Pay Transparency Laws: How They Could Affect Your Business

A new law in Colorado, and upcoming in other states, may require your organization to post or disclose salary data for jobs you seek to fill. The Colorado Equal Pay for Equal Work Act (EPEWA) became effective on January 1, 2021, and it’s having ripple effects outside the state for many employers.

What’s in the EPEWA? 

The Act requires Colorado businesses to post either the exact amount or a salary range for every position being posted, in addition to a general description of the benefits or other compensation for the job — including bonuses, healthcare, retirement plans, paid time off, etc. The law covers hourly and salaried positions, with businesses required at minimum to provide a high- and low-end compensation range they “in good faith” believe it might pay for the particular job, depending on the circumstances. They may pay more or less when they hire, providing the posting was an accurate description of what they thought they would have to pay at the time of the listing.

The law also requires Colorado businesses to provide the same information for internal postings of positions — providing existing employees with the same data an outsider would have. They’ll need to post virtually all jobs internally for all employees, essentially disclosing salary information for every position the company hires for. As with other state laws, the EPEWA also restricts collecting wage history from applicants or keeping employees from sharing their own wage information with others.

For Colorado business owners opposed, challenges to the new law have been denied. A Federal court held — contrary to claims — the law was not burdensome, nor did it compel speech, violating a business’ First Amendment rights. Business leaders argued the law would not only create more work for business, it would require them to disclose trade secrets, including salaries, that could make their companies more open to employee poaching. The courts disagreed.

Spreading beyond Colorado

Similar laws will go into effect in Nevada and Connecticut in October of 2021. These states require businesses to disclose salary information after the initial interview or when extending a job offer, respectively. In Maryland, employers are currently required to provide salary information on request, and in California after the initial interview. In Washington state, and Toledo and Cincinnati, Ohio, employers must disclose salary information upon request after a job offer has been extended. Other states and cities are looking at similar legislation, making wage transparency the norm, rather than the exception.

What is the intent of the law? 

These laws seek to create a path to greater financial equity, security, and growth through wage transparency.

Similar to bans on salary history, these laws intend to promote financial equity. In today’s competitive job market, many businesses are providing starting salary information upfront to attract workers. This has become a typical practice for entry-level workers and new hires, but for existing employees and those higher up the chain, secrecy has remained.

Many employees wonder if their own wages are in line with their colleagues: many candidates wonder if they’re asking for too much or undercutting their potential wages when applying for a job. These laws seek to create a path to greater financial equity, security, and growth through wage transparency.

How do these laws affect employers in other states? 

For businesses that hire remote workers, crossing state lines requires adhering to state laws. Postings that allow for work from anywhere, including these states and cities, will need to disclose salary ranges within the job posting. A nationwide search for remote workers will now have to comply irrespective of the location of the company.

Colorado has already carved out a warning to businesses that refuse to hire remote workers from the state to circumvent the law. They’ve hired staff to look for postings that specifically exclude Coloradans from applying. The team sends enforcement letters and threatens investigations and fines if salary information isn’t provided or if their residents continue to be excluded from hire.

Pay transparency can be beneficial 

For many employers, even considering publicizing wages is terrifying. When companies make the leap, however, wage disclosures can be initially painful — but ultimately result in positive change. The American Academy of Management found employees who know their coworker’s pay perform better. They found pay secrecy resulted in decreased performance and higher churn, particularly for top talent.

The practice can also lead to greater diversity and diminishing the gender pay gap. Further, when employees understand they are being paid equitably with others performing the same or similar work, they’re confident of their value to the organization.

When employees believe there’s a pay gap, even if it doesn’t exist, intent to stay with a company decreases by 16%.

A report from Beqom found the value of transparency for worker retention. Almost 40% of workers believe their company doesn’t provide fair wages. When asked if they would consider making a career move to a company with more pay transparency, 58% said they would: for Gen Z, 70%. The study found when employees believe there’s a pay gap, even if it doesn’t exist, intent to stay with a company decreases by 16%.

Pay transparency needn’t mean publishing everyone’s specific wages. Businesses can post salary ranges for specific roles, with minimums and maximums listed as guidance. They can include a statement saying that postings may not factor in seniority, additional skills, and/or education levels, allowing for some wiggle room within the ranges.

… and may have its downsides

Initial hiccups may ensue when businesses shift to transparency in wages. For many workers, false comparisons may create a feeling of underpayment and under-appreciation. For others, disclosures for niche positions within the company (where there are only 1 or 2 workers performing the task or role) may seem an invasion of privacy.

Ignorance may be bliss. The University of California conducted an experiment, notifying some of its faculty where they could view full salaries online. Later, a job satisfaction survey found those who had access to the information and were paid less than the median for their position were less satisfied and more likely to quit than those paid less than the median who did not see the salary reports.

Organizations with a highly varied workforce may see employee dissatisfaction when the most entry-level workers receive information about the wages at management and C-suite levels. For businesses to successfully roll out pay transparency, they must prepare their workforce for specific job families and groupings so they don’t create false equivalencies.

Business owners may feel pressure to disclose their own wages, but many organizations just post wages for positions that are or may become vacant. For owners not intending to replace themselves, self-disclosure may not be necessary.

While salary transparency laws are only beginning in cities and states, they — like other governmental attempts to encourage wage parity — may trend quickly across the country. For businesses, it may be time to consider if wage transparency is right for their organization, and determine how to roll it out smoothly and effectively. Advanced planning may make it easier to comply with potential law, and helpful in creating a culture of parity within the organization.