Pay Transparency Laws: Your Questions Answered
New legislation can feel like a jumbled bunch of new rules and regulations. And on top of that, compliance with potentially conflicting or inconsistent state laws can be incredibly challenging for multi-state employers. They may be left wondering if and how new laws apply to them and their employees. With new pay transparency laws enacted on a state and local level across the country, employers must take the time to know how these laws affect them and find out what they need to do to comply.
Because laws differ from state to state or even locality to locality, knowing which rules apply to you and your business and considering how remote workers across state lines may affect employer obligations is essential. In the on-demand webinar, Ellen Feeney — VP assistant general counsel— and Helena Almeida — VP managing counsel — discuss compliance, practical considerations and how employers should respond to today's patchwork of pay transparency laws. The main points will be covered in this article, but for deeper understanding, launch the webinar: Pay Transparency Compliance: Strategic & Practical Considerations
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.
Pay transparency is a tool that state and local governments are using to combat pay gaps through salary range disclosure laws, pay data reporting mandates, and bans on pay secrecy. Pay transparency is connected to pay equity, but they are different.
Pay equity generally means paying employees the same for similar work. Federal law establishes many pay equity standards through the Equal Pay Act of 1963, the Civil Rights Act of 1964, and other landmark laws. In addition, all 50 states now have some pay equity law in place, which either mirror or expand the federal standards.
Although many pay equity laws have existed for decades, most labor economists still calculate a pay gap between genders and other protected groups. State legislatures are looking at different tools — beyond the equal pay laws — to address persistent pay gaps and eliminate unjustified and discriminatory pay gaps in the future.
Discover more in-depth resources about pay equity in this article: Pay Equity.
What is a salary range disclosure?
A salary or wage range disclosure mandate requires an employer to provide information on the wage range they plan to pay an employee for a particular role. More than ten states and cities have some form of salary range disclosure law, but the laws differ in important respects, and compliance is not a one-size-fits-all.
A growing number of states require employers to include the pay range the employer plans to pay for work performed in that role within a job posting. As of early 2023, states with enacted legislation addressing salary range disclosures are Washington, California, Nevada, Maryland, Connecticut, and Rhode Island; New York's law will go into effect in September 2023. Some Ohio, New York, and New Jersey localities have also enacted similar legislation.
Some states have tackled pay transparency by mandating reactive disclosures of salary ranges — employers must provide the salary range only when an external applicant requests it (some states extend the same right to internal employees) or when an applicant reaches a particular stage of the interview process.
"This type of pay range disclosure needs a specific event from a specific individual to trigger the requirement," Feeney says. One example of one-to-one proactive pay range legislation is providing the salary range to applicants once they reach the final round interview.
What is California's salary range disclosure law?
California's salary range disclosure law requires employers to post salary ranges on all active job postings. Starting Jan. 1, 2023, employers in California with 15 or more employees must disclose a pay range in every job posting. This law applies to companies in other states if they have employees working in California — even if it's just one employee, the employer is legally required to post pay ranges on all open requisitions. In addition, if an organization is not in California but has job postings that could be filled remotely by an employee living in California, the organization must post pay ranges on those open requisitions.
The law also notes that having vacancies posted by third parties does not exempt employers from posting pay range disclosures. The employer must provide the pay range to the third party posting the role.
For internal employees in California, pay ranges are not required to be posted, but if an employee requests the salary range, the employer is obligated to provide it.
What other states have pay transparency laws?
New York, Connecticut, Colorado and Washington have all enacted different versions of pay range transparency law requiring pay range disclosures. Effective Nov. 1, 2022, New York City employers must post salary ranges for all internal and external job postings. This law applies to employers that have four or more employees or one or more domestic workers. This applies even if the job is only partially performed in New York City or if a remote applicant in New York City can apply.
Connecticut requires a proactive one-to-one provision for pay range, meaning the employer must provide the pay range if the applicant requests it. This applies to both internal and external applicants. On the other hand, Colorado is a proactive state, requiring employers to post salary ranges on all public job postings but not on internal postings. In addition to the base pay range, employers in Colorado are also required to provide information on any additional pay types, such as bonuses or commissions. Washington also requires employers with 15 or more employees to provide pay ranges for internal and external job postings as of January 1, 2023. Washington state postings must also include health care, retirement and any other reportable benefits. The same is not required for internal postings but must be provided if an internal applicant requests.
What is pay data reporting?
Pay data reporting is another approach to pay transparency. Employers must file reports with a state agency detailing all company wages by race, gender, ethnicity, age and other categories. These reports aim to hold companies accountable for non-equitable pay practices. California requires private businesses with 100 or more employees to submit annual reports to the California Civil Rights Division.
"Employees located inside and outside of California are counted when determining whether an employer has 100 or more employees," Almeida says. "The California regulatory agency uses the example of an employer with 50 employees inside California and 50 employees outside California during the reporting year. Because they have 100 employees in total, this employer would be required to report."
Requirements newly added for 2023 include showing the median and mean hourly rate broken out by job category, race, ethnicity and gender. Employers with 100 or more labor contractors must file a separate report with pay data on their labor contractors, which they should work with their staffing companies to prepare.
Illinois has enacted similar legislation — private employers with 100 or more employees must submit a pay data report to the Illinois Department of Labor to obtain an equal pay registration certificate. Businesses must certify that they follow federal and state laws on equal pay, and if there are any disparities, the company is obligated to correct them.
"So far," Feeney says, "pay data reports submitted to the state by businesses will not be made public, but down the road, they could be, which would mirror what happens in the United Kingdom today."
Can you ask employees to keep their pay secret?
In most circumstances, employers cannot legally ask employees to keep their pay secret. This might seem strange to some since the practice still goes on in many companies. Many employees have been told not to discuss their pay with peers. And in some cases, it's still just an unwritten rule. Under the National Labor Relations Act (NLRA), salary secrecy has been against federal law for several years, but many states are now enacting laws that strictly prohibit salary secrecy. The number of states that have such laws is only continuing to grow.
Laws vary from state to state, but they prevent employers from retaliating against employees who discuss their wages with other employees. They also prohibit employers from requiring a non-disclosure agreement as a condition of employment. While these laws don't cover all employees (for example, employees in the public sector), employers must know the law and how it applies to their business.
"Employers should keep in mind that these state laws cover more than just employee handbooks or formal pay secrecy and confidentiality policies," Feeney says. "This means that even if discussing pay is not banned in the employee handbook, but managers are still telling employees not to discuss their pay or treating pay discussions like a taboo topic, employers could still be violating these laws and subject to legal consequences."
Is it illegal to ask for salary history?
Yes, asking candidates for their salary history in many states is illegal. Many states have enacted laws prohibiting employers from asking candidates for information about their prior salary history because this practice can promote and extend past pay disparities.
"If employers are relying on an applicant's prior salary to set or justify the salary going forward, it could perpetuate past discriminatory decisions about pay made by prior employers, which may have kept that individual's salary artificially low," Almeida says.
While not all states have enacted bans on salary history questions, more and more states are moving in that direction. Employers are welcome to ask applicants about their salary expectations (e.g., What do you hope to earn in this role?). However, because of the challenges of having different application forms for different jurisdictions, inquiries related to previous salaries should be removed from application forms and interview questions.
What are companies doing for pay transparency?
Companies are committing to pay equity across the board to comply with new state and local pay transparency legislation. As mentioned earlier, pay transparency is one facet of pay equity. It shines a light on companies' pay practices and promotes equal pay for equal work. Feeney speaks to how employers' reputations may be affected by how they approach and speak about issues related to pay in the workplace and externally.
"Think about the pay transparency trend not just as compliance with relevant laws but also as part of managing your brand reputation," she says. "If you're posting salary information now because it's required, it's important to consider what this communicates to the market and potential future and current employees about your brand."
It's important to remember that a blanket nationwide policy for your company may not be the answer because laws differ from state to state. Multi-state employers especially may find it challenging to find a one-size-fits-all policy approach. It's also essential to think about remote or hybrid workers when it comes to the nuances and differences of state laws.
Abiding by the state pay equity and pay transparency laws means understanding how they affect your business when posting job openings, hiring employees and reporting data. Check with your employment and legal counsel if you need clarification on how state laws affect your organization.
Did you know?
[On-demand webcast] Pay Transparency Compliance: Strategic & Practical Considerations
Register and replay the on-demand webinar covering the compliance aspects of new state and local pay transparency and equity laws. ADP subject matter experts break down the complex language of the law and spell out how new rules affect employers in certain states.
Get up-to-date pay transparency resources and best practices at ADP.com/PayTransparency.