Four Things Employers Should Know About Pay Transparency

What is pay transparency and why is it important to employees and job seekers? 

Pay transparency is the idea that companies should be open with their applicants and employees about pay and what factors they include when making compensation decisions. It has been growing in popularity, and in some states, it’s even a legal requirement for employers.

With the current job market, those seeking new employment are interested to see pay ranges on job postings and some do not want to waste their time applying for a job if the pay range isn’t readily available. Current employees are looking for more clarity about their own pay and how it compares to their peers – they may put in less effort at work or even look for other job opportunities if they do not feel like they are getting paid fairly.

These ideal expectations are no longer just wants from job seekers and the currently employed, they are now making their way into state and local laws. Whether you’re in a location that’s passed a pay transparency law or simply curious about what this new trend might mean for your businesses, here are four things you should know:

1. Pay Transparency is the Next Frontier for Pay Equity 

In 1963, the federal Equal Pay Act went into effect but pay disparities between men and women still occur. Similarly, state laws with similar objectives have had a similar effect. Simply put, the laws weren’t strong enough and they didn’t account for all the causes of unequal pay. In many cases, it has been possible for an employer to comply with these laws while still offering unequal pay for essentially equal work.

But, basing pay on salary history perpetuates discrimination over an employee’s career. Knowing this, cities and states across the country have instituted salary history bans and implemented other legal measures to strengthen pay equality – including pay transparency laws.

Colorado, California, New York, and Washington have all passed laws requiring employers to include the pay range on job postings.

2. Pay Transparency Laws and Practices Encourage Employers to Talk About Their Pay 

Once pay ranges are included on job postings, everyone from job seekers to competitors to current employees can see how their pay compares to the range offered. Job seekers can use that information to decide whether it is worth it to them to apply for the job and how much that type of job pays in the current market. Competitors can use that information when trying to poach talent. Current employees no longer have to wonder whether they are paid fairly for their work.

It’s important to remember to be mindful when posting pay ranges. If the pay range is too large, employees will think you’re acting in bad faith or wonder who at the company is making that little or that much. If the ranges are reasonable, but you have current employees outside those ranges, it could lead the gossiping, organizing, or confrontations.

3. Employees Have a Legal Right to Discuss Their Pay 

Telling employees they are not allowed to discuss how much they make could be an invitation to a lawsuit. Under federal law, employers may not prohibit non-supervisory employees from discussing their wages with one another. Likewise, employers may not in any way discipline or retaliate against an employee for discussing their wage or other terms and conditions of employment. Prohibitions of this nature infringe upon employees’ protected rights under Section 7 of the National Labor Relations Acts (NLRA). Section 7 protection includes discussions about wages, benefits, treatment by managers, facilities, safety issues, and just about anything else that two or more employees (including supervisors) have protections under state laws that allow them to freely discuss their wages.

4. Pay Transparency Can Be Good for Business 

The benefits of pay transparency are abundant! First, recruiters and hiring managers waste a lot of time and energy processing applications and interviewing candidates who ultimately will decline any offer because the compensation doesn’t match their expectations or fit their needs. Disclosing compensation upfront discourages anyone not interested in the pay from applying. Second, pay transparency on job postings has been shown to significantly increase the number of applicants. Third, with pay ranges front and center, it encourages organizations to comply with equal pay laws.

Adapted content from Mammoth HR