Pay transparency is gaining momentum in the U.S., as more and more states are implementing pay transparency laws that require all job postings to disclose the salary range of an advertised position. Not to mention that there is an increased demand for it: according to a survey by Lattice, an HR solutions company, 67% of employees agree that employers should practice pay transparency, and 35% strongly agree [1].
Even if it’s not mandated by law in all states, salary transparency is expected to become the norm in the upcoming years [2].
What does this mean for employers? Internal employee conflicts and requests for personalized benefits are just some of the issues brought on by the pay transparency movement [3][4]. But staying informed is key in order to understand how pay transparency might affect small businesses in the long run.
Legal Templates looked at pay transparency requirements from every state and region in order to understand the general effects of pay transparency laws on employers. To provide solutions and help business owners stay on top of pay transparency trends, we used data from U.S. Census Bureau and other credible sources, along with insights from HR management expert Linda Shaffer.
What exactly have these laws delivered? Read on to find out.
What Is Pay Transparency Law?
Pay transparency laws are a general term coined for acts that:
- Require employers to disclose to job applicants and employees pay-related information, including pay system processes and salary ranges
- Prohibits employers from using prospective employees’ salary histories to determine pay
- Ensures employees’ rights to discuss their salaries openly
Some states and regions, such as Colorado, establish a stricter requirement for all employers to disclose pay ranges in job postings. Local governments believe that pay transparency laws are beneficial in that they create accountability for employers, help employees make better career decisions based on personal financial considerations, and most importantly—minimize gender and racial pay gaps, or establish pay equity.
Although many states and cities have established laws demanding employers to disclose salary ranges, the details of the requirements vary from region to region. Check the table below to see how pay transparency laws apply to your region.
The Challenges of Pay Transparency for Employers
While pay transparency laws grow prominent in states and regions, employers and employees are starting to experience the challenges these laws bring.
- Managing negative sentiments of employees. Once pay is made transparent across the workplace, employees may experience feelings of jealousy or unfairness if they believe that their colleagues are being paid more than them for the same work. As a result, employers may face issues including bad morale or even increased turnover.
- Minimizing confusion around pay structures and salary negotiations. Employees may be hesitant to discuss compensation openly in case it negatively impacts their pay or career prospects.
- Devoting additional resources to monitoring and managing employee compensation. This could include tracking and analyzing data about employee salaries and performance metrics to ensure fairness across the organization.
While the downsides of transparency policies seem difficult to handle, HR expert Linda Shaffer from Checkr shares her thoughts on how to better mitigate these impacts.
“Employers may consider implementing clearer guidelines around performance metrics and evaluation processes, to ensure that pay is determined fairly and transparently.
Additionally, employers can invest in employee training programs or other resources to help employees understand the factors that influence their salaries, such as performance reviews or industry-specific market data.
Actively promoting open communication around compensation can help employees feel comfortable discussing compensation concerns and asking questions about pay structures.
Embracing Salary Transparency
There is no doubt that employers in regions with pay transparency laws need to pay extra attention to managing rapport among employees. But just because your state hasn’t made it to the list yet doesn’t mean you don’t have to prepare for it.
It appears that both the cost of living and per capita personal income are higher than average in almost all states and regions that have implemented pay transparency laws—regardless of their level of strictness—than in states that have not [5][6]. But for what reasons?
“Salary transparency could be one way for governments to help support local employers in bringing in talents and become more competitive.” Business attorney Brooke Davis commented, “It’s possible that these states have a more highly educated, skilled population, or a higher concentration of professional-level jobs that require licenses or credentials. If either were the case, employers in these areas would have to be more competitive to capture that talent level. After all, it is in the best interest of the governments economically to attract higher quality talent to their areas.”
Data on the 2016-2020 college completion rates by states from the U.S. Department of Agriculture verifies Brooke’s speculation—out of the 10 states with state-level or regional-level pay transparency laws, 8 have higher college completion rates than the U.S. average.
If your state has a higher level of income or education than average, it might be wise to prepare for future changes in regulations.
Pay Transparency and Regional Economy
Looking beyond employer-employee relationships, experts are beginning to question the potential effects pay transparency laws could impose on regional economies. Some scholars argue that pay transparency’s intention to minimize pay gaps may actually compress pay [7].
However, when we pinpoint the most recent enforcement dates of pay transparency laws in California, Colorado, Maryland, and Washington, and compare the average monthly salary before and after enforcement, the fluctuation of the national average monthly salary appears to have no significant difference with that of the states with pay transparency laws [8]. This indicates that pay transparency laws actually impose minimal—if any—effect on local pay levels.
* The four states are selected based on the availability of data on average monthly income. The pay transparency law implementation months are pinned by referring to the most recent enactment as of November 2022.
Pay Transparency and the Gender Pay Gap
Apart from pay compression, some experts also doubt the effectiveness of pay transparency laws in closing the gender pay gap. While some studies suggest that these laws do help in closing the gap [9], statistics from the Census Bureau seem to state otherwise.
* The four states are selected based on the availability of data on average monthly income. The pay transparency law implementation months are pinned by referring to the most recent enactment of the state’s pay transparency law as of November 2022.
The graph, which outlines the gender pay difference in percentages and the time of implementation of each state’s pay transparency law, indicates no significant signs of a decrease in pay difference after the laws become effective. Moreover, it is apparent that the national average of gender pay difference has yet to see improvements since 2017 despite the increasing prominence of pay transparency laws.
While there may be a variety of potential policies that could help accomplish pay equity, the pay transparency law remains questionable in this scope.
Remain Current and Compliant
Notwithstanding the controversies it has brought to the table, it seems that the trend of implementing pay transparency laws is unavoidable. While this could mean additional challenges for employers, they should take the chance to reflect on the intentions of the laws—pay equity—and create an environment that encourages open discussion on compensation to remain current and compliant.
Here is an overview of all bills passed with concern to pay transparency as of Nov 2022.
| State | Name of Act/Bill | Effective Date/Newest Revision |
|---|---|---|
| California | California Equal Pay Act (Labor Code section 1197.5) Senate Bill 1162 | January 1, 2023 |
| Colorado | Equal Pay For Equal Work Act Equal Pay for Equal Work Act, Part 2 | January 1, 2021 |
| Connecticut | Equal Pay For Equal Work CGS § 31-75 Anti-discrimination law CGS § 46a-60(b)(1) Public Act 15-196 Public Act 18-8 Public Act 21-30 | October 1, 2021 |
| Maryland | Equal Pay For Equal Work Act House Bill 123 | October 1, 2020 |
| Nevada | Senate Bill 293 | October 1, 2021 |
| Jersey City, New Jersey | Ord. 22-026 | April 13, 2022 |
| Ithaca, New York | Ithaca City Code § 215-3(F) (amended 4 May 2022 by Ord. No. 2022-03) | September 1, 2022 |
| New York City, New York | New York City Human Rights Law Amendment | November 1, 2022 |
| Westchester, New York | Local Law 119-2022 | November 6, 2022 |
| Rhode Island | Senate Bill 270 | January 1, 2023 |
| Washington | Senate Bill 5761 Washington Equal Pay and Opportunities Act | January 1, 2023 |
| Cincinnati, Ohio | Prohibited Salary History Inquiry and Use | March 13, 2020 |
| Toledo, Ohio | Pay Equity Act | June 25, 2020 |
Methodology
Legal Templates collected the 2022 Q2 Cost of Living Index by State from the Missouri Economic Research and Information Center, whose data was retrieved from a survey performed by the Council for Community & Economic Research (C2ER). The 2022 Q2 Per Capita Personal Income data was collected from the Bureau of Economic Analysis website. States’ 2016-2020 college completion rates were collected from the U.S. Department of Agriculture website.
We also gathered the average monthly earnings in quarters by gender, by state, and across the U.S. from the QWI Explorer of the U.S. Census Bureau. Gender pay difference in percentage is calculated by dividing the difference between male and female average monthly earnings by male average monthly earnings.
