Pay Transparency Law
By Dara Kushner
Salaries tend to be a dirty little secret, whether it is between friends, colleagues, or you and the hiring manager that interviewed you for a new job. It does, however, seem as if conversations about money are becoming more open lately, in part due to pay transparency laws. New York City just followed in Colorado’s footsteps with a new Pay Transparency Law that requires job listings to include salary ranges, which in turn will bring this secret out in the open to bolster pay equality.
Whether you are a job seeker, current employee, recruiter, or employer, you probably have an opinion about New York City’s new Pay Transparency Law that went into effect on November 1, 2022. As another step toward pay equity for all New Yorkers, the new law was enacted to address deep-rooted pay inequities between men and women as well as workers of diverse backgrounds.
With the culmination of the Covid pandemic seemingly exacerbating wage gaps, women dropping out of the labor force, the economy on shaky ground, a tight labor market, and the ‘Great Resignation’ trend (workers switching jobs to take advantage of rising wages and record-low unemployment to score larger salaries), these new laws could not have come at a more opportune time.
Under New York City’s Pay Transparency Law (which essentially amends New York City’s Human Rights Law), employers with at least four employees need to in good faith disclose the minimum and maximum annual salary or hourly wage that they believe they would pay for the position. It applies to all jobs, promotions, and transfer opportunities for positions that can or will be performed, at least in part, in all of New York City’s five boroughs as well as companies outside of the area who are still hiring remotely in New York City.
Many states enacted pay transparency laws in 2022, including New York City.
In Good Faith, or Just Legally Complying?
The New York City Pay Transparency Law requires all employers to include salary information in advertisements and job postings in a ‘good faith salary range’ (i.e., the range the employer honestly believes at the time they are creating the job posting that they are willing to pay the successful applicant).
Nevertheless, many companies are trying to navigate how to technically comply with the law while not being totally straightforward to keep things flexible. New York City’s Pay Transparency Law has been met with some resistance from employers and recruiters, who assert it will create complications in an already tight labor market. Companies are already finding ways to circumvent the rules by:
• Including broad salary ranges (i.e., $50,000-150,000).
• Ignoring the new law by not including salary ranges and risking getting fined.
• Excluding New York City candidates from applying altogether for companies hiring remotely.
• Not posting job listings, period.
There are issues with all these tactics, and the pros and cons of these new laws are interesting to look at from all three perspectives - the job seeker, the recruiter or employer, and the current employees.
Perspectives
From the job seeker’s perspective, pay transparency is the highest desired detail of a job posting that is often missing. It is a widely known fact that applicants are more likely to apply to jobs that include salary information, and applicants might think a company is hiding something if a job posting excludes it. Wide salary bands, however, can make the job search process more time-consuming and frustrating, as well as not providing the clarity needed to decide if that job is worth applying to.
Additionally, excluding candidates from a particular geographical area simply because an employer does not want to provide salary information is probably not the best look because it will make candidates suspicious and feel discriminated against. These new laws will also affect remote workers who live in cheaper states, who, after seeing what their colleagues in more expensive cities are making for the same position, might demand higher salaries.
From the company’s perspective, why would they not want to list a salary? Because labor costs are a company’s biggest expense, so keeping quiet about how much they are willing to pay can allow them to have more leverage during the negotiation process and hire people for less. Companies pulling listings altogether or implementing geographical exclusion are doing themselves a disservice altogether because their unicorn candidate might have been eager to apply and simply could not because of their address.
Employers should take into account the advantages of including this info. Aside from attracting more applicants, it could save time and create a more qualified pool of applicants since those that believe the salary is too little and know they are never going to accept the job will self-eliminate themselves.
For recruiters, transparency has been a topic of conversation for a long time because pay equity needs to be addressed. However, they question whether these laws are the most effective way to do that or are they causing something else to happen. One recruiter described it as analogous to when you have a health issue, and your doctor prescribes a new drug just to see if it works, no guarantee it will solve the problem, and there could be side effects worse than the initial health issue itself.
Pay transparency is a major plus for job seekers, with many more likely to apply to jobs that mention salary information.
It is a juggling act for recruiters since they are there to help both the job hunter AND the client (the employer hiring), as well as understand what the need is from both sides. The new laws essentially add another layer when dealing with candidates and can be too confining. This law is beneficial because it keeps people and pay competitive and equitable.
But this law also has two big issues recruiters are concerned about: clients pulling listings to avoid posting salary info and advertised salary bands prevent creativity. If a potential applicant thinks they are above that advertised range, that person might see it as a below-salary ask and simply will not respond. Recruiters want and need the flexibility to have their clients make internal changes and which could then result in gold.
For example, in an editorial management role, a candidate might have years of impressive editing or writing experience but lack management experience. So, while they might not be quite right for that specific management position, the recruiter will still want to share credentials for that position and will not want to rule them out if not in the advertised salary bandwidth.
There needs to remain equity in the hiring organization and industry, but these ranges are like putting handcuffs on, and recruiters argue that there needs to be potential for flexibility with salary bandwidth while searching for candidates, and it is a matter of looking at the industry, and the recruiter being able to ask the company hiring to rethink and get creative.
From the perspective of current employees, salary transparency in job postings could be an ‘a-ha’ moment. This might also be what is causing employers’ the most discomfort with these new laws. Aside from possibly deterring potential prospects from applying, current employees will see these salary ranges and question their own pay.
There is the potential for employers to rock the boat with their workers by posting salary ranges that expose inequity within the company. Once they see a new salary posted and they are at the low end of the range, that is most likely going to ruffle some feathers and raise some awkward questions leading to uncomfortable conversations with superiors. Awkwardness aside, in the grand scheme of things pay transparency can also boost individual performance as well as have a positive impact on cultivating an employee’s image of fairness, trust, and job satisfaction.
A Rocky Start
Two weeks after the rollout, New York City’s Pay Transparency Law is off to a rocky start, with just 60% of job listings including salary ranges, according to top job search platform Glassdoor. Businesses that do not comply face penalties. They can be reported to the city agencies enforcing the law, and if they do not fix their posting within 30 days, they can be fined up to $250,000 per violation or taken to court.
Pay transparency also seems to vary considerably by industry - so who is or is not complying? Government, nonprofits, transportation, restaurants, and media are complying at high percentages (61% and above). Technology, finance, and pharmaceutical companies, not so much, at less than 40%. Key findings from a recent Glassdoor’s Global Salary Transparency Survey revealed the following:
70% of employees across 7 countries (United States, Canada, United Kingdom, France, Germany, the Netherlands, and Switzerland) believe salary transparency is good for employee satisfaction.
72% believe salary transparency is good for business.
69% of employees wish they had a better understanding of what fair pay is for their position and skill set at their company and in their local market.
65% percent of men vs. 53% of women in the United States believe they have a good understanding of how pay is determined at their company.
38% of men vs 23% of women in the United States say their employer shares information about pay levels within the company.
62% of employees say they would be willing to share more information about their own salaries if they could do so anonymously.
New York City is the preeminent talent hub for most major industries, from healthcare and leisure to technology, publishing, and media. Because of this, it has the potential to influence employer policies for neighboring areas as well as the rest of the United States. New York state, New Jersey, and Connecticut are already taking notice as job listings providing salaries in those areas have recently increased from 40% to 46% in recent weeks, according to Glassdoor.
In January 2021, Colorado enacted the Equal Pay for Equal Work Act which differs slightly from New York City’s Pay Transparency Law in that it requires employers to list the total compensation details (salary + benefits) for open roles and promotion opportunities. In 2023, California, Washington, and Rhode Island will follow New York City and Colorado with their versions of the law, which means that the country’s two biggest job markets, New York City and California, will also be the most transparent.
72% of employees believe salary transparency is good for business, based on Glassdoor’s Global Salary Transparency Survey
What Do You Do With This Info?
If you are a job seeker and come across a position that is your dream job or is at least of strong interest and the salary range is not what you had in mind, it might still be worth applying regardless. Dive into the hiring process with the mindset that everything is potentially negotiable and nothing is set in stone (unless it says so in the job listing).
Ask the hiring manager if the salary is flexible, how they determine their company’s pay structure and what qualifications can land people at the top of that pay structure. And when the time is appropriate further along in the interviewing process/offer stage, inquire what the options are for equity, stock, bonuses, benefits, perks, and other types of compensation.
This is a two-way relationship, and it is the time for both you and your potential new employer to be open and upfront to decide if you are the best fit for each other. This is also applicable for current employees because with raises and pay transparency for new hires, the stage has been set for an upsurge of employees with longer tenure demanding greater pay. It is safe to say that this new salary transparency law might precipitate some difficult conversations among prospective employers for attracting and retaining talent.
What Effect Will It Have?
What effect these new laws will have in the long run remains to be seen, but, at the moment and from all perspectives, the pros seem to outweigh the cons. Salary transparency is overwhelmingly favored by workers since it works toward closing wage gaps, increasing bargaining power, and potentially encouraging or deterring them from investing time to apply to jobs only to find out the salary is below what their needs are (which results in wasting both the job seekers’ and hiring manager’s time). Pay transparency allows prospective employees to decide if a listed salary is viable for them and positively contributes to current employees’ performance, satisfaction, and perception of their employer.
For recruiters, it opens the door to figuring out new ideas to advance pay equity while remaining flexible from all sides, as well as continuing to provide the best talent pools to clients and keeping both the job seeker and the employer happy. For employers sharing pay info from the start, it can attract more applicants, vastly improve the hiring process, and it can cut down their hiring time, especially in a tight labor market.
By making modest changes to increase transparency around pay, employers have an opportunity to bolster trust, reduce employee turnover and maintain retention. It also allows employers a chance to reassess their pay structures to ensure salaries are fair for their employees with similar skills and experience. More transparency ultimately suggests companies may need to pay more for talent during this time when wages are already rising in a stiff labor market. For current employees, this might result in inflating wages, and for smaller businesses, these new laws allow the opportunity to compete with larger companies for garnering applicants’ attention.
Questions have emerged from all ends about whether pay transparency laws are the best way to approach pay equity, what type of flexibility there is, and will they help in the long run. Ultimately, while there are pros and cons with these laws, and while they may require some tweaking and flexibility on all sides, pay transparency can be advantageous for both employers and employees, and it will be interesting to see what the effect of these laws will be in the coming months.