Pay transparency is more than just a buzzword! It’s a key part of reducing the gender wage gap and ensuring that our teams are being paid fairly and equitably.
When companies have open conversations about salaries, they are also fostering a culture of trust and accountability that can pay dividends in terms of employee engagement and retention.
But we’re not here to pretend that it’s an easy, overnight change!
Enacting pay transparency at your company comes with legal and compliance challenges that HR leaders and People teams need to be prepared for.
In the US, there are various federal and state laws that protect workers’ rights to discuss and disclose their pay. These can be dizzying to navigate because they often differ depending on the size and location of the employer.
In this article, we’ll untangle some of the most important legislation to consider when putting together your own pay transparency strategy.
Relevant Federal Laws
The United States has about a hundred years of labor law for potential employers to consider, which is nothing short of overwhelming. But no worries, we got you!
Most federal laws are focused on prohibiting pay discrimination, protecting an employee’s right to discuss their pay with coworkers, and making sure companies don’t discriminate or retaliate against them for doing so.
The key laws you should keep in mind are:
- The Equal Pay Act of 1963, which requires employers to pay equal wages to men and women who perform substantially equal work.
- The Fair Labor Standards Act of 1938, which establishes minimum wage, overtime pay, recordkeeping, and child labor standards for most private and public employers.
- The National Labor Relations Act of 1935, which basically ensures that workers have the right to unionize by protecting their rights to engage in “concerted activities for their mutual aid or protection.” This includes their right to discuss wages, hours, and other terms and conditions of employment.
- The Lilly Ledbetter Fair Pay Act of 2009, which extends the statute of limitations for filing an equal pay lawsuit. Prior to this law, employees who were being paid unfairly had just 180 days from the time the pay decision was made to both uncover and file a claim of pay discrimination. Now, employees who find out that they are victim of discrimination months or years into a role have 180 days from each affected paycheck.
Various court cases have clarified these laws and helped us establish best practices for fair and transparent pay. Two of the most notable include:
- Rizo v. Yovino, which determined that prior salary alone or in combination with other factors cannot justify a wage differential between male and female employees under the Equal Pay Act. The court reasoned that allowing employers to rely on prior salary would perpetuate the historical gender-based wage gap.
- Brennan v. King, which ruled that employers who penalize employees for discussing their salaries are in violation of the National Labor Relations Act because such discussions are protected activities.
Relevant State Laws
If that wasn’t complicated enough, many states have enacted their own local legislation to govern pay transparency.
These laws have the same goal as their federal counterparts—to reduce gender and racial pay gaps, and promote fair and transparent pay practices. But, maybe due to their recency or smaller reach, they tend to be a little more progressive and detailed in what they require of employers.
Many of these laws require employers to disclose pay ranges at various stages in the hiring process, or prohibit them from asking candidates about their pay history.
Some states that have their own pay transparency laws include:
- California: The California Fair Pay Act requires employers to provide equal pay for substantially similar work, regardless of sex, race, or ethnicity. It also prohibits employers from asking applicants for their pay history or relying on it to determine their offer. Employers must provide the pay range for a position upon request by an applicant.
- Colorado: The Colorado Equal Pay for Equal Work Act requires employers to announce all opportunities for promotion to current employees on the same calendar day and prior to making a promotion decision. It also requires companies to include a pay range in every job posting, plus a general description of benefits and any other compensation offered.
- Connecticut: The Connecticut Act Concerning Pay Equity prohibits employers from asking applicants about their pay history and, even if someone voluntarily discloses it, that information cannot be used as a defense in an equal pay lawsuit.
- Maryland: The Maryland Equal Pay for Equal Work law prohibits employers from paying any employee less for comparable work than they pay to employees of another race, color, religion, sex, sexual orientation, gender identity or expression, disability, age, or country of ancestral origin. It also reinforces that employees have the right to discuss their salaries with one another.
- Nevada: The Nevada Equal Pay Act prohibits employers from discriminating on the basis of sex by paying employees lower wages for equal work on jobs that require equal skill, effort, and responsibility and are performed under similar working conditions. It also prohibits employers from asking for an applicant’s pay history.
- New York: The New York State Equal Pay Act prohibits employers from paying employees less than employees of the opposite sex for equal work performed in the same establishment. It also prohibits employers from asking applicants for their pay history, requiring applicants to disclose such information, relying on that information to determine whether to offer employment or what salary to offer, or retaliating against applicants who refuse to provide their pay history.
- Rhode Island: The Rhode Island Equal Pay Act prohibits employers from paying any employee at a rate less than that paid to employees of another race, color, religion, sex, sexual orientation, gender identity or expression, disability, age, or country of ancestral origin for comparable work on jobs that have comparable requirements relating to skill, effort, and responsibility. It also prohibits employers from asking applicants for their pay history before making an offer of employment.
- Washington: The Washington Equal Pay and Opportunities Act prohibits employers from discriminating between employees on the basis of gender by providing unequal compensation or career advancement opportunities. It also prohibits employers from seeking an applicant’s pay history unless it has been voluntarily disclosed by the applicant after an offer of employment with compensation has been made.
We recommend that most companies take into account all federal and state laws when determining your pay processes. This may feel overwhelming, but it can actually be easier!
Defaulting to the highest standard at every decision point allows you to focus on creating a comprehensive approach for your team instead of spending your time splitting hairs about which state requires what.
This is especially important for remote and hybrid teams. You don’t want to have to redo all your research and re-write your policies every time you hire someone in a new state!
As a starting point, here are some best practices we recommend:
- Include a salary range in every job posting, along with a brief description about how you’ll decide on the exact offer (e.g. a leveling exercise, years of work experience, etc.)
- Also include a high-level overview of benefits, equity, and any other compensation
- Make sure everyone involved in the hiring process is aware of the pay range for the role, and knows how to answer questions about it
- Don’t ask about an applicant’s pay history at any point in the hiring process
- Don’t factor pay history (or speculation about it) into discussions about pay and offers
This isn’t a comprehensive list but we hope it helps you get started!
Pay transparency is a powerful tool to advance gender equality and create a more diverse and inclusive workplace. But it also comes with legal and compliance risks that HR executives and People Ops pros need to navigate carefully.
In the United States, there are different federal and state laws that regulate pay transparency, and they may not always align or apply to every employer. Leaders need to stay on top of these laws and make sure their pay practices are compliant and fair.
They also need to communicate clearly and openly with their employees about how pay decisions are made and how they can address any concerns or questions.
By doing so, they can avoid potential litigation, penalties, or reputational harm. They can also reap the benefits of pay transparency, such as attracting and retaining the best talent, fostering a culture of trust and collaboration, and empowering women to lean in and pursue their career goals.