Pay transparency can help you build employee trust and retain talent. It's also required in many states. Learn about pay transparency trends.
Article by Robert Schwarz, ADP Digital Experience Team
What is pay transparency and why is it important?
"How much does this job pay?" Every candidate ultimately wants to know the answer. Some are finding out sooner rather than later thanks to a growing number of states and cities with pay transparency laws.
Depending on the jurisdiction, employers may be prohibited from asking candidates for their salary history, or they may be required to disclose a wage range for current and/or open positions.
Yet, complying with these laws is just one part of the larger pay transparency picture. Being forthright about compensation helps improve pay equity – a hot topic with many employees today. Consequently, pay transparency can directly impact an employer's brand reputation and ability to attract and retain talent.
The evolution of pay transparency
The concept of pay transparency – and how it impacts employers and employees – has changed significantly over the years.
Pay secrecy policies
For many years and in most circumstances, federal and state laws have prohibited employers from adopting policies that restrict an employee's ability to discuss wages with other employees.
Salary history bans
Many state and local governments have also passed laws prohibiting employers from considering a candidate's salary history when making hiring or compensation decisions.
Pay range disclosure laws
In the latest effort to address unequal pay, several states and local jurisdictions have enacted pay transparency laws that require employers to disclose a wage or wage range to prospective candidates and/or current employees. Depending on the law, disclosure occurs upon request, at a certain point in the hiring process or publicly in a job posting.
Pay data reporting
The Equal Employment Opportunity Commission (EEOC) formerly required employers to report pay data on their EEO-1 filings, also known as Component 2. Although this requirement no longer applies, the federal government is exploring ways to improve its pay data collection process and future mandates are possible. In the interim, California and Illinois have enacted their own pay data reporting requirements.
Potential benefits of pay transparency
Embracing pay transparency can help businesses comply with the aforementioned laws. In the process, employers may also be able to improve the following:
When employers disclose how they make pay decisions, their employees may trust that their compensation is fair.
- Pay equity
Focusing on transparency creates an opportunity for employers to uncover and address potential pay inequality.
- Talent acquisition
The decision to include a pay range in a job posting naturally means ensuring that the pay range is competitive enough to entice qualified candidates to apply. Businesses that pay below market value may need to promote advantages unrelated to compensation (e.g., flexible hours, remote work, advancement opportunities, etc.) to compete for talent.
Employees who know their pay reflects their performance and experience may be more likely to stay with their employer rather than seek opportunities elsewhere.
Pay transparency sometimes renews employees' commitment to their jobs, which could mean they try harder to deliver results.
Despite these advantages, pay transparency poses challenges and employers must prepare accordingly.
Pay transparency best practices
1. Recognize that pay transparency is appropriate
Pay transparency is not a fad – it's the new normal. While managers once may have reserved discussions about wages for performance reviews, that approach does not meet the moment. Such conversations can occur at any time and, if initiated by an employee, should not be viewed solely as a request for more compensation, but as a reasonable inquiry regarding company pay practices.
2. Expect the conversation to happen and own it
Managers should be prepared for employees to ask questions about pay ranges and company compensation practices. Owning these conversations and providing the appropriate information builds trust and confidence. A culture of transparency can also make it less likely that employees will want to leave the organization.
3. Know the organization's policies and pay philosophy
To better prepare for discussions with employees about pay transparency, managers should thoroughly familiarize themselves with their organization's pay policies and know the answers to these questions:
- How are pay ranges established?
- Are there geographic and market considerations?
- Is the pay range competitive with the open market?
- What data is used to determine market competitiveness?
- How does the company handle pay ranges for positions than can be performed remotely?
- Has the company evaluated the existing compensation structure to ensure that there are no unjustified pay differentials among current employees?
Managers may want to consult with their human resources professional and legal counsel to determine appropriate responses.
4. Conduct a pay audit
Regularly auditing pay scales can help identify instances of pay inequality. Before analyzing the data, however, employers should determine their pay audit goals and frequency and consult with counsel.
5. Know the law – pay transparency laws by state or city
As states continue to pass new legislation, pay transparency will become more critical. The list below provides an overview of state and local laws, covered employers and when employers must disclose and by what method.
Note: State and local requirements vary and are changing frequently, so check with your compliance expert or attorney for the latest information on these requirements. The monetary risks associated with non-compliance are hefty and penalties can be thousands of dollars per violation. This is in addition to attorney's fees, costs and reputational harm.
California – All employers
Upon request, an employer must:
• Provide an applicant with the pay scale for the position for which they applied (even prior to the initial interview); and
• Provide an employee with the pay scale for their current position.
An employer with 15 or more employees must include the pay scale for a position in any job posting. If the employer engages a third party to announce, post, or publish a job posting, the employer must provide the pay scale to the third party. The third party is required to include the pay scale in the job posting. Visit this site for more information.
Colorado – All employers
In each posting for each job opening, an employer must disclose:
• The hourly rate or salary compensation (or a range thereof) that the employer is offering for the position; and
• A general description of all employment benefits the employer is offering.
Connecticut – All employers
• Provide a job applicant with the wage range for a position for which the applicant is applying, upon the earliest of (1) the applicant's request, or (2) prior to or at the time the applicant is made an offer of compensation; and
• Provide an employee with the wage range for their position upon (1) their hiring, (2) a change in the employee's position with the employer, or (3) the employee's first request for a wage range.
Maryland – All employers
Upon request, an employer must provide an applicant with the wage range for the job for which the applicant applied.
Nevada – All employers
• Provide the wage or salary range or rate for a position to a person who has completed an interview for the position.
• Provide the wage or salary range or rate for a promotion or transfer to a new position to an employee who has:
o Applied for the promotion or transfer;
o Completed an interview for the position or been offered it; and
o Requested the wage or salary range or rate.
Jersey City, NJ - Employers with five or more employees
Employers that use any print or digital media circulating within the city to provide notice of employment opportunities must disclose a minimum and maximum salary and/or hourly wage, including benefits, in the posting or advertisement.
NY (eff. 9-17-23); New York City, NY; Ithaca, NY and Westchester County, NY
Employers with four or more employees: When advertising a job, promotion, or transfer opportunity, employers must state the minimum and maximum annual salary or hourly wage for the position.
Cincinnati, OH and Toledo, OH - Employers with 15 or more employees
Upon request, employers must provide the pay scale for a position to an applicant who has received a conditional offer of employment.
Rhode Island – All employers
• Upon request, provide the wage range for the position for which the applicant is applying.
• Provide an employee the wage range for the employee's position at the time of hire, when the employee moves into a new position, and upon request.
Washington - Employers with 15 or more employees
In each posting for each job opening, employers must disclose the wage scale or salary range and a general description of all benefits and other compensation.
Get up-to-date pay transparency resources and best practices at ADP.com/PayTransparency.