Up to Date With Pay Transparency Laws? Here's What to Know

The days of taboo salary discussions are numbered. New pay transparency laws are making open sharing of employee salaries the norm at organizations big and small. Here's how to prepare.

For decades, hiring managers and job candidates have spent time dancing around one basic but essential question: how much does this job pay?

Now, a wave of pay disclosure laws is bringing salary details out into the open. Whether your business operates in a jurisdiction that requires you to disclose a salary range to new applicants or not, the trend is growing. It's therefore important to consider what this means for future job postings and recruiting so that your organization can take steps to prepare today.

What is pay transparency? What are the benefits?

Pay transparency is the practice of making employee compensation figures visible to others — internally, externally or both.

Employers have traditionally discouraged or prohibited employees from sharing salary information due to the fear that it might foster resentment among employees or limit the employer's bargaining power during recruitment. However, pay transparency can offer several benefits, including the following.

Higher levels of trust

According to the Society for Human Resource Management (SHRM), 91% of employees who believe their organizations are transparent about how pay decisions are made also said they trust that their employers pay people equitably, regardless of gender, race or ethnicity.

Demonstrated commitment to diversity

Making salary data visible prevents businesses from hiding structural inequalities that may be tied to gender, racial or other biases.

"Pay transparency is gaining popularity because it's exactly what people want," says Kiran Contractor, Director of Talent Acquisition at ADP. "More employees and candidates are now calling out pay discrimination as a whole, and with companies as they interview."

Improved talent attraction and recruitment

A LinkedIn study found that including salary ranges in job postings drives more qualified candidates to apply.

As a result, some companies are embracing the shift towards greater transparency, even if they're not required by law to provide salary data. "I feel like that will be part of their recruiting and retaining process moving forward," Contractor notes.

Emerging trends in pay transparency laws

According to a report from the Institute for Women's Policy Research, only 17% of private organizations practiced pay transparency a few years ago. However, that percentage is growing fast, often due to legislation requiring it.

As of January 2022, 10 jurisdictions in the U.S. have salary disclosure laws on the books. However, each jurisdiction has its own rules about what employers need to disclose, to whom they must disclose and when.

Here's a look at the areas where salary disclosure laws have been enacted, and what the legislation entails:

California. The state now bans employers from asking applicants about salary history and requires them to disclose the pay range for a job if applicants ask about it after the initial interview.
Cincinnati, OH. Employers cannot ask applicants about their salary history and must provide the pay range for a job after making an offer if the applicant asks for it.
Colorado. Employers must include the pay range and benefits in every job listing. Organizations with at least one employee in Colorado are required to disclose pay ranges for any jobs that could be performed in the state.
Connecticut. Employers must provide the salary range if an applicant asks for it, or if the employer extends an offer — whichever comes first.
Maryland. Employers cannot ask candidates about their salary history and must disclose the pay range to applicants upon request.
Nevada. Employers cannot ask about salary history and must provide the salary range to applicants after an initial interview, even if the applicant hasn't requested it.
New York City. Starting in April 2022, employers must list the minimum and maximum salary on all job postings, promotions and transfer opportunities.
Rhode Island. Starting in 2023, employers must provide pay range information during interviews upon request and disclose the range before discussing compensation with candidates. Workers can also ask employers for the salary range of their current role.
Toledo, OH. Employers in the city cannot ask applicants about their salary history and must provide the pay range for a job after making an offer if the applicant asks for it.
Washington. Employers must provide the pay range for a job after making an offer if the candidate asks for it.

Pay transparency laws are being considered in several more states, so the above list could expand rapidly in the coming months.

3 ways to prepare for pay transparency

Whether pay transparency laws are already required where you're located or not, there's a good chance they're coming in some form. Here are three methods to help you prepare.

1. Evaluate your existing compensation structure

Many businesses aren't ready to share salary ranges publicly because they don't have their house in order. Pay discrimination due to gender, race and ethnicity are obvious issues. However, discrepancies can also stem from a manager favoring one employee over another, or giving family members the same job title but a preferential salary. And of course, there are legitimate reasons for differences in pay, such as different responsibilities, seniority, cost-of-living considerations or giving an employee a raise to dissuade them from accepting a competing job offer.

"Before you start thinking about pay transparency, make sure you're exactly where you need to be from a market standpoint, and make sure the people in your company are being paid fairly," Contractor says. "Otherwise, you're asking for trouble. If you're going to create pay transparency, you need to ensure you're in line internally before you begin promoting it externally."

2. Base compensation on data — not opinions

To ensure your existing compensation structures are ready for prime time, you need access to reliable benchmarking data. While you can always look at the job boards to see what other businesses are paying, Contractor points out that basing your compensation on anecdotal evidence won't necessarily ensure your compensation is where it needs to be.

"Ideally you want to use a resource that can provide current market data based on your industry, location and role," Contractor notes. "At ADP, we have benchmarking data, so that's something our clients can take advantage of to see how they stack up against other organizations. There are several tools out there that can confirm if you are on the right track or not, just make sure you are looking at true workforce data as opposed to opinions."

If you realize your organization is paying below market, you may need to create a plan on how you can quickly shift your current pay structure.

3. Prepare managers for questions

Once you start including salary ranges in job postings, expect employees to ask why someone joining the organization at the same level is being offered a higher salary.

"It's understandable why many companies want to avoid having those discussions," Contractor says, "but you're going to have to be prepared to help current employees understand the reasoning behind those decisions. You should be prepared to discuss what your organization is doing to make adjustments and promote pay equity. Ensure your leadership team is also aligned so that everyone is speaking the same language when answering any questions."

Be sure that any deviations from the standard salary structure are documented and applied consistently. Clear communication and trust are key to transparency, after all.

Conversations about salary are likely to continue (and expand) in the coming months and years, so it's wise to prepare your organization to adhere to the legislation being enacted. Once you have confidence in your compensation strategy, you'll be well on your way to complying and thriving within the new requirements.

Learn more

Get up-to-date pay transparency resources and best practices at ADP.com/PayTransparency.