Pay Transparency: What Does Compliance Look Like When the Rules Are Frustratingly Vague?
‘Display the pay’ laws are catching on, removing the cat and mouse game of trying to figure out what salary the candidate is expecting versus what the company is willing to pay. But what does compliance look like when the rules leave more than a little room for maneuver?
More than half of all job postings on Indeed in the US now include employer-provided salary information, a threefold increase on 2020, only three years prior. And in a recent survey of job seekers, the job board found that 75 percent of them would be more likely to apply for a job if it included salary data.
Intuitively, this makes sense. It's a huge waste of time for candidates to go through an entire interview process without hearing anything about pay, only to receive an offer that is too low. If the salary in the job ad is below what they want, they simply won't apply.
For employers, salary disclosure appears to be good for business. Besides attracting roughly 30 percent more applicants, research shows that pay transparency improves candidate quality, reduces turnover and can help close the gender and racial pay gaps. For recruiters, it is always better to write a job ad that attracts qualified and willing-to-accept candidates, not people who will pull out partway through the process because the job isn't what they thought it was. Including salary indicators is a way to get a better return on your advertising spend.
Yet, despite these benefits, some employers have been nervous about including pay ranges in jobs ads. They're worried on several fronts: upsetting current employees who are on a lower salary than what new hires might get, rivals swooping in with a higher offer, and losing some of their negotiation leverage. Then there's the workload of keeping data on employee compensation up to date and competitive—no small task when there are multiple roles and locations involved.
So, what does compliance look like in the face of these challenges? In an ideal world, the legislation would answer this question by offering clear guidance on how salaries should be displayed to candidates. But with laws coming in piecemeal in various states and cities, and no two pieces of legislation looking exactly the same, and some of the rules being a little foggy, it can be hard to know where to start and what to prioritize.
What and where are pay transparency laws enforced?
As of January 2024, nine states and multiple cities and localities have enacted pay transparency laws. Around 15 more jurisdictions are considering joining them.
The exact rules vary between jurisdictions. For example, some states have general laws that require all employers in the state to provide employees and prospective employees with their salary information, even if the job is remote. Others are specific to certain industries or types of employers.
Here are the high-level headlines for the states with pay transparency legislation, so far as they relate to candidates (different rules may apply to current employees). We’re not lawyers and this isn’t legal advice, so please read the full rules that apply to your organization.
Employers in California with 15+ employees must disclose a salary or hourly wage range in all job postings, including remote jobs, but they don't have to disclose information on bonuses or equity-based compensation. They may not ask a job applicant about their salary history.
Often seen as the gold standard for salary disclosure, Colorado's law requires all businesses in the state (even if they have only one employee) to disclose pay scales for every job opening, including remote jobs, as well as a general description of any bonuses, commissions and employment benefits.
Employers do not have to reveal salary information in job ads, but they must provide the salary range during the hiring process if a job applicant asks for it, and in any event by the time the company extends an offer of compensation.
Employers with 50+ employees must include an accurate salary range or hourly wage rate in job postings.
Like Connecticut, job ads do not have to include pay information. However, all employers, regardless of size, must provide pay ranges to job applicants upon request and cannot ask for an applicant’s wage history.
The rules do not mandate job-ad disclosure, but all Nevada-based employers must provide a salary range to candidates after the first interview.
Private New York employers with four or more employees must disclose salary ranges for positions that will be performed in the state, as well as remote and outside-of-state jobs that report to an office or supervisor in New York. (New York City has different rules.)
Employers must provide job applicants with salary ranges if they request it, and also before discussing an offer of compensation. They don’t have to disclose the salary in job ads.
Employers with 15 or more employees must include salary information in job ads, including information about bonuses, stock options and other compensation. Notably, the rules apply to any company outside of Washington that might hire Washington-based employees.
As pay transparency extends beyond the US, Canadian provinces are starting to tackle this problem as well:
Beginning November 1, 2023, public sector employers must disclose pay or salary in the job. Every November 1st following through 2026, another group of companies will be required to divulge salary. In 2024, employers that have over 1,000 employees will have to comply; in 2025, it’s employers that have over 300 employees and in 2026, employers that have over 30 people.
How do the rules apply to remote workers?
The single largest challenge for companies is that remote workers may or may not fall under pay transparency laws depending on the state in which you are located, the state from which the candidate applies, and where they will work. The general guidance is to either include salary on all remote positions or specifically call out pay transparency locations in which you will not hire.
Without that clear language, you will be subject to the pay transparency laws of a number of the states in which there are active laws.
What’s the issue? There’s a lot riding on good faith.
If we ignore the companies that are simply not complying with their state’s pay transparency laws, the biggest issue with these rules is the possibility of gaming the system by posting ludicrously wide salary ranges—some of which have spanned six figures.
Social media has been naming and shaming the worst culprits. Shortly after NYC introduced its pay laws, a job ad from financial services firm Citi went viral for offering a mind-blowing range of $0 to $2 million. Apple listed a base pay spread between $130,000 and $242,000 for a database engineer. Netflix continues to strain credulity by listing California-based software engineer positions on its website between $100,000 and $700,000—a difference of $600,000.
Large ranges like this are possible because many of the laws use the language that it should be a “good faith” salary range included in the job posting. The NYC ordinance defines “good faith” as the salary range an employer “honestly believes at the time they are listing the job advertisement that they are willing to pay the successful applicant(s).”
Lawyers hate language like this because it creates a loophole. It’s hard to understand how one candidate could be worth $600k more than another, but if an employer honestly would pay the maximum salary for a specific candidate in a specific situation, then it could potentially hold up in court.
So far, there have been no interventions by state or city agencies, so we don't have any guidance on what is considered an acceptable range. Until we do, employers are going to have to rely on their integrity when setting ranges to stay within the spirit of the rules.
How to stay compliant.
Most state-level pay transparency measures are designed to be enforced by state agencies, with fines between $100 and $10,000 per violation, depending on your jurisdiction. California and Washington state laws also allow for private lawsuits, which means that disgruntled job applicants could make their own claim.
To stay compliant, here's what we recommend:
If you are hiring in one of the regulated states or cities, post the salary.
If you are hiring for a remote position, post the salary.
Follow all state and local rules to the letter when posting jobs.
Do the work to figure out reasonable pay ranges for the role and experience level (if you are struggling, partner with an external compensation consultant or HR expert to help you figure it out).
List an accurate range in your ads; as a rule of thumb, the high should be no more than 60% above the low (i.e. $100-160K or $20 - $32/hour).
Make sure you can explain why a candidate doesn't meet the qualifications for the top salary, and make sure it's fact-based, not subjective (e.g. “they have only two years of experience” and not “they just didn't seem like a good fit”).
Document everything—the trend towards pay transparency is only going to get stronger, so use this time to get your house in order. You'll attract a more diverse, capable, and productive workforce as a result.
What does the future hold?
Given the large variability in the laws, pay transparency is a prime candidate to become a federal law to normalize the expectation, enforcement and outcomes.
As an employer, the challenge is not only adding salary, but it's the audit of your existing employee base. To get ahead of what will come, there are a few things to do:
Where appropriate, create functional bands for your employees to understand roles, responsibilities, and required education and skills.
Create appropriate salary ranges for each created band.
Determine the percentage of current workers who fall outside of the current salary band (both low and high).
At each band, understand if the demographic makeup of the band has a disproportionate number of disadvantaged or protected groups at the lower end of, or even outside, the current band.
If there are any employees outside of the band, high or low, determine the best course for those employees.
If your audit results in clear discrimination on any protected class (gender or race if you are subject to EEO and including military status and disabilities if you are within OFCCP), determine, with counsel, the best path to rectify the pay disparity.
No company worries about the impact of new employees at a lower salary than current employees. The overwhelming concern is the increased competitive nature that requires a higher salary to gain new employees—while your trained, experienced and contributing employees make less.
Without this audit process, many employers will lose key employees as they recognize that new, untrained and inexperienced employees make more than their key contributors.
Pay transparency is still in its infancy, but this requirement will inevitably accelerate over the next few years, so it's best to prepare now.