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Four tips to prepare for new pay transparency laws

By Jackie Rubin , Mariann Madden and Lindsay Wiggins | November 1, 2022

New pay transparency laws going into effect in New York City portend regulatory changes in other jurisdictions.
Compensation Strategy & Design|Future of Work|Talent|Total Rewards|Inclusion and Diversity|ESG and Sustainability
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Pay transparency requirements in the U.S. are a growing trend. New York City is the latest jurisdiction with such a law going into effect on November 1. With over 100 Fortune 1000 companies headquartered in the Big Apple and surrounding area, this new law will have a wide-reaching impact.

Meanwhile, California and Washington’s new requirements go into effect on January 1, 2023. Last year saw the enforcement of the Colorado Equal Pay for Equal Work Act.

The goal of these laws is to leverage pay transparency as a means to reduce the gender pay gap — that is, the difference in pay between men and women. By requiring disclosure of salary ranges both externally (advertised job postings) and internally (promotions and transfers), NYC hopes to facilitate fairer negotiations between employers and current and prospective employees.

NYC councilwoman Helen Rosenthal stated: “Lack of salary transparency is discriminatory and anti-worker. Every New Yorker should have the right to determine whether they will be able to support themselves and their family when they apply for a job. It is time to level the playing field, and restore some dignity to New Yorkers seeking employment.”

Once NYC’s law goes into effect, applicants, employees, and your competitors will gain deeper knowledge of your organization’s pay practices. While most compensation and HR professionals would agree that narrowing the pay gap is a worthy goal, there is a great deal of uneasiness about opening the “black box” of pay ranges to the public. Furthermore, many business leaders are concerned about the timing of this legislation given already existing attraction and retention challenges associated with the so-called “Great Resignation” and a tight labor market.

Before we get into strategies to help you prepare, let’s review the requirements of the law. We expect NYC to provide further guidance on the specifics of how to comply, but here is a summary of the law to date:

  • Requires job listings to disclose a good faith salary range offered for any position located in New York City, including remote roles able to be performed by a NYC resident
  • Requires a range with a minimum and maximum that the employer in good faith believes it would pay for the advertised job
  • Applies to externally advertised jobs, as well as promotions and internal job transfers
  • Applies to organizations that employ four or more people
  • Effective November 1, 2022

Based on our experience working with organizations in Colorado, we have developed four suggestions to help set up employers for success and address the provisions of the NYC law as well as the other state and local mandates:

  1. 01

    Get your compensation structures ready for prime time

    To develop pay ranges, and manage compensation within those ranges, you need to understand three things:

    • Job level: How the work gets done
    • Job discipline: The type of work that gets done
    • Competitive market data: The pay the external market would offer

    By organizing jobs via a job leveling framework (evaluating jobs based on scope, complexity, and impact) and job architecture (grouping jobs based on skills needed and job-specific knowledge required), organizations have the job groupings needed to create market-relevant as well as internally equitable pay levels.

    It is also important to codify your approach to geographic-based pay. Do you differentiate compensation based on location? Has your approach changed due to the pandemic and the rise of remote work? Make sure your approach is formalized and communicated, or questions may arise when ranges for NYC, a high cost-of-labor location, are publicized.

    Compliance with this law will open your pay practices to scrutiny both externally and internally, so use this as an opportunity to define and communicate a compensation program your organization is proud of.

  2. 02

    Comply with ‘good faith’ requirements and be consistent

    The “hiring range” disclosed might be a “subset” of the actual salary range used internally. If your organization does not pay at the upper end of the range for a new hire, avoid advertising as such. Or, if you are hiring for a “hot skills” job and do not expect to pay at the lower end of the internal range, make sure the disclosed range accounts for this.

    If you deviate from your existing salary structure used internally, the approach might differ by job level, function, or some other segmentation approach. If so, make sure the rationale is documented and consistently applied.

    Consider whether you will apply the same pay transparency approach required in NYC for jobs elsewhere – even if regulations don’t currently require it. For example, if you are hiring for a position in Miami or Dallas, would you include the salary range in the job posting?

    Without sound governance processes in place, different disclosure policies for different locations could become messy to administer. Furthermore, different policies could cause dissatisfaction and confusion among both current and potential employees who do their own investigations and compare their own salaries or job offers to the disclosed NYC ranges.

  3. 03

    Uncover and address areas of risk

    Publication of salary ranges could open questions of inequity. Get ahead of this by conducting a robust pay equity analysis to understand if pay for existing employees is administered fairly within your compensation framework. Identify any areas (e.g., particular demographic groups, business units, locations, departments, etc.) of risk and develop plans to address, if needed. It is important to know if salaries for a particular demographic group are below or low in the range you intend to use for external job postings.

  4. 04

    Prepare managers for questions

    Think about the impact this law will have on your culture in relation to transparency. Change management and communications readiness are key. Do employees know how salary ranges are set and how their compensation is determined? Employees will quickly note how their salaries compare to the advertised ranges and ask questions. Managers should be ready to help employees interpret and discuss the ranges that are shared and be prepared to explain why employees are positioned where they are in the ranges. Frame employee-specific compensation discussions within your foundational job and pay structures.

Final thoughts

While we know pay transparency laws require an extra layer of care in defining and communicating compensation practices, those organizations that have confidence in their compensation strategy and prioritize fairness will soon be on their way to complying and thriving within the new requirements.

As you prepare for these new laws, accept that you may not be able to make all your desired changes to support implementation prior to the effective dates – and recognize that continued improvement over time is how these laws hope to reduce the pay gap. Employee and regulatory expectations on transparency and fairness continue to grow, and this may just be the impetus your organization needs to make the changes your current and future employees’ demand.

Summary of existing U.S. pay transparency laws

Current regulations vary by jurisdiction.

Note: Please consult with local legal counsel to ensure appropriate compliance.

When pay range must be disclosed to external candidates Jurisdiction
When posting a job NYC, Colorado
California (effective Jan. 2023)
Washington (effective Jan. 2023)
Ithaca, N.Y., Jersey City, N.J., Westchester County, N.Y.
During the hiring/interview process Connecticut, Nevada,
Rhode Island (effective Jan. 2023)
During the hiring/interview process (upon request by applicant) California, Maryland, Washington, Cincinnati, Ohio; Toledo, Ohio
When pay range must be disclosed to existing employees Jurisdiction
Upon request (any scenario) Connecticut, Illinois,
Rhode Island (effective Jan. 2023)
California (effective Jan. 2023)
Upon promotion/transfer NYC, Colorado, Nevada
Washington (effective Jan. 2023)
Upon promotion/transfer (upon request by employee) Washington
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