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Pay Transparency: The Ultimate Guide

Guides
December 5, 2022
15
min read
by
Pave Team

Pay transparency is coming. Starting in 2023, California, Rhode Island, and Washington will enact laws that require employers to provide more visibility into pay range for job advertisements. These laws follow similar legislation in recent years in Colorado, Maryland, Connecticut, and New York City.

This means talking about salary—long considered a taboo topic in American workplaces—will soon become more commonplace. Employers need to prepare for this pay transparent future, or risk employee backlash, organizational disruption, and legal recourse. 

In this guide, we’ll break down everything employers need to know about pay transparency, including what it is, how employers can lean into the macro-conversation around pay transparency to meet employees’ expectations, and certain state-by-state variations in pay transparency requirements. As this is an ever-changing landscape, keeping in close contact with your legal team or outside legal counsel can help set a company up for success.

What is Pay Transparency?

For an organization, pay transparency is a series of best practices around how to comply with the laws related to pay transparency and meet employee expectations. When organizations discuss pay transparency, they typically are referring to the organizational philosophy around compensation, including how salary bands are determined, the level of transparency around compensation information (for both employees and applicants), and how the organization talks about compensation with its workers. Overall, good pay transparency should help employees understand why they’re paid what they are and how they can achieve higher levels of compensation. 

The concept of pay transparency is extremely popular amongst workers, with a recent survey finding 98% of workers in favor of greater pay transparency. Good pay transparency can foster greater trust between employees and their employers, promote gender pay equity, attract talent, and provide candidates with reasonable salary expectations. 

Historically, it has been up to employers to decide how transparent they want to be with regards to pay. However, new state legislation places increased demands on employers to institute pay transparent policies. The following is a breakdown of the law in all states that have enacted (or are going to enact) pay transparency legislation.

Pay Transparency Laws by State

California Pay Transparency Law

Starting Jan. 1, 2023, California’s pay transparency law requires any employer with 15 or more employees to “include the pay scale for a position in any job posting. In addition, the pay scale must also be given to any third party that the employer engages to announce, post, or publish a job posting. The third-party is required to include the pay scale in its announcement, posting, or publication of the job posting.” Pay scale is defined as “the salary or hourly wage range that the employer reasonably expects to pay for the position.”

Further, “upon reasonable request, any employer (regardless of size) must provide a current employee or an applicant the pay scale for the position in which the employee is currently employed or is applying.” Additionally, employers with more than 100 employees or contractors will be required to report a median and mean hourly pay rates by job category, race, ethnicity, and sex. 

Failure to comply as an employer may result in a civil penalty of $100 - $10k per violation. More info -> 

Colorado Pay Transparency Law

Under Colorado’s law, which went into effect in 2021, employers are “required to disclose within the job posting the hourly or salary compensation, or a range of hourly or the salary compensation, and a general description of all of the benefits and other compensations to be offered to the applicant if hired. The compensation range may extend from the lowest to the highest pay the employer in good faith believes it might pay for the particular job. An employer may ultimately pay more or less than the posted range, if the posted range was the employer’s good-faith and reasonable estimate of the range of possible compensation at the time of posting.”

“The posting must also include a general description of any bonuses, commissions, or other forms of compensation that are being offered for the job. ‘Benefits’ to be included in the posting consist of health care benefits, retirement benefits, any benefits permitting paid days off, and any other benefits that must be reported for federal tax purposes.”

Notably, the legislation does not apply to “jobs that are performed entirely outside of Colorado, or postings entirely outside of Colorado. An out-of-state employer without existing Colorado staff that posts a remote job is NOT covered by the law’s salary-posting requirement—even if a Coloradan applies for the job.”

Failure to comply may result in “(i) orders to cease non-compliance and/or effectuate compliance; (ii) a penalty of not less than one hundred dollars ($100) for each day a violation, failure, neglect, or refusal to comply with this legislation continues; and/or (iii) a fine of no less than five hundred dollars ($500) and no more than ten thousand dollars ($10,000) per violation. More info ->

Connecticut Pay Transparency Law

Connecticut’s pay transparency law, which was also enacted in 2021, requires employers to disclose to employees and applicants the salary ranges for positions. The employer must disclose the salary range to applicants either upon the applicant’s request, or before a formal job offer is made. In the event of noncompliance, an employee or applicant may bring an action in court against the employer.  More info ->

Maryland Pay Transparency Law

Maryland’s Equal Pay for Equal Work act, which was originally passed in 2016, requires employers to provide the salary range for a position upon a candidate’s request, and says employers “may not prohibit an employee from inquiring about, discussing, or disclosing their wages or that of another employee, or requesting that the employer provide a reason for why the employee’s wages are a condition of employment.” If an employer violates the Equal Pay for Equal Work act, an affected employee “may bring an action against the employer for injunctive relief and to recover actual damages, and an additional equal amount as liquidated damages.” More info ->

Nevada Pay Transparency Law

Enacted in 2021, Nevada’s pay transparency law requires all employers to share a pay range with applicants who have interviewed for a position, and employees seeking a promotion or transfer to a new position upon request. The law also prohibits Nevada employers from inquiring into an applicant’s salary history. 

In the event of noncompliance, the aggrieved party may bring a civil action in a district court against the employer. The Labor Commissioner of Nevada can also impose an administrative penalty of up to $5k for each violation. More info -> 

Rhode Island Pay Transparency Law

Starting in 2023, employers in Rhode Island must provide a wage range for a given role to applicants or employees upon request. Absent a request, the law says an employer “should provide a wage range for the position.” The employer must also inform an employee of their wage range when hired or moved into a new position.

Further, Rhode Island employers may not inquire about an applicant’s salary history. Non-compliance may result in a civil penalty between $1k - $5k per violation. An employer may also be found “liable for unpaid wages,  compensatory damages, special damages of up to $10k, liquidated damages up to twice the amount of unpaid wages and/or benefits, equitable relief (such as reinstatement of the employee’s position, fringe benefits, and seniority rights), punitive damages if the employer acted with malice and reckless indifference, reasonable attorneys’ fees and costs.”  More info -> 

New York State Pay Transparency Law

New York State’s proposed pay transparency law stipulates that employers must “include the compensation or a range of compensation for such job, promotion, or transfer opportunity within any advertised job posting.

“The legislation defines ‘range of compensation’ as the minimum and maximum annual salary or hourly range of compensation for a job, promotion, or transfer opportunity that the employer in good faith believes to be accurate at the time of the posting of an advertisement for such opportunity. The range must be in good faith and believed by the employer to be accurate at the time of the posting of an advertisement for such opportunity.”

Failure to comply can result in a fine between $2.5k - $5k per violation. Note that, while this legislation has passed the New York State legislature, it has not yet been sent to the governor’s office for approval. If approved, the law will go into effect 270 days after it is signed into law. More info -> 

New York City Pay Transparency Law

Although New York State hasn’t yet passed its pay transparency law, New York City’s pay transparency law went into effect on November 1, 2022. Under the New York City law, all employers who have 4 or more employees (with at least one employee working in NYC) “must state the good faith minimum and maximum range they believe they are willing to pay for the advertised job, promotion, or transfer opportunity. The range can not be open ended and must be a clear minimum and maximum.”

“Salary includes the base annual or hourly wage or rate of pay. Salary does not include other forms of compensation or benefits offered in connection with the advertised job, promotion, or transfer opportunity (i.e., any insurances offered, paid or unpaid leave, 401k information, severance pay, overtime pay, tips bonuses, stock, or the value of employer-provided meals or lodging).”

If an employer fails to comply, they will “have to pay monetary damages to affected employees. The New York City Commission on Human Rights Guidance will not assess a civil penalty for a first complaint alleging a violation, provided that the employer shows they have fixed the violation within 30 days of receiving the Commission’s notice of the violation. Employers may be required to pay up to $250,000 for uncured first violations, as well as for any subsequent violations. More info ->

Washington Pay Transparency Law

Also starting in 2023, Washington’s pay transparency law requires an employer with 15 or more employees to “disclose in each posting the wage scale or salary range, and a general description of all of the benefits and other compensation to be offered to the hired applicants. The range cannot be open ended (e.g., ‘up to $30k’). In addition, the legislation states that applicable ‘postings’ include recruitment done directly by an employer or indirectly through a third party.”

“The law also makes it mandatory for an employer to provide a wage scale or salary range upon request of an employee who is offered an internal transfer or promotion.”

Compensation is defined as “discretionary and nondiscretionary wages and benefits provided by an employer to an employee as a result of the employment relationship.”

In the result of noncompliance, the Washington Department of Labor and Industries “may order the employer to pay the complainant actual damages; statutory damages equal to the actual damages or five hundred dollars ($500), whichever is greater with accruing interest; costs; and reasonable attorneys’ fees. In addition, the employer may be required to pay the Department a civil penalty of at most five hundred dollars ($500) for the first violation or the greater of one thousand dollars ($1000) or 10% of the damages for the second violation.” More info ->

Pay Transparency Laws in Other States

While no other states require salary ranges be provided to candidates, a handful of states have laws requiring employers not ask candidates about their salary history as a means to determine pay, or prevent employees from discussing pay. States with some version of these laws include:

  • Alabama
  • Delaware
  • Hawaii
  • Illinois
  • Maine
  • Massachusetts
  • New Jersey
  • Oregon
  • Vermont

Aside from New York City, additional jurisdictions that have some form of legislation around pay transparency include:

  • Cincinnati, OH
  • Toledo, OH
  • Atlanta, GA
  • Chicago, IL
  • New Orleans, LA
  • St. Louis, MO
  • Kansas City, MO
  • Pittsburgh, PA
  • Salt Lake City, UT
  • Louisville, KY
  • Jackson, MS

Pay Transparency Best Practices

The new laws around pay transparency will prompt many companies  to revisit how they approach compensation in the coming months. Microsoft already announced they would begin disclosing salary ranges for internal and external jobs by January 2023 to comply with Washington State’s new law. 

Other companies have been caught flat footed, as evidenced by the calamity surrounding the law’s enactment in New York City. The potential for disruption in the wake of pay transparency is real. After so many years of pay secrecy, employers are fearful that being open about salaries could foster resentment among employees (if, for example, wage gaps between genders or similar roles are larger than anticipated). 

Compounding this fear is that employees often don’t have the needed context to interpret pay. They sometimes tie compensation to their perceived value to the organization, which can affect them on a personal level. Employees usually aren’t familiar with the concept of pay bands, and compare their own salaries to that of their colleagues or comparable roles at other organizations.

In other words, becoming a pay transparent organization isn’t as simple as slapping a few dollars signs on a JD. Employers need to think about compensation holistically, and communicate a unified message to all employees and applicants. Here are steps employers should take to transition their organization to one that is pay transparent:

Create a Comp Philosophy

A comp philosophy is a company’s framework for how it pays employees. It explains why an employee is compensated at their given rate, and ensures consistency in payment decisions across the organization. When creating a comp philosophy, employers should consider their financial position, organization size, market salary information, macro market conditions, business objectives, and how challenging it is for them to find qualified talent. A good comp philosophy should:

  • Define pay programs and reward strategies, and how they support the overall needs of the business.
  • Create rational / defensible explanations for why employees are paid a given rate, relative to the broader competitive landscape.
  • Attract talent to the organization.
  • Motivate employees to perform to the best of their abilities, and retain high-performers.
  • Ensure pay equity across the organization, with pay differences not based on factors prohibited by law (i.e., gender, ethnicity, etc.).

This comp philosophy should be reviewed periodically to ensure it aligns with the changing market and business outlook.  To learn more about building a compensation philosophy, download our ebook

Build Compensation Bands

Once you have the foundational elements in place, you can start to determine total compensation for various roles throughout the organization (incl. salary, commission, bonus, equity, benefits, L&D, etc.). To do so, analyze the various roles within your organization with regards to activities and responsibilities, qualifications / background needed for performing the role, and conditions under which the role will be performed.

Next, rank these job descriptions based on their relative value to the overall success of the organization. Then conduct market research to ensure the wages paid to these job descriptions are competitive with similar roles in the market. We recommend using real-time data sources for compensation benchmarking as they deliver more timely and accurate results when it comes to what certain roles are earning, with consideration for key factors like level and location of the employee.

Based on the importance of the role and your market research, create a pay band featuring a minimum, mid, and max amount that you’d be willing to pay for the given job description based on candidate quality and experience. 

Level Employees Within Payment Bands

Once you’ve created compensation or payment bands, you’ll likely find there are employees who fall outside your given ranges. It’s important to level these employees within your new payment bands to lend credence to your broader comp philosophy and ensure pay is perceived as fair by your employees. Here are a few strategies for dealing with salaries that fall below range:

  • Increase an employee’s salary to bring it within the appropriate pay band.
  • Provide employees a bonus to make up for lost salary.
  • Initiate a conversation for promotion into the next pay grade.

For employees whose salary is above the new pay band, the options are a bit more painful:

  • Initiate a pay freeze to restrict further salary increases (likely to have a material impact on employee morale).
  • Lower an employee’s salary to bring it in line with the new pay band (likely to have a material impact on employee morale).
  • Initiate a conversation for promotion into a role with a higher pay band.

Just like your comp philosophy, pay bands should be revisited periodically to ensure they align with the macro market outlook and current business objectives. 

For more on Pave’s Compensation Bands product, go here.

Promote Comp Literacy

Whatever you decide is the right mix of compensation for your organization, the most important step is making sure your employees understand what it entails and how it comes together. This means driving educational programs around the value of equity and benefits so that your employees feel like they’re being compensated fairly and competitively. It also means preparing your recruiters to discuss compensation with applicants during the interview process. 

Proactively addressing salary, benefits, and career development with employees will foster a greater sense of trust, and provide a bulwark against pushback over compensation practices—especially as organizations shift to greater pay transparency.

Preparing for Pay Transparency

The future of work is greater pay transparency. All employers will need to change their approach to ensure legal compliance and to meet employee expectations. It won’t be easy—pay transparency requires in-depth research, collaboration, and more than a few difficult conversations. But pay transparency also provides employers with a tremendous opportunity to engage workers, foster greater trust, and improve morale.

If you need assistance transitioning your workplace to be more pay transparent, consider Pave. Pave helps organizations make smarter compensation decisions with tools that help plan, communicate, and benchmark compensation in real-time. Learn more by visiting our website ->

Learn more about Pave’s end-to-end compensation platform
Pave Team
Pave Team
Pave is a world class team committed to reinventing the world of compensation and help build a more transparent future of work.

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