What employers need to know about compensation transparency laws
Employee compensation rights are a hot-button topic, and states are beginning to take note. Compensation transparency laws that require companies to post or disclose pay ranges for available jobs are starting to crop up around the country. Following Colorado, the first state to pass a pay transparency law in 2019 (enacted in 2021), many others are following suit, including Connecticut, Maryland, Nevada, and Rhode Island.
New York City, California, and Washington State have each recently passed laws that employers need to understand fully. These new laws benefit job seekers, but for employers, it goes beyond including pay ranges in job postings to managing current employee expectations and positively communicating a company’s compensation philosophy.
Over the next few months, we’ll dive into compensation transparency and how employers can successfully navigate implementing it across their organizations. The first step is staying informed of these new laws, and below is an outline of the most recent that are going into effect.
The scoop on New York City Local Law 59
Beginning in November of 2022, New York City Local Law 59 now requires New York City employers with four or more employees to disclose the minimum and maximum hourly wage scale or annual salary range for a posted job.
Compensation transparency highlights New York City employers should note:
- Job postings. Employers must include minimum and maximum salary or hourly wage ranges on most job postings, including external job postings published or promoted by third parties.
- Compensation disclosure. Other forms of compensation are not required to be shared.
- Internal promotions or transfers. Employers must include minimum and maximum salary or hourly wage ranges for advertised jobs, promotions, or transfer opportunities to their current employees.
Similar laws were passed and enacted for employers in California and Washington starting January 1, 2023.
Diving into Washington State Senate Bill 5671
Last year, Washington State Governor Jay Inslee signed into law Senate Bill 5761 to promote and increase pay transparency and equality
Compensation highlights to understand for Washington employers:
- Job postings. Companies with 15 or more employees must include a wage scale or salary range for any job posting. This law applies to postings published by third parties, ones done on electronic job boards (such as LinkedIn or Indeed), and available job descriptions done via hard, printed copies.
- Benefits & Compensation disclosure. Companies must include a general description of all benefits and other forms of compensation that will be offered to hired applicants.
- Internal promotions and transfers. Upon request, employers must provide the wage scale or salary range for the current employee’s new position in the case of internal transfers or promotions.
As stated on the Washington State Department of Labor and Industries website:
“Employers must include a wage or salary range, a general description of all benefits, and a general description of other compensation in job postings. These requirements apply only to employers with 15 or more employees.”
California’s Pay Transparency for Pay Equity Act (SB 1162)
California’s pay transparency law also went into effect on January 1, 2023. Previously, California employers were required to provide the salary or hourly wage range only upon request by an applicant who completed an initial interview.
Compensation highlights to understand for California employers:
- Job postings. Companies with 15 or more employees must include a pay scale — either the salary or hourly wage range — for all external job postings for non-employee applicants, including postings published by third parties.
- Compensation disclosure. Other forms of compensation are not required to be disclosed.
- Recordkeeping. Employers must maintain a record of job titles and wage history during each employee’s employment and for three years after termination.
- Pay data reports. Private employers with over 100 employees will be required to file an annual pay data report, the first due on May 23, 2023, for the 2022 year.
- Internal requests. The new law also maintains that upon a current employee’s request, employers will be required to provide the pay scale the employer reasonably expects to pay for such employee’s currently-held position.
These laws are designed to help close compensation gaps and boost employee pay equity, and while this is very necessary, it comes with some challenges for employers. For example, pay gaps between employees with similar jobs can be problematic, and attention needs to be given to fixing those discrepancies.
The first step is for employers to do a compensation audit within their organization to understand the current employee salary landscape better. With requirements to post salary ranges on new job postings, bringing in a compensation expert can help employers with pay transparency activities, including:
- Conducting a comprehensive audit to establish pay ranges that align with the market while providing recommendations to maintain pay equity.
- What to do about current employees who are making less than the posted salary.
- How to adjust benefits with current employees.
- Understanding how remote work or geographical pay can affect your compensation plan.
- Establish criteria/guidelines for employee pay placement within a salary range.
- Will turnover increase if workers see higher ranges posted elsewhere?
- How can companies remain competitive if others in the market have considerably higher wages posted?
These new compensation transparency laws can be confusing, and employers should utilize a compensation professional to ensure they are in compliance and answer pay-related questions.
At Compensation Works, our compensation experts are well-versed in the recent transparency laws. They can help your organization better prepare for what these changes might bring inside and outside your company. We can perform a thorough pay equity analysis to identify pay gaps by gender, age, or ethnicity. We can also identify weaknesses in pay practices that prevent organizations from achieving and maintaining equal pay. We then provide recommendations for changes to pay practices and ensure you are prepared for these new laws. Contact us today for a consultation.