of a growing trend in legislation. A pay transparency mandate in Colorado has been in place for nearly two years. Similar legislation went into effect in New York City on Nov. 1, 2022. And less demanding laws have been cropping up across the country since 2018.

From this trend, a patchwork of pay transparency laws has emerged. The details of the laws making up the patchwork vary, as do the fees and fines threatening the non-compliant. In California, where some employers must submit pay data reports, fees for violations range from $100 to $10,000. New York City’s law imposes fines of up to $250,000 per violation.

How can businesses stay on top of rapidly multiplying pay transparency laws and the varying requirements they create? OpenComp Senior Compensation Consultant Kayla Reineke and Teleport Human Resources Director Kafi Payne offered three steps companies can take to get ahead of the requirements at a recent Equity Matters Chat, a monthly discussion about all things pay equity. The event was hosted by the OPEN Imperative (Organizations for Pay Equity Now), a coalition of businesses committed to ending gender pay disparities in their organizations.

 

Step #1: Get familiar with the requirements.

Pay transparency laws may appear similar, but there are many nuances businesses must understand — or risk infringing on the law. California’s new law, for example, requires businesses with 15 or more employees to post salary ranges for open roles, in addition to its pay data reporting requirement for companies with 100 or more workers. The Colorado law levies similar obligations for job posts, but it also requires employers to disclose benefits and other kinds of compensation offered.

Employers need to have a firm understanding of the requirements they’re subject to based on the laws that apply to them. “Think through where your employees are located,” Reineke said. “Are they in areas with existing or upcoming pay transparency legislation? Would you meet those requirements?”

To kickstart your knowledge, check out OpenComp’s Definitive Guide to Pay Transparency. Next, learn what the laws covering your organization say. “If you have specific questions about the requirements, go to the state or city’s website,” Reineke said. “If you still have questions, ask your in-house counsel.”

 

Step #2: Create an internal pay transparency philosophy.

Emerging pay transparency laws make some companies sweat. “Companies that aren’t communicating pay ranges internally are anxious about disclosing ranges externally,” Reineke said. “Inevitably, employees will look at the job postings and question their own earnings.”

Companies may hesitate to delve into pay transparency. But pay transparency doesn’t require them to divulge every employee’s salary down to the penny. Rather, transparency allows businesses to tell the story of their compensation practices. It ensures employees and candidates understand their pay within the broader context of the workforce and the market.

Put simply, a pay transparency philosophy should give workers an understanding of what they make and why. “It has to be logical,” Payne said. “It should make sense. It should make sure that, when people talk to each other about pay, they won’t end up hurt, offended, or mistrustful of the company.”

To create a philosophy, companies need to compare the laws that apply to them and develop a policy that aligns with the most stringent requirements. “Companies that try to patchwork are going to make compliance mistakes,” Reineke said. A philosophy should define:

  • How much a company is willing and ready to communicate about pay.
  • How the organization will prepare managers to talk through compensation.
  • How the business will inform employees.

Learn more in our Compensation Academy course on creating a Compensation Philosophy.

 

Step #3: Create or review your pay ranges.

Pay transparency laws are driving companies to adopt a number of good pay practices, from creating formal job descriptions to developing promotion plans. Among the most foundational of these actions is setting and reviewing pay ranges.

“Think about the spirit of these transparency laws,” Payne said. “We’re setting out to be much more specific in our job postings. It requires more work, obviously. But there’s something about big ranges that is off-putting to the candidate.”

In New York City, where requirements for pay transparency took effect Nov. 1, 2022, some employers are posting ranges so large that the maximum salary sometimes doubles the minimum, according to The Wall Street Journal. Such broad ranges frustrate job seekers, who say the information is useless.

As employers create and review their salary ranges, they can also take the opportunity to conduct a pay equity audit. “Look to see how employees fall in your ranges, and how well employees are distributed across them,” Reineke said. Learn the essentials of pay ranges in this quick-start guide to pay ranges, part of our Compensation Academy.




As companies take these steps, they will set themselves up for compliance with the evolving patchwork of pay transparency laws. They will also see their hard work pay off in business gains. “It’s not just about the laws,” Payne said. “There are other important benefits of being transparent.”

Applicants will feel more confident when they read about their potential salary ranges in job postings. They’ll also be more attracted to the job — over two -thirds of employees say they would switch employers for the same pay simply for greater pay transparency, according to a 2022 survey. Current employees will appreciate the clarity around compensation, too, understanding how their earnings were calculated. And they’ll know their pay wasn’t influenced by bias.

As you establish compliance with pay transparency laws, you may feel overwhelmed. You don’t have to struggle alone. Join OPEN Imperative to find know-how, accountability, and community. Our monthly Equity Matters chats will propel your pay equity efforts and connect you with leaders who share in your challenges and commitment to closing the gender pay gap once and for all.

 


Emily Sweet is VP of Social Impact and OPEN Imperative Lead at OpenComp. She writes about topics including pay equity and diversity, equity & inclusion (DEI). A board member of the National Council of Jewish Women, Emily is a veteran philanthropic leader and policy advisor with more than 20 years experience advancing bold solutions to big problems that drive impact and inspire collective action. Connect with her on LinkedIn here.

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