In an era marked by increasing calls for fairness and equality in the workplace, pay transparency has emerged as a critical tool for combating wage discrimination and building trust between employers and employees. The practice involves disclosing information about compensation to both applicants and current staff, and its benefits extend far beyond mere numbers on a paycheck. Pay transparency not only helps bridge the gender and racial pay gaps but also fosters a sense of clarity and integrity that enhances employee loyalty, as well as organizational well-being.
As the movement gains momentum, pay transparency laws are becoming more prevalent across the United States, reshaping the dynamics of work and compensation. Here, we’ll offer a picture of where in the U.S. pay transparency is going into effect and share insights into what these new legislations require and how they will affect organizations at large.
What Is Pay Transparency?
Pay transparency represents a significant shift in how companies handle compensation information. By opening discussions about wages and benefits, organizations equip individuals to make informed decisions about their careers and negotiate fair compensation packages. Pay transparency occurs when employers disclose information about wages and other compensation to applicants and employees.
Moreover, it serves as a check against systemic discrimination. According to experts, pay transparency reduces pay inequities, which commonly prevent wage discrimination by race, color, gender, age, national origin, religion, and other protected status. It is also thought that pay transparency increases the trust workers have in their employers. For these reasons, pay transparency laws are rapidly rising.
Pay transparency laws in the United States commonly take three approaches and their terms and applicability vary by jurisdiction. These approaches include:
- Laws requiring employers to disclose prospective compensation or compensation range when advertising for a job opening. This helps candidates to gauge whether the position aligns with their expectations and allows for more informed job searches.
- Laws requiring employers to provide pay rates to applicants or employees upon request. This prevents information asymmetry during negotiations and equips individuals with the knowledge needed to advocate for equitable compensation.
- Laws obligating employers to file yearly compensation disclosures. This approach encourages organizational introspection and accountability, fostering a culture of fairness and openness.
Penalties for violating these laws depend on the state or local law that applies, but generally may include large monetary fines and other relief.
Where Are Pay Transparency Laws Going into Effect?
As of September 2023, several states and cities have embraced pay transparency laws, each taking a unique approach to ensure fair compensation practices. A partial list of states and cities with some form of pay transparency law include:
- Ithaca (New York)
- Jersey City (New Jersey)
- New York City (New York)
- New York
- Rhode Island
- Toledo (Ohio)
- Westchester County (New York)
Additionally, Hawaii and Illinois recently enacted pay transparency laws that take effect in 2024 and 2025, respectively.
How to Prepare for Pay Transparency Laws
Although pay transparency laws are not yet required in the great majority of states, cities, and counties in the United States, it is clearly a growing trend with many new laws likely to take effect in the next few years. To be ready for this surge in pay transparency laws, employers should:
- Evaluate the laws in any jurisdiction they have workers to determine if some form of pay transparency is needed;
- Conduct a privileged pay audit with legal counsel to ensure compliance with applicable pay transparency laws; and
- Train relevant human resource professionals and management staff in the intricacies of the pay transparency laws affecting their company.
If you are unsure if a pay transparency law applies to your organization, or if you don’t understand any part of a pay transparency law applicable to your company, contact legal counsel or other qualified professional for clarification. Failing to do so may lead to costly legal fines for noncompliance.
Looking toward the future, the trajectory of pay transparency is clear. This is not just a passing trend, but rather represents a movement that is redefining the employment landscape. By embracing this evolution and taking proactive steps, organizations can foster an environment of fairness, trust, and equal opportunity for all.