The past two years have undoubtedly been challenging for many employers. Among other hardships, many employers are addressing issues related to COVID-19, the Great Resignation (a catchphrase related to the record number of employees resigning from their current employment), and varying laws related to employee use of medical and recreational marijuana. As if these challenges are not enough, employers must now prepare to address one of the newest trends in employment law—pay transparency.

Pay equity issues are not new in the United States. Indeed, both the Equal Pay Act and Title VII of the Civil Rights Act were signed into law nearly 60 years ago, but pay equity studies nevertheless continue to show that women and employees of color are not paid as much as their white male colleagues. In light of these issues, states and municipalities across the country are using pay transparency legislation to combat pay disparities and provide applicants and current employees with pay information that will help them evaluate their compensation as compared to their peers.

One of the most recent pay transparency laws went into effect in New York City on November 1, 2022. That law amended the city’s Human Rights Law to include a new discriminatory practice: failing to include salary ranges in job postings. The law requires job postings to include a salary range from the lowest to the highest salary the employer in good faith believes it would pay for the advertised job, promotion, or transfer opportunity. The law applies to all employers with at least four employees if at least one employee works in New York City (even in a remote capacity), and the law applies to any position that could be filled with a candidate who lives in New York City or to any position that may be performed, at least in part, in New York City.

Similarly, beginning on January 1, 2023, employers in California with 15 or more employees must include a “pay scale” (defined as the salary or hourly wage range the employer reasonably expects to pay for the position) in any advertised job posting, including positions posted by third parties. Furthermore, employers in California will be required to provide their current employees with the pay scale information upon request.

In addition to New York City and California, the following states and localities have either passed legislation or have pending legislation requiring varying degrees of pay transparency:

  • Colorado
  • Connecticut
  • New York State
  • Westchester County, New York
  • Ithaca, New York
  • Maryland
  • Nevada
  • Jersey City, New Jersey
  • Cincinnati, Ohio
  • Toledo, Ohio
  • Rhode Island
  • Washington

These pay transparency trends will very likely continue as more and more states consider how to combat pay discrimination issues. Thus, we recommend that employers who are or may become subject to pay transparency laws take the following steps to prepare for the current and/or future changes in this area of the law.

1. Consider Conducting a Pay Equity Study.

As previously noted, some pay transparency laws not only apply to job postings, but some also allow current employees to request and review employer pay scales. The publication of pay scales, especially to current employees, may inevitably lead employees to question and/or challenge pay disparities. Employers can proactively address this issue by conducting a pay equity study, which will allow employers to better understand if there are pay disparities among existing employees. Importantly, the pay equity study should, if possible, be completed subject to the attorney-client privilege, as the failure to do so may allow the study to be used against an employer if unexplainable pay disparities are not appropriately addressed.

After collecting data from the pay study, employers should determine if men, women, and other classes of protected employees are paid equally. If the pay study exposes non-legitimate pay disparities, employers should take appropriate steps to remediate pay disparities, which may include compensation adjustments and the implementation of process improvements for hiring managers and other professionals responsible for pay decisions.

2. Prepare Management and Human Resources.

Employers should also invest time and resources in educating management and human resources professionals on the current landscape regarding pay transparency. Employers should move quickly but carefully to determine good faith salary ranges for the varying job classifications in the organization. Furthermore, individuals responsible for posting job opportunities, especially remote or multi-state job opportunities, should be trained on the intricacies of current and pending pay transparency legislation. In that vein, and as a practical matter, multi-state employers may find it administratively efficient to adopt the most stringent pay transparency requirements.

Employers should also consider revisiting their performance evaluation standards to ensure there is a clear and accurate way for individuals at all levels in the organization to evaluate performance that is tied to pay. Indeed, an objective process tied to performance and compensation adjustments can help mitigate pay bias in the workplace.

3. Embrace the Change.

Current legal trends indicate that pay transparency is here to stay. As employers face headwinds from a tough labor market and the Great Resignation, it will be advantageous for employers to embrace pay transparency and take proactive steps to find and root out non-legitimate pay disparities in the workplace. The implementation of non-discriminatory pay processes will not only allow employers to attract, hire, and retain top talent, but doing so will also help employers mitigate the risks associated with pay discrimination claims.