Eye on Washington's new series focuses on the latest HR regulatory trends taking place at the federal, state, and local level. Topics include tax and HR compliance, Health Care Reform, payroll, benefits, leaves, reporting obligations, and more.
Intent of Legislation
Across the country in local, county, and state jurisdictions, laws restricting salary history inquiries seek to address pay discrimination and systemic pay inequities, due in part to studies that have shown that women earn less than men for comparable work. As the theory goes, using salary history in making compensation decisions only perpetuates existing pay gaps that may be the result of past discrimination. Lawmakers believe that if employers are prohibited from inquiring into a prospective employee's wage history, then they are more likely to base compensation decisions on merit alone and, thus, help close pay equity gaps.
As of March 2018, six states, several cities and counties, and Puerto Rico have all passed laws restricting how and whether employers can use a candidate's salary history in making compensation decisions. States where private employers are restricted in their use of salary history include California, Delaware, Massachusetts, and Oregon. Other states, such as New Jersey and New York, prevent state entities or state agencies from utilizing this information. San Francisco and New York City have also implemented laws which impact a private employer's ability to ask candidates questions about their wage history. In addition, many other jurisdictions are considering similar legislation and have bills pending in their legislatures.
Impact to Employers
Employers should be mindful of how these laws could affect their hiring practices. It is important for an employer to consider whether, where, and when salary-related questions can be asked during the hiring process. These questions could appear on an employer's application form, its background check authorization form, during a phone screen, on interview templates, in compensation guidelines, or even in dispositions. Further, even in jurisdictions that may prohibit inquiries into salary history, exceptions may allow an employer to utilize the information under certain circumstances. For example, some laws permit the employer to inquire into, and/or confirm, salary history following a candidate's voluntary disclosure of the information. Others hold that an employer may inquire into, and/or confirm, salary history once a conditional offer of employment with compensation has been given to the candidate. Yet others allow the inquiry only after the candidate has accepted that employment offer. Employers also need to take into account when these exceptions are silent with respect to the use of the salary history information during compensation negotiations.
Another consideration for employers is the use of this information when determining a candidate's salary. Some employers utilize salary history to set realistic expectations about a position. Others may rely on the information to weed out those candidates whose previous wages may be outside the employer's range. Further, there may be difficulties putting together an attractive compensation package for a candidate if the employer is unaware of what the candidate has previously earned. With the passage of these new laws, employers may have to reevaluate these practices, focusing more, for example, on the market value of the position in setting the compensation to be offered.
Since more state restrictions will certainly follow, and each will have their own nuances, employers with a blanket salary history inquiry practice (i.e., standard policy that applies in all jurisdictions) will likely face increasing risks in noncompliance regarding these laws.
While seeking salary history is currently lawful in the overwhelming majority of jurisdictions, the landscape is changing fast. As a result of these new laws, employers should consult with their legal counsel and review their current practices to determine the appropriate use of salary history in their hiring and salary negotiation processes.
The chart below lists jurisdictions with laws already enacted. Click on the name of the jurisdiction to see the text of the legislation.
ADP Compliance Resources
ADP maintains a staff of dedicated professionals who carefully monitor federal and state legislative and regulatory measures affecting employment-related human resource, payroll, tax and benefits administration, and help ensure that ADP systems are updated as relevant laws evolve. For the latest on how federal and state tax law changes may impact your business, visit the ADP Eye on Washington Web page located at www.adp.com/regulatorynews.
ADP is committed to assisting businesses with increased compliance requirements resulting from rapidly evolving legislation. Our goal is to help minimize your administrative burden across the entire spectrum of employment-related payroll, tax, HR and benefits, so that you can focus on running your business. This information is provided as a courtesy to assist in your understanding of the impact of certain regulatory requirements and should not be construed as tax or legal advice. Such information is by nature subject to revision and may not be the most current information available. ADP encourages readers to consult with appropriate legal and/or tax advisors. Please be advised that calls to and from ADP may be monitored or recorded.
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Updated on April 19, 2018