What the General Counsel Needs to Know About Pay Transparency and Pay Equity

California recently passed one of the most comprehensive workplace equity laws in the United States. Starting Jan. 1, California will join six other jurisdictions requiring employers to include pay scales on all job postings.

The law completes this obligation by allowing employees to request the salary scale corresponding to their position. In addition, salary reporting requirements are increasing, with reports on median and average salaries and contractor salaries due in May 2023.

These changes will have a substantial impact on national employers and other entities. For many organizations, the changes will be daunting.

In-house attorneys may be inclined to suggest that their organizations are only doing what is legally required, for example, posting salary scales only in jurisdictions where the law requires it. Business leaders, however, should consider a bolder alternative: embracing the inevitable pay transparency shift to lead their organizations into this future.

This choice becomes a key differentiator when recruiting and retaining talent in a tight job market and uncertain economy. And it reduces legal risks.

The window for taking this bolder approach is closing fast. Organizations that want to be leaders must act now by owning the narrative, operationalizing pay transparency, and anticipating what comes next.

Be a pay equity leader

Organizations that adopt them early will be able to differentiate themselves as pay equity leaders, as will organizations that removed salary history questions from job applications early on. Boldness today will pay dividends in the future.

Companies that want to lead should send a message to employees that, on January 1, their organizations will include pay scales for all jobs posted in the United States, even in states that don’t require it. This can be done in a press release. This is a leadership moment to lock in your organization’s narrative.

You think it’s not doable?

Know that your human resources, total compensation and talent acquisition teams have to do 90% of the work to comply with the network of laws that are or will soon be in line.

California, Colorado, New York City, Washington State and other smaller jurisdictions currently require or will currently require disclosure of pay ranges in job postings. Other states, such as Connecticut, Nevada, and Rhode Island, require or will require proactive disclosure during the hiring process, and others require disclosure upon request.

Some states, such as California, require providing information to employees upon request. In some jurisdictions, employers must proactively disclose this when there are job changes. It’s a complicated maze, but doing the work to comply where it’s needed is 90% of the work required to comply nationally.

Operationalize pay transparency

Then, support your organization as it moves from committing to pay transparency to operationalizing pay transparency.

Creating and publishing accurate pay scales is a deceptively complex process. This requires companies to truly understand why they pay what they pay and to be confident that they are paying their employees fairly.

Displaying ranges requires finding the sweet spot of the Goldilocks-esque range. If the ranges are too low, it will be difficult to compete for top talent who may overlook opportunities before even applying.

If the ranges are set too high, companies could alienate current employees whose salaries are below the range, as internal compensation has not kept pace with recent market turmoil. If the ranges are too wide, employers could break the law.

Balancing your market data with your pay equity analysis to model and create ranges you can publish with confidence ensures that they are both externally competitive and internally fair.

As ranges are shared, employees will want to understand the company’s compensation philosophy. Why is my salary what it is? Does my employer apply its compensation policies consistently and fairly?

If your HR team doesn’t perform salary analysis, start now. These scans highlight where people in similar roles aren’t being paid the same, so fixes are made before the lines are rolled out.

But forget the idea that performing a one-time black-box pay equity analysis will suffice. Ranges must match the ever-changing workforce. Only technology enables the real-time analysis needed to comply with pay transparency laws.

Anticipate what’s next

In-house lawyers can also lead by helping the company anticipate future challenges. Two changes embedded in California law provide a predictive roadmap for the future landscape of workplace equity.

First, California employers will be required to report median and average wages, broken down by job class, race/ethnicity, and gender, in annual reports filed with the California Civil Rights Department, beginning in May 2023.

Entry-level roles pay less than leadership roles, so if an organization has fewer women or diverse leaders, it will increase the median pay gap. The same will apply to functional segregation.

Unlike equal pay for equal work gaps, which money can quickly fix, opportunity equity requires seeing diversity gaps in real time, a detailed understanding of those gaps, a plan of action, and time. Start now.

Second, California law also requires employers with more than 100 employees engaged through contractors to submit a separate salary data report to the Department of Civil Rights. The California law, along with a New Jersey bill about to pass into law, means pay equity thinking for contractors will be a wave of the future.

The California law represents an opportunity for corporate lawyers who adopt it. Employers want leadership. This will be a defining time – will you be able to say that your organization has led pay transparency, or has it been dragged into this future?

This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Author Information

Christine Hendrickson is the Vice President of Strategic Initiatives at Syndio, which provides advanced technology solutions and expert advisors to help employers with real-time compensation and workplace equity. Prior to joining Syndio, she was a Partner and Co-Chair of the Pay Equity Group at Seyfarth Shaw.

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