By Kari Meillat, Compensation Services Manager
Pay transparency laws aim to provide job applicants and employees with more information about pay as well as reduce gender and racial pay gaps. While pay transparency laws are increasingly being enacted and enforced in many states, the broader significance is that pay transparency is itself becoming a cultural norm.
What are pay transparency laws?
Pay transparency laws may require employers to openly disclose information about the salaries, bonuses, and other forms of compensation offered to candidates or their employees. The goal of these laws is to promote fairness and equality in the workplace, as well as to give employees a better understanding of their pay structure and benefits packages.
The Impacts of pay transparency laws
The implementation of pay transparency laws can have a significant impact on both employees and employers. Some of the positive effects include:
- Improved fairness and equality: By providing employees with more information about their pay and how it is determined, pay transparency laws can help to address wage disparities and promote fairness and equality in the workplace, a core value prioritized by many workers today.
- Increased transparency: With more information available about salary structure and compensation, employees are better able to understand their pay and benefits packages, leading to more trust.
- Improved employee satisfaction and loyalty: When employees feel that they are being paid fairly and that their pay is transparent and open, they are more likely to be satisfied with their jobs and to be more engaged, productive and committed.
- Better recruitment and retention: Companies that are transparent about pay ranges and compensation may be more attractive to potential employees, and better able to retain their current employees. Additionally, candidates will know up front if the pay is in line with their expectations, saving both the employer’s and candidate’s time.
- Smarter compensation planning: Employee pay is the single largest expense for most businesses. To manage this, companies need to develop a competitive compensation strategy that defines salary ranges, eliminates inequities and incentivizes the behaviors that drive success.
Pay transparency laws in the U.S.
Many states currently have some form of salary transparency law, with more likely to be passing pay transparency legislation in the near future. It is illegal in many places for employers to prohibit employees from discussing their pay or asking about the pay of others. These laws can vary in the specifics of what is covered and what penalties apply for violations, so it’s important to consider each state’s specific laws. Note that employees may also have protections under federal law.
Developments in pay transparency laws worldwide
In 2023, pay transparency laws will continue to be a major focus for many governments and employers around the world. Some of the latest developments in this area include:
- Expansion of coverage: Many countries are expanding the scope of their pay transparency laws to cover more employees, including those in part-time or temporary positions.
- Increased enforcement: Governments are stepping up their enforcement of pay transparency laws, with stronger penalties for employers who violate these laws.
- Implementation of new technologies: Employers are using new technologies, such as cloud-based payroll systems, to automate the process of tracking and reporting compensation information, making it easier to comply with pay transparency laws.
How to prepare for pay transparency laws and norms
As these laws continue to be implemented and enforced, it’s important for employers to stay up-to-date and to take steps to ensure they’re in compliance with these important regulations. Here are some recommendations for getting ready.
- Establish competitive salary ranges: A good first step in preparing is to have concrete salary ranges that are competitive for your organization size, industry and location. Understanding the market rate of pay for your jobs will provide the data to develop your wage ranges.
- Define your compensation strategy: It will also be important to define your compensation strategy to provide clarity when making salary and benefits decisions. The compensation strategy aligns budget with talent needs, and drives organizational success.
With a well-considered compensation strategy and market-based wages in hand, you will be in a good position to engage in those conversations around compensation strategy and philosophy at your organization.
If you would like to speak with one of KMA’s expert compensation consultants to discuss a compensation market analysis, compensation structure and strategy, or pay transparency regulation, please reach out to us today.