Pay transparency is becoming more common due to worker pressure and government action. This has led to companies introducing their own pay transparency policies.

A pay transparency policy is any policy where information about wages and salaries is shared with employees. This includes pay ranges, details about how salaries are calculated, and how pay raises are determined.

Key Takeaways:

• • Pay transparency has been introduced by governments as an essential step in closing gender pay gaps.
  • A growing number of states and cities are implementing pay disclosure laws that require wage ranges to be included in job advertisements.
  • Hiring and recruitment are affected by pay disclosure laws, with many candidates more likely to apply for a job if they know the pay rate in advance.
  • Benefits of pay transparency policies include higher morale, greater employee engagement, increased productivity, and higher retention rates.
  • Drawbacks of pay transparency may be experienced by some companies, especially if the policy exposes unfair pay practices. These can include lower morale, decreased engagement, and talent being poached by other companies.

Table of Contents

1. What is pay transparency?
2. Why implement pay transparency?
3. Applicable Laws
4. Pros & Cons
5. Tips & Best Practices

Pay transparency is an increasingly used buzzword among governments, workers, and organizations.

In the past, talking about pay has been somewhat taboo, but this is changing. Stagnating wages, increased unionization, and self-reported wage tools have made people more open about what they earn.

Organizations that become transparent about pay have the opportunity to build trust with employees, increase productivity, and improve recruitment.

But even if you aren’t sure about opening wage discussions in your workplace, there are laws governing pay disclosure in an increasing number of U.S. states. Understanding what pay transparency is, the legalities involved, and the benefits can help you decide how to introduce it in your workplace.

What Is Pay Transparency?

In essence, pay transparency is openly sharing pay information with employees and job candidates. This can include information about pay ranges, how salaries are determined, and how workers can get pay increases.

Employees and job candidates are interested in how easy it is to find and share information about their pay rates.

For organizations, pay transparency often comes down to a communications policy that provides pay-related information to employees. This can help foster openness and trust about pay within companies.

Why Implement Pay Transparency?

The goal of decreasing pay inequity has been the biggest driver of the pay transparency movement. Census data from 2020 showed that women earn 83 cents for every dollar earned by Caucasian men.

For women of color, the figure is even lower. Pay transparency is one step that can help close the pay gap. A 2019 Canadian study looked at a number of universities before and after pay transparency laws were implemented.

It found that the gender pay gap was reduced by 20 to 40 percent after the laws came into effect.

Pay transparency also allows employees to have a clearer picture of the financial aspects of their role. As this promotes a more open and equitable workplace, it has a tendency to increase employee engagement and satisfaction.

Pay Transparency Laws

There are a number of laws that cover pay transparency. The first to be aware of is the National Labor Relations Act (NLRA), which allows employees to discuss their wages with each other.

Any company governed by the NLRA cannot fire or discriminate against employees for discussing their wages. Organizations not governed by the NLRA generally have to adhere to a similar standard due to an Executive Order signed by President Obama.

This is the only federal law that governs pay transparency, but an increasing number of states and cities have introduced pay disclosure laws.

The specifics differ, but these laws generally require that employers list a pay range on job advertisements. In some cases, they must also tell employees who are changing roles what their new pay will be.

On the other side, some states also have salary history bans. This stops you from asking job candidates for a pay history. Although you can ask about salary expectations, you can’t base a pay offer on what the person has previously earned.

Jurisdictions That Require Pay Disclosure

If you operate in an area that has pay disclosure laws, make sure you understand your requirements under that law.

The reality of remote work means you may be governed by a law even if you’re not located in that state. The best way to ensure you remain compliant is to regularly review current and upcoming pay transparency laws.

As of the time of this writing, the following states and localities have pay transparency laws.

California

Effective January 1, 2023

• Employers with 15 or more employees, with at least one working in California, must disclose salary range in all job postings, including those that can be done remotely.
• Employers with one or more employees must disclose a position’s salary range to current employees upon request.

Colorado

Effective January 1, 2021

• Employers with at least one employee working in Colorado must disclose a salary range, a general description of benefits, and a description of bonuses in all job postings, including those that can be done remotely from the state.

Connecticut

Effective October 1, 2021

• Employers with at least one employee working in Connecticut must provide wage range information to applicants at their request or before an offer is made.
• A wage range must be provided for the employee’s position upon hiring, change in position, and at the employee’s request.

Illinois

Effective January 1, 2023

• Employers with 15 or more employees must include pay ranges and benefits in job listings.
• Employers must notify current employees of all opportunities for promotion within 14 days of making an external job posting of the position.

Hawaii

Effective January 1, 2024

• Employers with 50 or more employees must disclose an hourly rate or salary range that reasonably reflects the actual expected compensation on job listings.

Maryland

Effective October 1, 2020

• All employers that operate in Maryland must disclose a wage range to applicants upon request.

Nevada

Effective October 1, 2021

• All employers in Nevada must provide applicants who have completed an interview with a wage range. This includes current employees who have applied for a promotion or transfer.

Jersey City, NJ

Effective April 13, 2022

• Employers with five or more employees in Jersey City must provide a salary range and description of benefits in listings for jobs, transfers, and promotions.

New York

Effective September 17, 2023

• Employers with four or more employees must provide a wage range in advertisements for jobs, promotions, or transfers.
• A job description must also be provided if one exists.

New York City, NY

Effective November 1, 2022

• Employers with four or more employees, with at least one in New York City, must provide a minimum and maximum salary for any job that may be filled in the city, including those that can be done remotely.
• A wage range must also be included for posting of internal promotions or transfers.

Ithaca, NY

Effective September 1, 2022

• Employers with four or more employees must disclose the minimum and maximum salary for any advertisements for jobs, promotions, or transfers.

Westchester County, NY

Effective November 6, 2022

• Employers with four or more employees must provide a minimum and maximum salary for any job that may be filled in the county, including those that can be done remotely.
• A wage range must also be included for posting of internal promotions or transfers.

Cincinnati, OH

Effective March 13, 2020

• Employers with more than 15 employees in the city must provide a salary range upon a candidate’s request after a conditional offer of employment is made.

Toledo, OH

Effective June 25, 2020

• Employers with 15 or more employees in the city must provide a salary range upon a candidate’s request after a conditional offer of employment is made.

Rhode Island

Effective January 1, 2023

• Employers with one or more employees in the state must provide a wage range upon the request of a candidate or employee. The wage range must also be disclosed at the time of hire and when an employee moves to a new position.

Washington

Effective January 1, 2023

• Employers must disclose the pay range and a general description of benefits for all job postings, transfers, and promotions, including those that can be done remotely in the state.
• This is valid for all employers who have 15 or more employees that meet one of the following criteria: have at least one Washington-based employee, engage in business in Washington, or recruit for jobs that could be filled by a Washington-based employee, including remote jobs.

How You Can Benefit From Pay Transparency

Pay transparency can have major impacts on hiring. A survey from Indeed suggests that those impacts are likely to be positive, with 75% of respondents more likely to apply for a job when the salary is listed.

You can also save time in your recruitment process if you’re only receiving applications from people who are willing to work for the salary you’re offering.

Pay transparency also makes for a better working environment for new and current employees. Clear communication about salaries builds trust with employees, creating a culture of openness. Your workers will believe they’re being paid fairly.

The higher morale that comes with employee trust encourages productivity and performance. Workers feel valued for what they do and work harder.

Be warned, though. A study cited in the Harvard Business Review shows that if that transparency shows unfair pay practices, productivity is likely to fall.

Pay transparency not only builds trust between employers and employees, it can build trust between colleagues. If there are fewer rumors about pay, there’s less resentment.

This can create a more collaborative and supportive environment, which again leads to more productivity and employee engagement.

Drawbacks of Pay Transparency

If you aren’t in a location that requires pay transparency, you may be wondering whether to implement it in your workplace.

Yes, there are advantages, but there are also drawbacks you should consider. Fortunately, for organizations, the benefits generally outweigh the disadvantages, but understanding the possible drawbacks can help you plan for them.

For most companies, the drawbacks come from what the transparency reveals, not the act of being transparent. If you have pay equity issues, a pay transparency policy means everyone knows.

Employees may become disengaged, and you may have higher staff turnover. If someone shares their issues with pay inequity on social media, it may also impact your brand.

Fixing the discrepancies can certainly help, but you should also make sure your employees understand what pay rates mean and how their performance affects their pay.

Pay transparency may also shift employee priorities. If there’s one performance indicator that tends to equate to higher pay, workers are likely to concentrate on that.

This often means softer measurements, such as cooperation and mentorship, are ignored.

When it comes to recruiting, the biggest risk is a reduction in the candidate pool.

Yes, disclosing pay ranges normally makes people more likely to apply for a job, but if your offered salary is lower than average, you’ll have fewer applicants. You may need to increase your offer to get the best candidates.

Pay transparency may also endanger employee retention. Competing organizations know what they have to offer to lure top talent away.

Your employees can also use that knowledge when negotiating for higher wages. This can impact your company if you don’t have the budget to offer similar wages.

You may want to consider other forms of compensation instead. For example, some employees may accept additional career development training in lieu of more monetary compensation.

Pay Transparency Tips

If you’ve decided to adopt a policy of pay transparency in your company, there are steps you can take to help the process go smoothly.

Decide on the Level

Pay transparency laws generally only require that companies disclose a limited amount of information. Within your company, you have the power to decide the best level of transparency.

You could choose to disclose salary ranges, information about pay practices, or individual employee salaries. Think about the norms in your industry and what works for your company culture.

Conduct an Audit

Review all your current salaries and pay practices. This will let you identify inconsistencies and potential issues. It’s better to know that pay inequities exist before you release the information, rather than after.

It gives you a chance to address the issues and make changes to promote pay equity. You should conduct these pay audits regularly to ensure your pay practices continue to be fair and equitable.

Communicate Clearly

Explain to your employees why you’re adopting a pay transparency policy. Include information about the benefits it will bring to your workers and the organization. You should also provide avenues for employees to provide feedback and address any issues that arise.

Train HR Team

Train and support your HR team and managers during the process. Make sure they have the knowledge and skills to successfully communicate with employees about pay transparency and answer questions and concerns. This will help pay discussions in the organization remain consistent.

Monitor and Adjust

Take on feedback from employees, managers, and HR staff as part of the review process. Also look at how the policy has impacted recruiting, employee morale, and turnover. If you need to, adjust the policy to better align with your goals and culture.

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