The 2023 and 2024 legislative landscape witnessed a surge in states and cities implementing diverse pay transparency requirements. Despite the progress in recent years in reducing the wage gap, gender pay disparities persist, with current studies indicating that women—particularly women of color—earn only 84 cents for every dollar earned by men. Pay transparency laws aim to rectify these disparities by providing salary and other benefit information to applicants during the hiring process. This additional information is intended to equip applicants with the tools to negotiate compensation, which theoretically may reduce the gender wage gap. In response to this trend and the intent to further address the gender wage gap, several states have introduced varying levels of pay transparency regulations.
Legislative Trend
Colorado was the first state to pass pay transparency legislation in May 2019, setting a proactive example for others. California, Connecticut, Maryland, Nevada, Rhode Island, Washington, and New York followed. In addition to state regulations, cities and local municipalities with pay transparency laws include Jersey City, New Jersey; New York City, New York; Ithaca, New York; Westchester County, New York; Cincinnati, Ohio; and Toledo, Ohio.
These laws—which generally require employers to disclose salary ranges to applicants at specific points during the hiring process upon request or within job postings—clearly indicate the direction in which the legislative landscape is moving. In addition, the following states have passed new legislation that has, or will become, effective in 2024 or early 2025: Hawaii, Illinois, Minnesota, Vermont, and Washington, D.C. Maryland also recently expanded its existing pay transparency law, and Massachusetts has pending legislation.
Potential Upside
As the trend of pay transparency laws continues to grow, you need to understand the potential benefits. By adopting internal practices that include salary ranges and other benefits information within job postings or establishing policies that calculate pay based on objective metrics, not only can you reduce pay gaps and avoid allegations of discriminatory practices, but you can also build trust with your employees. Trust is a key element for a productive and harmonious work environment, leading to increased morale, productivity, job satisfaction, and reduced turnover.
Pay transparency in job postings can also streamline hiring processes, resulting in fewer candidates declining positions after learning about the offered salary. Additionally, upfront salary ranges can attract a larger hiring pool and help you secure top talent.
Criticism
Critics of pay transparency laws raise concerns about negative impacts on employee morale and privacy concerns. Compensation is often a direct reflection of how an employee feels valued. If employees discover their compensation is lower than their peers, resentment toward the employer and coworkers can arise. This reaction can negatively affect the work environment, causing concern for employers—especially when various factors influence salary decisions that employees may not fully understand or appreciate, such as education, years of experience, years of service, location, and employee performance.
Another concern for employers is that pay transparency could lead to higher salary ranges, especially in competitive markets where smaller employers may feel pressure to increase salary ranges to remain competitive with larger companies offering better pay. Despite these concerns, pay transparency is a growing trend many expect or may demand during hiring or advancement.
Finding a Balance
For employers not subject to current pay transparency laws, there are ways to balance concerns and cultivate trust around employees’ pay transparency expectations. One strategy is to routinely conduct an internal assessment to identify disparities or wage gaps. This ensures compensation decisions are made throughout the organization on equal criteria.
Another strategy is to implement specific policies or guidelines that set salary ranges based on objective metrics and formulas, rather than the subjective opinions of managers or hiring personnel. Finally, transparent communication with employees regarding compensation strategies or expectations can foster trust and engagement. When you encourage healthy conversations around compensation, employees feel more valued, which in turn increases productivity—a goal of every employer.
Janae Ruppert is an attorney with Holland & Hart LLP in Cheyenne, Wyoming, and can be reached at jeruppert@hollandhart.com.