How Employers Should Respond to New Pay Transparency Laws

In recent years, pay transparency has become a significant area of focus for lawmakers and employees alike. Many states have their own unique laws related to these efforts, and employers must pay close attention to ensure compliance and avoid potential legal consequences.

Navigating challenges and considerations
One of the most significant challenges for employers is the variation in pay transparency laws from one state to another. Each government may have its own approach to pay disclosure, and employers must familiarize themselves with the specific requirements in each jurisdiction where they have employees.

While some employers may find it straightforward to disclose pay information, others may face challenges due to significant pay disparities in different regions. For example, a white-collar worker in New York may command a much higher salary than one in Kansas. Consequently, when making job opportunities available to candidates outside of the New York area, the potential range of salaries can be vast. Striking a balance between compliance and the practical realities of varying regional pay scales is essential.

To navigate these differences, employers can establish a pay range that is broad enough to encompass various markets, therefore maintaining transparency while still accommodating regional disparities. This approach helps minimize the risk of underpaying or overpaying employees in different locations, while also promoting fairness and consistency across the organization.

Examples of pay transparency laws in specific states
As of January 1, 2023, Washington state's pay transparency law requires companies to disclose pay ranges and associated benefits in job postings. The requirements apply to every employer with 15 or more employees that has at least one Washington-based employee. The legislation also covers remote job postings and internal job transfers, adding another layer of complexity for employers with a distributed workforce. And, this includes employers that do not have a physical presence in Washington.

In June, Colorado passed Senate Bill 23-105 to amend the Equal Pay for Equal Work Act. Under this amendment, employers are required to announce job opportunities internally and externally on the same day and before selecting a candidate. The hourly or salary compensation range, a general description of benefits or other compensation, and the application deadline must be included. Employers with fewer than 15 remote employees in Colorado are exempt from certain requirements until July 1, 2029.

Additionally, California and Illinois have affirmative pay data reporting requirements to ensure pay equity and transparency. In California, employers are required to provide pay range information on job postings and be prepared to provide current pay information upon request to current employees for their current position. Failure to comply may be subject to a fine ranging from $100 to $10,000 per violation. On the other hand, a bill expected to be signed into law by the Illinois governor necessitates employers to register with the state and report on their compensation strategies to ensure pay fairness. Both states emphasize the importance of eliminating pay disparities and promoting transparency in compensation practices.

Compliance and best practices for employers
Given the complexity of state-specific pay transparency laws, employers must take proactive steps to ensure compliance. This involves staying informed about updates to laws in each jurisdiction, particularly when expanding operations to, or recruiting talent from, new states or regions.

To effectively disclose pay ranges and benefits, consider providing a broad range that allows for transparency while still accommodating differences in cost of living and market demands. Employers may also offer a total rewards statement that outlines the comprehensive compensation package, including benefits and other perks as appropriate.

As organizations and executives navigate pay transparency, they must address potential challenges related to fairness and transparency in their compensation practices. Reviewing wages and conducting pay equity analyses can help identify and address any disparities and ensure a fair and equitable work environment for all employees. Conducting frequent audits and seeking expert advice can help identify compliance issues and areas for improvement.

Based on the findings of compensation reviews, employers should be prepared to implement necessary adjustments to maintain compliance with applicable laws. This may include updating job descriptions, refining pay ranges, and enhancing benefit packages. Additionally, employers should consider the potential effects of pay disclosure on employee satisfaction and retention rates, and implement strategies to address any issues that arise.

Pay transparency laws are shaping the landscape of compensation practices across the country, demanding employers' attention and proactive response. As this continues to evolve, leaders must remain vigilant and proactive to adapt to changes and ensure a legally sound and equitable workplace.