On November 1, 2022, one of the most wide-ranging laws related to salary transparency went into effect in New York City. Businesses hiring workers in the city are now required to list the minimum and maximum salary range for a job on any printed or online posting.

The goal of the new law is to provide workers with more information regarding an employer’s pay practices so they have greater leverage to discuss and negotiate their salaries.

The broader objective is to help close the wage gap, wherein women in the United States are paid 83 cents for every dollar paid to white, non-Hispanic men, and women of color are paid as little as 49 cents for every dollar, according to a March 2022 fact sheet from the National Partnership for Women & Families.

While pay transparency laws aimed at closing pay gaps are rapidly emerging around the country, the result is a patchwork of laws that make it challenging for organizations to remain compliant.

Landmark salary legislation

California enacted the first sweeping state law governing pay equity back in 2015, and in 2021 became the first state to require companies with 100 or more employees to report wage data by race and gender across 11 pay bands.

California also requires employers to include compensation and benefits information in job postings effective January 1, 2023.

Colorado’s Equal Pay for Equal Work Act, which went into effect at the beginning of 2021, requires employers to post the compensation range and a general description of all employment benefits in their job postings, and generally prohibits employers from paying any employee a wage rate that is less than the rate paid to an employee of a different sex for substantially similar work.

Colorado, California, Connecticut, Maryland, Nevada, New York (effective Sept. 17, 2023), Rhode Island, and Washington also have laws on pay disclosure in job postings, and a number of counties and cities across the country have pay disclosure laws on the books as well.

Moreover, multiple states have enacted laws barring employers from preventing employees from sharing their salary information or from retaliating against them if they discuss their pay package with co-workers. Several states and local jurisdictions have also adopted laws and regulations that prohibit employers from requesting salary information from job applicants.

Navigating the patchwork of legislation

To help organizations navigate this patchwork of legislation, in-house counsel can begin by focusing on the following six key elements of state and local pay disclosure laws:

1. Employee eligibility and exemptions: Does the law refer to external applicants and current employees? What about promotion and non-promotion opportunities? Are certain employers, such as those with fewer than 15 employees, exempt from the law? Are remote positions exempt from the requirements?
2. Required information: How much detail does the law require employers to post? A general description of the pay scale? Is there specific application to bonuses, commissions, or other forms of compensation? Are employee benefits plans, such as healthcare or retirement plans, subject to disclosure requirements?
3. Timing and triggering events: What is the effective date of the law? What specific employee information requests must employers grant? Are there additional salary disclosure requirements the law imposes when employers announce promotion opportunities?
4. Notice and posting requirements: What communication channels must employers use to notify employees and prospective employees of pay scales? May employers keep some job openings confidential? Do the disclosure requirements apply to any third parties employers engage to recruit job candidates on their behalf?
5. Penalties: How much are the potential fines that state labor commissioners can impose for failure to comply? Are there any mitigating circumstances that will be considered? Is there a private right of action for individuals to seek injunctive relief or other relief?
6. Other Key Provisions: Do employers have the discretion to post compensation ranges with wide gaps between the lowest and highest salary figures? Is there a good faith provision that allows employers to pay more or less than the posted range based on extenuating circumstances? What, if any, specific records of job descriptions and wage rate history must employers maintain?

Practical steps for employers

Apart from directing counsel to identify the various provisions of the pay disclosure laws that are likely to apply to their organization, employers can also consider a series of proactive steps to minimize exposure:

1. Consider salary benchmarking: Because applicants and employees will now be able to see whether an employer’s salaries are similar to salaries offered by competitors, employers should consider salary benchmarking. The benchmarking should compare jobs by equivalent duties rather than titles. The benchmarking should also include only recent pay data, preferably less than 6 months old. It advisable to hire an outside consulting firm with access to the most current, accurate, and relevant pay data to help conduct this benchmarking.
2. Review and create salary ranges/bands: After gathering salary benchmarking data, employers should review and create compensation bands at least every 6-12 months. These bands show a minimum, middle, and maximum compensation point for each level of each position in the company. Developing set compensation ranges for each job level will help avoid pay equity claims and pay secrecy.
3. Educate managers: Managers must be aware of the pay transparency laws and the employer’s commitment to equitable compensation. Because applicants and employees will be more aware of the employer’s pay structures, managers need to consistently document hiring, promotion, disciplinary, and termination decisions. To help defend against potential pay discrimination claims, the employer will need to show there are legitimate reasons for any pay disparities between employees. Managers should also avoid taking adverse action against applicants or employees due to their complaints about potential pay discrimination.
4. Carefully review the pay transparency laws in all jurisdictions: As we have already indicated, the requirements of pay transparency laws vary considerably by jurisdiction. To keep up with the different and developing laws, it will be helpful to regularly review state and local law surveys on pay transparency offered by legal research and practical guidance platforms.
5. Revise job postings: National or multistate employers may want to revise their job postings to be consistent with the most restrictive pay transparency requirements to ensure compliance. If, for example, a national company wishes to have one job posting that applies across the country, it should consider crafting the posting to meet the most rigid jurisdictional pay disclosure requirements to ensure compliance with pay transparency laws in any state or locality where the job is posted. Of course, companies can also opt to customize their job postings to the pay transparency requirements of each state or locality.
6. Consider prohibiting salary negotiations: Sometimes applicants or employees are able to negotiate higher pay for themselves. These negotiations can sometimes take pay outside the set compensation bands and/or cause inequality between male and female employees’ salaries.
7. Conduct regular pay equity audits: Regularly investigating pay equity is a best practice that all companies should consider.
8. Take action to fix unjustified pay disparities. For example, if an audit shows there are gender disparities in pay that are not explainable by legitimate factors such as seniority, the company must adjust the pay ranges to ensure male and female employees are receiving equal pay for equal work. The company will also want to consider whether to remedy pay gaps retroactively.

Pay disclosure requirements will continue to proliferate, and we are likely to see more legislation across many more states and localities.

In-house counsel need to stay apprised of the latest legislative and regulatory developments governing salary transparency so they can mitigate compliance risk and provide the best possible counsel to their executive team.