More states and cities are putting in bans on asking for a salary history. Here's why this can be good for small business and how to work within the rules.
Recruiting talent for any size business can be a challenge in today’s marketplace. Adding to the stress in many states and localities are new laws that prohibit companies from asking candidates for their salary history. This new wave of legislation has many small companies confused: why would salary information be any more problematic than asking for work history?
But the new laws have their benefits, for workers as well as business. If you do business in any of the states or municipalities, and there are almost 30 to date, that prohibit requesting salary information, you understand what’s required, but you may not know why. For businesses not in these locations, be aware that legislation might be coming soon. A best practice may be to stop asking about salary history in the early stages of the hiring process, just to be ready for any change that may occur.
Why do laws require hiring without salary history?
The logic of salary history bans is twofold.
First is equal pay for equal work. Two staff members, side by side that perform the same job should earn the same rate of pay.
The second issue, also logical, has a more long-term and detrimental history. When a company recruits and hires a candidate whose asking salary is lower than they’re prepared to pay, it makes sense to make an offer at that rate. The job seeker is getting (hopefully) an increase, and the business saves a bit of money. No harm, no foul, right? But this practice, when repeated with every job move (or even promotion) has the long-term effect of keeping up the cycle of lower pay throughout the worker’s career. Studies indicate women and minorities are the most adversely affected by the practice. For the candidate, salary inquiry bans are a net benefit.
How do laws on hiring without salary history benefit business?
It might seem counterintuitive that not saving a bit of money when hiring would be beneficial to companies, but it can be. As workers are looking for more transparency from their employers, equal pay for equal work is one of the basics job seekers and employees want. In a tight applicant market, that level of transparency can mean more candidates.
Many companies, not under salary history bans in their jurisdiction, are embracing publishing their starting wages to good effect. Corporate social responsibility is another positive trend for business: and it begins with fairness to all employees and job seekers. Pay equity goes a long way to demonstrate a business is a good corporate and community citizen. That type of positive branding can only be a boost to business large and small.
How to hire without asking for salary history
Most businesses are aware of what they can afford to pay for any given position. They may have established salary ranges or pay bands that outline what they are willing to offer. Creating these in advance, and sticking with them to the extent market conditions allow, helps business plan for sustainability as well as growth.
Payroll is typically a small business’s largest expense. Keeping cost contained and manageable is necessary. Still another benefit of hiring without asking for salary history can have a direct impact on cost-conscious companies.
Not asking for salary history has put many companies in the position of publishing their wage range. When a job seeker sees the amount offered in an ad or posting, they can self-eliminate if the salary isn’t in their range. That can mean a lot fewer candidates to screen through, saving time for recruiters and hiring managers. When all the job seekers you interview are in your salary range, you can hire quickly and effectively. Retention rates may even increase, since new hires are already comfortable with their rate of pay. .
Hiring without salary history in uncharted territory
Many businesses are looking to hire workers in new or expanding areas of their company. You may have decided an in-house IT person is the best choice now that your business has grown. Sales representatives may be needed to expand your reach. A new level of manager may be on the horizon.
But if you’ve never hired in those categories, you may not know fair market rates. For many, understanding what a candidate has earned in the past offered guidelines to what a fair offer should be. That can be misleading.
Perhaps the candidate’s seniority at the company boosted their wage level. It’s possible they’re not being 100% honest about their former compensation – and with many companies avoiding reference checking – you may not be able to verify. There may be many reasons why their past wages were higher (or lower) than market value. Using salary history as a basis to set your own wage range may not be the best option.
Compensation management tools help you hire without salary history
Compensation management tools are critical to making an offer that’s competitive without overpaying for your market. They offer insight into salary benchmarking data that assures business is on point with wages and other benefits, based on the role, the location, and the level of experience and credentialing. A quick look at compensation management tools could mean the difference between overpaying a new hire, or unsuccessful recruitment campaigns that net no qualified applicants from which to choose.
An IT professional in a large metropolitan area may have the same skills and background as their rural counterpart, but less competition in your geographic area could mean cost savings. A skilled worker may be more valuable than entry level, but how much more should you pay? In addition to qualifications and location, what market conditions impact your company at the time of hire? These can fluctuate rapidly and unexpectedly. A large company near you shuttering its doors can mean a wealth of available talent, while new competition can create a squeeze.
Compensation management is a must for every business that needs to keep current with the market conditions that affect their business. Salary history bans may be new to business, but in addition to helping job seekers, they appear to have unexpectedly beneficial consequences for business. More than market fairness, these new laws may help companies look closer at their pay bands and compensation plans. They should drive business to leverage the wealth of data available through compensation management tools to assure they’re hiring exactly right for their market. That can only help companies hire better and smarter, and keep their competitive edge.
This article is intended only for informational purposes. It is not a substitute for legal consultation. While we attempt to keep the information covered timely and accurate, laws and regulations are subject to change.