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Pay Transparency on the Horizon?

December 11, 2022

By Emily Fioravante, courtesy SBAM Approved Partner ASE

Like it or not, employers should start to prepare for pay transparency.  Pay transparency is when employers are open about the salary they offer to both present and potential employees.  Some employers are being forced to share more due to recently enacted legislation.

As of November 1, 2022, employers in New York City (with four or more people on the payroll and at least one of them working in the city) are required to provide a pay range listing the minimum and maximum salary in all job postings.  It appears that other cities are following suit. According to CNN, Starting January 1, 2023, California is passing a law for employers with at least 15 employees that states they will be required to include the salary range for what they “reasonably expect” to pay for a position.  New York City and California are very populous areas, so this is expected to affect many workers.

According to The New York Times, similar laws for job postings have been enacted in Colorado and Washington. Additionally, other cities and states that have not passed a law are considering doing the same, as it appears to be the way things are trending.  There are no guidelines on how small or large these salary ranges must be, it is up to the employer to determine what is reasonable. Pay ranges are a function of a variety of factors, such as where the company or applicant is located, the skills or education required, among other things.

In general, whether it is related to just job postings or a philosophical approach to how pay is communicated internally, there are advantages to greater pay transparency. For one, it creates a sense of trust and openness within employers. Employees want to know they are being paid fairly and competitively. Another benefit is that it can help attract and retain talent. By providing this data, jobseekers and current employees of a company are given the ability to see their immediate and long-term compensation potential.

There are also some distinct disadvantages with pay transparency, as some employers have found.  As stated in The New York Times, some company leaders are concerned that providing salary ranges will result in having to offer more compensation in the form of less transparent elements, such as bonuses or benefits. This concern comes from a study published by Academy of Management Journal, which discovered that based on the data from more than 100 medical device distribution firms, when pay was transparent, employees were more likely to seek out (and employers were more likely to provide) this less transparent form of compensation.  Another possible downside is that in an established company, providing this salary data can cause issues amongst employees if salaries are not distributed equally.  Because of this, companies must be careful with how they communicate the information to current employees. 

In addition, there becomes the question if pay transparency will lead to pay disparity lawsuits. Employers need to be prepared for possible retaliation and be able to explain salary decisions to employees that raise questions. According to Law360, employers should perform pay audits, evaluate job classifications, and examine the distinctions between different job levels and pay categories. Ultimately, the focus will be on market pricing data cross-referenced to compensation philosophy.

In the end, pay transparency requires extensive research and planning. Employers that are providing salary data to jobseekers and current employees should be using reliable data when determining the pay range for salaries.   Because of this, jobseekers and employees can feel a sense of trust with the employer and are more likely to believe they are receiving what they deserve.

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