Evolution of Pay: The Compliance Landscape for Pay Transparency

Three employees talk in their workplace

Pay transparency laws require action from leaders across the organization.

Pay transparency can be a way to create fairer employee compensation. After all, it's harder for unfair wage gaps to creep in when people know what their peers are earning. And now this workplace policy is beginning to shift from something companies might set up on their own to something that's a requirement in more and more states. Organizational leaders should know how the compliance landscape is changing as well as ways they can take action.

At a basic level, pay transparency could just mean that your organization doesn't actively try to keep wage information secret — that you allow employees to discuss salaries with each other. It could also mean that more information is shared than before about how you set wages and benefits. This could include giving a broad overview of how you calculate salaries, providing the pay rates for different jobs or even sharing the actual pay for employees at your organization.

New government laws

State governments across the country have passed new laws for pay equity and wage transparency. The DOL lists the current regulations on a map, so you can check which apply to your state. Some of the possible workplace laws include:

  • Employers cannot ask candidates their past salary history during interviews or set a candidate's compensation based on their wage history.
  • Employers cannot prohibit their employees from discussing compensation in the workplace or have them sign a waiver that asks them to keep their pay secret.
  • Employers must avoid gender-based pay discrimination and make compensation for the same work equal by gender.
  • Employers must advertise new job and promotion opportunities to all current employees at the same time, with information about pay and benefits.

Compliance tips

Your organization should carefully review the current wage transparency and equity laws in states where you pay workers to see whether any changes are on the horizon. Even if these laws don't currently apply in your area, now may be a good time to institute changes. For example, it may be best for your employees to stop asking salary questions during interviews and for you to allow employees to discuss their compensation in the workplace.

As you set compensation, make sure it's based only on measurable, acceptable factors like years of experience, education requirements and the location. In addition, your HR team should review current pay to see whether there are any discrepancies for employees doing similar work. If so, consider how problems like these happened and what you can do to stop them from happening again.

Finally, remember that pay transparency is the responsibility of the entire organization, not just HR. Managers should make sure that work is distributed fairly according to pay and watch out for potential biases in how they determine promotions. In addition, your finance department should design a compensation structure using pay equity standards (like basing salary on experience), and your executives should promote pay equity as one of your company's core values.

Workforce engagement

Improving pay equity and transparency can also improve employee engagement. Pay is one of the top reasons why employees leave a job, and this happens more often when they think the compensation they're receiving is unequal to their performance and experience. If employees discover unfair wage practices on their own, this adds fuel to the fire and could increase turnover.

In addition, actions speak louder than words. Your organization might say you're committed to pay equity, but if you're not showing the numbers to employees, they might not believe you. On the other hand, if you educate employees about pay transparency, you can demonstrate that you're 100% committed to fair pay at your organization.

As states continue to pass new legislation, wage transparency will only get more important. By taking these actions now, your organization can get ahead of the compliance curve while also creating a fairer workplace.

The U.S. workplace reflects American society in many ways. Highlighted above is the growing expectation of today's employees and job candidates for greater transparency and fairness concerning compensation. For employers, pay equity can also help determine a company's reputation. Get this report from the ADP Research Institute® to learn more: People at Work 2023: A Global Workforce View

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