Pay Transparency: What Employers Need to Know in 2023

by Mike DeBlasi | March 23, 2023 10:20 am

Pay transparency legislation – meaning legislation that requires some degree of openness by employers in communicating the ranges of compensation they pay their employees — is currently sweeping the country. Colorado enacted the nation’s first[1] significant pay transparency law in January 2021. Since then, lawmakers in eight states and ten municipalities have approved similar legislation[2]. Meanwhile, numerous websites — like Salary.com[3] and Payscale.com[4] — provide salary range data to everyone. Pay transparency is rapidly becoming what employees and job candidates expect from employers, and expectations matter in a tight job market.

About 25 percent of workers in the United States currently live in states, counties, or cities that require employers to share pay ranges for most positions. In some parts of the country, the law requires employers to indicate a salary range when posting a job. In other parts of the country, the regulations stipulate that the employer must share a salary range in particular situations — when asked, during an interview, when extending a job offer, and when an employee is changing positions within the same company.

Penalties for non-compliance vary, and in most instances, the first violation carries no monetary penalty if the violation is corrected promptly. Depending on the local regulation, financial penalties for repeat violations vary from $500 to $250,000.

Why is this happening?

According to proponents, the fundamental goal of pay transparency legislation is that pay transparency helps narrow the gender pay gap, increases employee trust, and leads to a higher-quality pool of candidates.

According to recent data[5] from the Organizations for Economic Cooperation and Development (OECD), women in the United States earned 17 percent less than men in 2021. For women of color, this gap is more significant. Data[6] from the Bureau of Labor Statistics tells us that Black women earned about 88 percent of White women’s median wages, and Hispanic women’s median earnings were about 78 percent of the median wages for White women.

Does pay transparency address pay inequities? One recent study[7] published in Nature Human Behavior suggests that it might. The study looked at the spread of pay transparency in academic institutions and found that the practice dramatically reduced the gender pay gap and typically “caused academic institutions to more consistently or equitably link pay to observable measures of academic productivity.”

Pay transparency and performance

Another recent and thought-provoking study[8] analyzed the impact of pay transparency on a player’s performance in the National Hockey League. The study showed that hockey salaries were primarily determined by offensive performance metrics (goals and assists) with less emphasis on defensive effectiveness. Defensive player performance is equally important for the team but more difficult to quantify.

When a player’s salary and basis were transparent, NHL players responded predictably: offensive players increased goals and assists, while defensive player performance declined.

What’s happening in New England?

In New Hampshire, where the Orr and Reno Employment Law Group[9] is based, state pay transparency legislation is not currently in the pipeline. However, New Hampshire has statutes concerning equal pay [10]and unlawful discriminatory practices[11] that include language protecting an employee’s right to “inquire about and discuss his or her wages or those of another employee.”

Similar equal pay and nondiscrimination statutes are on the books in Connecticut[12], Maine[13], Rhode Island[14], and Vermont[15].

A bill currently pending in Massachusetts would require “covered employers” to disclose the “pay range” — defined as the compensation that an employer “reasonably and in good faith expects to pay.” Bill S.2721[16] is one of several pay equity bills pending before that legislature. The proposed Massachusetts legislation considers a broad range of employee and wage data — including the number of employees by race, ethnicity, and gender within specific job categories or roles — and their corresponding wage information.

At the federal level, while it is doubtful that a pay transparency law would make it through both chambers intact, employers should be aware that such legislation has been introduced[17]. Like most state legislation, the bill would require employers to “disclose the wage or wage range in the public or internal posting of an employment opportunity.”

What should employers do?

While the new state and local laws are quite similar, they also vary in their specific pay disclosure requirements. Guidance about establishing and implementing the disclosure of pay scales is minimal. Large companies with large human resource departments — the Amazons and Targets of the world — are quickly developing national pay transparency strategies. Smaller companies are having a more difficult time figuring out exactly what to do and how to keep their policies up to date.

The patchwork of emerging pay transparency laws has created a moving target that some employers are better equipped than others to understand and manage. These laws can pose some complex disclosure challenges, particularly for employers who routinely recruit across state lines. These challenges are further complicated by the remote workforce trend, which can create disclosure obligations in states where a company has no physical presence.

Even in states where pay transparency laws aren’t yet in place, many employers post salary ranges in job listings anyway. Many employers are also implementing comprehensive pay audits in 2023, which can help companies evaluate their compensation packages, compare salaries across job functions, and look for discrepancies.

If you have any questions or concerns about how to make your compensation disclosure practices more transparent, equitable, and compliant with state and local regulations, don’t hesitate to contact Orr & Reno for assistance.

About the Authors: Steven L. Winer[18] and Lindsay E. Nadeau[19]

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Source URL: https://orr-reno.com/pay-transparency-what-employers-need-to-know-in-2023/

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