Pay transparency laws: what you need to know
In the United States, people don't usually discuss their salaries with coworkers. However, pay transparency laws are changing in many states, and more pay transparency can help employers and employees. Here's some more information about pay transparency, its benefits, pay transparency laws, and how to improve pay transparency.
What is pay transparency?
Pay transparency can take many different forms. It often includes salary ranges posted with job listings and public, easily accessible documents with the pay and benefits for every job in a company. Employers can also allow open discussions between employees about wages and help keep the subject from feeling taboo or off-limits.
The benefits of pay transparency
According to a Bankrate survey, almost 42% of workers ages 18 to 25 years old and 40% of people from 26 to 41 have shared their salary information with a professional contact like a coworker. That number is 31% for people from 42 to 57 and only 19% for people over 58 years old. Here are some of the reasons why pay transparency is increasing among employees and employers.
Pay transparency can help ensure fairness
Learning what coworkers make can help people negotiate their salaries and keep themselves from being underpaid. It can also reduce inequities due to discrimination or the gender pay gap, a difference between the average salaries of men and women in most fields.
It can raise retention
When people can see that they're getting a fair pay rate for their work, they're less likely to think about leaving for another employer. Pay transparency can help eliminate suspicions that workers could have about favoritism or other motivations. These feelings might make a manager want to raise wages for one employee but not another person with comparable duties and experience.
It can increase motivation
According to a Gallup survey, at least 50% of the workforce in the United States are "quiet quitters." This term has been trending lately, and a quiet quitter is someone who meets their job description and fulfills their duties but never makes more than the minimum of effort required. Pay transparency can help prevent quiet quitting by showing the employees of a company that the top performers receive appealing rewards. By recognizing workers' achievements and following pay transparency laws, you can increase productivity and encourage them to excel in their tasks.
It makes hiring and salary negotiations easier
When your company hires a new employee, deciding on the right candidate can require extensive background checks and multiple interviews. If the person declines the job offer because the pay or benefits aren't adequate, you'll have to start over and spend more time looking at other applicants. Increasing pay transparency can keep staff members from wasting time considering applications from people who don't think the company pays enough.
Also, not everyone is a skilled negotiator. More pay transparency makes businesses more appealing to employees because they can tell that their pay rates are based on their work-related skills, not their ability to negotiate or flatter the boss. Listing a salary range for a new position can even increase the number of applicants. Additionally, according to CareerBuilder data, jobs with clear salary details receive 54 times more applications than those without salary information.
Pay transparency can help a company gain trust
Along with making a business seem more fair to its employees, pay transparency can help build trust among stockholders, investors, and the board of directors. Paying workers is one of the biggest costs for many organizations. Being transparent about pay rates can help assure executives that the company keeps these costs as low as possible while recruiting skilled applicants.
“Pay transparency can help prevent quiet quitting by showing the employees of a company that the top performers receive appealing rewards. By recognizing workers' achievements and following pay transparency laws, you can increase productivity and encourage them to excel in their tasks.”
Pay transparency laws
In the United States, there are two federal laws about pay transparency. Many states have pay transparency laws as well. Here's some more information about federal laws and recent regulations in different states.
Federal pay transparency laws
Executive Order 11246 became effective on Jan. 11, 2016. It keeps federal contractors and subcontractors from firing or punishing employees and applicants who discuss or disclose their compensation. If a company doesn't do any work for the federal government, employees are protected by the National Labor Relations Act (NLRA).
The NLRA says that employees have the right to talk to other people at their workplace about their wages. Knowing the wages of coworkers can be a vital step in salary negotiations or even forming a union. However, employers can still have policies that prohibit discussing pay rates while using company equipment. They can also keep people from talking about their pay on the job if they have a policy prohibiting all conversations that aren't related to employees' duties. People can still discuss pay outside work, on break, or at lunch.
California
On Jan. 1, 2018, California amended its Equal Pay Act to keep employers from asking for applicants' salary histories in most circumstances. It also requires employers to supply a pay range for each position on request. On Jan. 1, 2023, a new amendment will go into effect. It requires a pay scale for all advertised job postings.
Colorado
Colorado's Equal Pay for Equal Work Act became effective on Jan. 1, 2021. It also requires employers to list a pay range and general description of benefits in job postings. It includes remote workers, but there are some exceptions. You don't have to post a salary range if you're confidentially replacing an existing employee, promoting someone after a trial period, or looking for a temporary worker for up to six months.
Connecticut
Connecticut's "An Act Concerning the Disclosure of Salary Range for a Vacant Position" started on Oct. 1, 2021. It requires disclosures of wage ranges upon request, and it covers remote workers.
Maryland
The Equal Pay for Equal Work Law was amended on Oct. 1, 2020 to require pay ranges on request. It keeps employers from asking for applicants' past salary information, but people can still disclose it voluntarily during pay negotiations.
Rhode Island
On Jan. 1, 2023, the Rhode Island Equal Pay Law will start requiring employers with one or more employees in the state to provide wage ranges. These ranges don't have to be part of job postings, but employers must provide them before interviews. Current employees can ask for wage ranges as well.
Washington State
Washington State will also start requiring a salary range on Jan. 1, 2023. This state also requires a salary range when transferring a current employee or offering a promotion. Information about benefits and other compensation should be included in job descriptions as well.
As more states pass pay transparency laws, you can expect more information about wages from employers. Even if an applicant doesn't live in a state with requirements about providing pay ranges, the employer could have offices in one of these states. Many businesses are also realizing that voluntary pay transparency can make them seem more trustworthy to applicants and current employees.
DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
Related reading: More information about pay and pay transparency laws
In some cases, more benefits can be better than a higher salary.
Female workers are more likely to believe there's a pay disparity, so they can often benefit more from pay transparency and pay transparency laws.
Pay transparency can help address the gender pay gap.
Pay transparency laws make deciding on competitive wage rates easier for employers because they can see what other businesses are offering.