Pay Equity vs. Pay Transparency: What's the Difference?
Part of a series | Pay Transparency Series
Pay equity and pay transparency are related but distinct concepts. Pay equity is the principle that equal work deserves equal pay regardless of gender, race or other protected characteristics. It’s the outcome employers are working toward. Pay transparency is the practice of disclosing compensation information — pay ranges, pay policies or pay data — to employees, applicants or the public. In short, pay transparency is the mechanism; pay equity is the goal. They are connected but not interchangeable, and HR leaders need both to build a compliant, competitive compensation strategy.
Ultimately, pay transparency is about equity, says Deb Hughes, senior vice president, HR, change and communications, ADP. Transparency can illuminate how compensation decisions are made, but employers still need equitable, data-driven pay practices behind the information they disclose.
Learn more about responding to pay transparency laws
Key takeaways
Pay transparency is the employer practice of disclosing compensation standards to employees, applicants or the public — internally, externally or both.
Pay equity is the concept that equal work deserves equal pay, regardless of race, gender identity or age, rooted in federal law since the Equal Pay Act of 1963.
Pay transparency and pay equity are not the same, but they are connected. Transparency is likely to motivate companies to practice equitable pay.
There is no federal pay transparency law; states are enacting their own requirements, creating a complex patchwork for multistate employers.
The pros of pay transparency include improved morale, lower turnover and stronger talent attraction; the cons include potential adverse reactions if inequitable pay practices are exposed. According to ADP Research, 76% of workers would consider looking for a new job if they discovered their company had an unfair gender pay gap.
Pay transparency is a hot phrase right now. Everyone's using it, writing it, saying it, so what does it mean? Pay equity is another popular one. Are these two phrases interchangeable? Do they refer to different things? In addition to untangling the jargon, business owners and HR teams are scrambling to determine how these new laws might affect their businesses.
This article will break down both concepts to help you understand what pay transparency and pay equity are and how they are related, so you can feel more confident moving forward.
What is pay transparency?
Pay transparency is the employer practice of disclosing information about employee compensation standards to others — internally, externally or both. Pay transparency is not defined by a single level or degree. Instead, it's described as a spectrum on which employers can choose varying degrees of transparency based on state and local mandates or their own pay strategy.
While pay transparency laws differ from state to state, some require publishing pay ranges for all open positions. Others require employers to provide the pay range by the time of the final interview or upon request by the applicant, including internal applicants.
Still, other states require certain businesses to file reports showing workforce demographic or pay data broken out by race, ethnicity, sex and other categories. These reporting requirements provide state agencies with information to help identify pay disparities and monitor compliance with applicable laws.
It's important to note that while this definition of pay transparency is widely accepted in the United States, there may be alternative approaches considered in other countries.
What is pay equity?
Pay equity is the concept that equal work deserves equal pay no matter the person, their race, gender identity or age. Equal pay for equal work has been legislated since 1963 with the Equal Pay Act, again in 1964 with the Civil Rights Act and with other landmark laws.
According to ADP, increased social awareness and workplace transparency have made pay equity more than just a standard compliance issue for many businesses today. In addition to avoiding potential litigation, forward-thinking employers who implement fair pay policies may be able to improve their organization’s reputation, keep employees engaged and attract new talent.
According to ADP Research, 76% of workers would consider looking for a new job if they discovered their company had an unfair gender pay gap, and 27% of workers felt that their pay wasn’t fair in 2024, down from 31% in 2023. Despite this improvement, 28% of women felt their pay wasn’t fair in 2024, compared to 23% of men.
Regardless, educating leaders on how to make pay decisions using a "pay for performance" compensation approach is essential.
Are pay transparency and pay equity the same?
No, but they are connected. Pay transparency is likely to be an excellent motivator for companies to practice equitable pay.
Most labor economists still calculate a pay gap between genders and other protected groups. This gap is most likely why states are stepping in to legislate pay transparency — and, in effect — enforce pay equity.
But pay transparency is about more than just enforcement. It’s about employee and candidate trust, particularly among recent graduates.
“To the extent that you can provide clarity around how pay decisions, promotion decisions and bonus decisions are made, you're going to build trust with that new workforce,” says Helena Almeida, vice president, assistant general counsel, ADP. “And building that trust early can really set you apart and help people understand that success at your company is based on consistent criteria, and it's not arbitrary.”
What are the pros of pay transparency?
The pros of pay transparency include increased awareness of and commitment to social responsibility, lower likelihood of lawsuits, improved productivity and morale, lower turnover rates and attracting new talent.
While committing to the social responsibility of pay transparency is important, pay transparency affects the business's overall brand reputation, which can ultimately impact the bottom line.
What are the cons of pay transparency?
The cons of pay transparency can include adverse employee reactions and potential turnover if unethical pay practices are exposed. Shining light on unethical pay practices could also negatively affect the brand image and, in turn, the business's ability to bring in new employees and potential customers.
Is there a federal pay transparency law?
No, currently, there is no federal pay transparency law. Federal law requires equal pay for equal work. But no other federal laws require companies to be transparent about pay practices. Because of the lack of federal law, states are stepping in to enact their own laws requiring pay transparency. Since laws have been passed on a state level, this creates additional complexity for multistate employers.
Employers should seek the advice of their employment counsel if they are unsure how pay transparency laws may affect them. Ultimately, it’s up to business leaders to adhere to pay practices that attract strong talent and comply with the laws in their states and localities.
FAQs
Can you have pay transparency without pay equity?
Yes, but it carries risk. Implementing pay transparency before auditing your compensation practices for equity may expose unjustified pay gaps, potentially damaging employee trust and employer brand. Organizations benefit from conducting a pay equity analysis before expanding transparency initiatives. Fortunately, ADP has technology to support this approach. Learn more about ADP® DataCloud.
How do pay transparency laws vary by state?
Pay transparency laws differ significantly from state to state. Some require publishing pay ranges in all job postings, others require disclosure only upon request or by the final interview stage and still others mandate annual pay data reporting broken out by race, gender and other categories. Multistate employers face significant complexity because requirements may conflict or overlap.
How should HR leaders prepare for pay transparency requirements?
HR leaders should start by understanding which state and local pay transparency laws apply to their workforce, including remote employees across state lines. Conducting a pay equity audit, establishing defensible compensation ranges and educating managers on how to discuss pay decisions are essential preparatory steps. For more information, visit ADP's Pay Transparency Resource Center.
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