Pay transparency laws are an effort to ensure fair pay for all, particularly for minorities and women, and have become more prevalent in recent years. This trend is likely to continue and become more common amongst various jurisdictions. While these laws aim to promote greater equity and transparency in the workplace, they also result in a range of implications that businesses must carefully navigate. As taboo as it once was, asking “How much will I make?” is now a typical question.
As with many employment trends, we saw pay transparency laws starting in traditionally “blue states” and large metropolitan areas, but they have expanded from there. At this point, the following states have enacted pay transparency laws: California, Colorado (the first!), Connecticut, Maryland, Nevada, New York, Rhode Island, and Washington.
Several cities/counties have also enacted transparency laws, including: Cincinnati, Ohio; Ithaca, New York; Jersey City, New Jersey; Toledo, Ohio; and Westchester County, New York. My hometown, Columbus, Ohio, is among the newest members of the pay transparency club, going into effect in 2024. Several other cities and states, including Chicago, Illinois, Massachusetts, Georgia, and West Virginia, are currently considering pay transparency laws.
Each jurisdiction has its own nuances, but generally, the transparency laws prohibit asking applicants about their pay history and require providing a pay range for open positions, both externally and internally. Some laws require such information upon request, while others mandate that the information be publicly posted.
The laws also apply to businesses on varying levels based on the number of employees. For example, in California, the pay transparency law applies to employers with 15 or more employees, whereas the Colorado pay transparency law applies to any employer that employs at least one person in Colorado.
Likewise, required compensation details vary by specific law regarding whether the disclosure applies only to compensation (i.e., hourly wage or salary) or whether benefits must also be disclosed. Failure to comply with these transparency laws also comes with varying penalties from $500 to $10,000 per violation.
These laws aim to benefit the employee and eliminate or minimize discrepancies in pay. When these transparency laws are implemented, or even before, businesses can use them as an opportunity to self-audit and ensure their pay practices are proper and not discriminatory based on race or gender. This display of transparency, even if not required by law, shows that the company is interested in supporting pay equity.
These changes and requirements come with challenges. Businesses may be forced to face significant incongruities in their compensation plans, which could result in reallocating finances to become compliant and equitable. And, unquestionably, pay transparency will increase conversations about compensation, which businesses have historically discouraged.
However, there are also benefits for businesses and the workplace as a whole. Businesses, whether legally required to or not, can use pay transparency to cultivate a positive culture that shows employees that leadership has nothing to hide and can be trusted. In a competitive employment market, it is important for businesses to remember that employees tend to stay with businesses they believe in.
Being transparent in job postings about pay expectations also shows potential applicants whether the compensation is competitive in the market and, as a practical matter, it can save both businesses and potential employees time and resources by ensuring they are on the same page about pay prior to entering into the application and interview process—younger generations are starting to expect pay ranges on job postings, and many won’t apply to one without it.
As for best practices, businesses must know that pay transparency is on the upswing and is likely here to stay. Accordingly, businesses must be cognizant of whether any transparency laws apply to their workforce or potential workforce. Businesses will be well-served if they know what the law requires and how to prepare their managers and those in hiring positions who respond to questions about pay and benefits. Importantly, there may also be remote work implications, and businesses must understand the requirements that apply in these situations.
Given the relative newness of pay transparency laws, it is not fully understood their level of effectiveness. However, early information shows that transparency can certainly help level the playing field for minorities and women by providing information to negotiate pay and benefits better. If the laws work in the way they are intended, they will serve to increase participation in the labor force and narrow racial and gender-based pay gaps.
As these pay transparency laws are implemented and expanded, it is recommended that businesses work with their employment attorneys to understand and comply with current and upcoming requirements. Of course, for any companies that operate in jurisdictions affected by pay transparency laws, now is the time to start making changes. With the guidance of attorneys, businesses can navigate through these new laws and emerge as leaders in the push for greater workplace equity and transparency.