Pay transparency, which can be defined as the act of honestly disclosing compensation information for current and future employees in any given role, is a hot topic in the corporate world.
Some say it decreases discrimination, builds trust, and increases morale and performance. Others say it breeds dissatisfaction and causes employers to lose out on top talent. Whatever your stance, it’s important to develop your own policies around pay transparency.
For most employers, this involves conducting a pay audit, developing fair pay practices, partnering with the communications team to decide how to reveal pay transparency information to employees, and providing training for managers navigating these conversations.
Above all, it’s important to balance legal requirements with your company’s unique philosophies and culture. In doing so, you’ll have the best chance of success.
Understanding Why Pay Transparency Exists
Statistics show that there are still wage gaps along racial, ethnic, and gender lines. On average, women make $0.82 for every dollar men make, and black and Latina women make $0.63 and $0.58 (respectively) for every dollar white men make.
Because discrimination on the basis of gender or race is illegal in the workplace, pay transparency laws aim to prevent employers from violating these laws. In doing so, many lawmakers believe that requiring companies to publish compensation data will ensure that everyone gets equal pay for doing the same work.
What Laws Govern Pay Transparency?
There are no federal laws requiring employers to disclose to applicants or employees how much they compensate employees for a particular role. In an effort to advance the cause of pay transparency, some states have created their own pay transparency laws. In the following states, employers must disclose wage or salary ranges, and, in some cases, benefits, on job postings:
- California
- Colorado
- Hawaii
- Illinois
- Jersey City, New Jersey
- Maryland (effective October 1, 2024)
- Minnesota (effective January 1, 2025)
- New York
- Vermont
- Washington
Some jurisdictions do not require employers to provide compensation information in job postings but do require them to furnish this information to candidates upon interview, hire, or request. These states and cities include Connecticut, Nevada, Rhode Island, and Cincinnati. However, be aware that you may be subject to pay transparency requirements below the state level.
In 2023, Washington D.C. passed an amendment to its 2014 wage transparency law called the Wage Transparency Omnibus Amendment Act of 2023. The law requires employers to provide a salary range in job listings and disclose health care benefits before an interview. Amendments to this law went into effect June 30, 2024.
However, the law goes further than most by instructing employers to refrain from asking candidates about salary history. Many states and localities have now adopted salary history bans, so it’s important to consider where the candidate is located when inquiring about his or her current or past compensation history.
While many feel this will expand pay protections and help prevent discrimination, others believe it may create unnecessary legal risks for employers and limit applicant pools in an already competitive market.
The Benefits and Drawbacks of Pay Transparency
Employers and lawmakers have long held arguments both for and against transparency. Here are some of the pros and cons often cited by those on both sides of the debate.
The Benefits of Pay Transparency
Some believe that pay transparency requirements encourage employers to follow anti-discrimination laws, which, in turn, promotes a more fair, equitable, and inclusive workplace. In turn, this can build trust and help employees understand how their pay is determined.
Being transparent about pay can also signal that an employer values equity. If the pay is competitive, it will likely be attractive to those who possess sought-after skills.
Finally, pay transparency can improve company culture by encouraging open conversations about pay. Additionally, a clear understanding of the connection between pay and performance may incentivize employees to work harder and feel more engaged.
A Few Issues Employers Should Consider
Pay transparency can limit the applicant pool if potential candidates don’t believe the pay is competitive. Widespread pay transparency often reveals a lot about your compensation strategy, which can also lead to other employers offering raises to entice your employees to work for them.
Pay transparency also has the potential to reveal pay equity issues going on in your company. This can lead to decreased employee satisfaction, tension between team members, higher turnover, and a diminished employer brand.
Developing Your Own Pay Transparency Strategy
As an employer, it’s imperative that you develop your own unique pay transparency strategy that works for your company’s culture and strategic objectives. A few tips to help you accomplish that goal include:
- Consider the laws in the work jurisdiction of each candidate and employee and ensure you follow them to the letter
- Create a clear pay transparency policy that is easy for employees to understand
- Use employee data and salary benchmarking to conduct a full pay audit to uncover any unfair practices and create a plan for addressing them
- Consult your marketing or communications team about how to communicate your pay practices to employees
- Provide training for managers on how to have conversations around pay with members of their teams
In rolling out policies, make sure you are honest about the findings in your analysis, are receptive to feedback from employees, and reassure employees that you are committed to continual improvement.
Focus on Following the Law and Ensuring Fairness in All You Do
Pay transparency is a complex topic. Consequently, navigating it in the workplace can be challenging. As an employer, it’s crucial that you do so with a commitment to honesty and sensitivity.
When you approach pay transparency policies and conversations this way, you make it more likely that you’ll maximize the benefits while ensuring minimal issues. Having a hard time keeping up with pay transparency laws? Request a demo with VirgilHR to learn more about our automated compliance solution.