Pay transparency is a popular topic in today’s labor market. While it was taboo in the past, many employers now use pay transparency to achieve pay equity, build trust with employees, and attract talented candidates. With more states creating laws around pay transparency, employers need to know their obligations or risk potential legal recourse.
This guide will cover everything you need to know about pay transparency, including its pros and cons, state-by-state requirements, and how you can use personalized employee benefits to supplement your compensation package.
Learn how you can use fringe benefits to entice job seekers in our complete guide
What is pay transparency?
Pay transparency is the practice of employers being open about salary and pay information at their organization. The method helps individuals find detailed compensation information for open job positions, showcases a company’s beliefs surrounding pay, assists business owners in determining salary ranges, and helps employers understand how to discuss compensation plans with applicants and employees.
Pay inequalities exist in the U.S. A recent study by the Economic Policy Institute1 found that American women were paid 22.2% less, on average, than men in 2022.
But gender pay gaps are only one reason wage transparency has risen in popularity. It’s also a way for employers to improve their company culture. A study by Monster found that 98% of workers2 favor salary disclosures in job advertisements.
Besides promoting equality, pay transparency helps your employees better understand their current wages and what they can do to achieve higher pay. Ultimately, being open about salary can build a culture of trust between you and your employees, attract key talent, and stabilize turnover.
Pros of pay transparency
1. Close pay gaps
One way employers are working to close pay gaps and promote salary equality is with pay transparency. Policies that promote full transparency allow employees to know how much their colleagues are making so they can determine if their wages are fair—especially if they have the same job title.
Ignoring a wage gap is harder if employees have access to compensation data. This makes transparency efforts a critical factor in ending gender, ethnicity, and background biases, boosting employee morale, improving role accountability, and stimulating productivity.
2. Improve recruitment efforts
These days, attracting and keeping top candidates can be challenging. Due to the Great Resignation and a global labor shortage, there are more open positions than external candidates applying. That’s where pay transparency can give you a competitive advantage.
Disclosing pay during recruiting efforts establishes a baseline of trust with applicants by showing them how much their compensation will be upfront. It also allows you to recruit from a wider pool of candidates.
3. Improve overall employee retention
Pay transparency doesn’t just help with recruiting efforts—it’s great for retention, too. A SHRM study3 found that pay transparency can positively impact engagement and reduce the likelihood of employees seeking other job opportunities. That’s because transparency positions your organization as one that values honesty and possibly even as an employer of choice.
Being upfront about pay and how your employees can earn promotions, transfers, raises, and bonuses creates more satisfied team members and increases employee retention. Employees will be more motivated and feel more valued if you compensate them fairly, and can confirm it through pay transparency.
4. Promote an open culture
Salary transparency promotes an open company culture by holding employers accountable for their employees’ salaries—from the bottom to the top of an organization.
For example, employees at larger companies may feel like senior management is disproportionately paid compared to them. But, with pay transparency, all employee wages are more likely to be equitable and solely based on performance. This is even more impactful if you have open discussions that outline how you determine pay for each role at your company.
Open communication builds trust between company leaders and employees instead of hiding pay practices, which can breed resentment and lower the employee experience.
Cons of pay transparency
1. Comparing pay and employee resentment
One potential downside of salary transparency is your employees can compare their pay directly to their coworkers. If an employee believes that their job performance is greater than a coworker earning more than them, it can create resentment and conflict among the team. This can end up hurting morale, productivity, and business operations.
A great way to lessen pay comparisons and disgruntled workers is by having honest conversations with employees about how your company determines salaries. When employees make assumptions without fully understanding the policy, speculation, and conflict are possible.
However, you may need to train managers on the best ways to discuss pay with their team, how to set salaries, and how to answer questions that may arise, which may require more resources than you have—especially for small business owners.
2. Companies may hire fewer people
If you’re paying lower wages, you may hesitate to make your compensation transparent because it can make the hiring process difficult. This is especially true if you own a small business and have a tight budget.
Salary is a key factor in attracting and retaining employees. So, if your state requires you to disclose pay, you may end up hiring fewer people, or your current employees may leave your company altogether.
Transparency practices can also make it easier for candidates to compare pay between competitors, leaving you fewer candidates to pick from if another company in your industry can offer larger employee salaries than yours.
3. Pay differences may be misunderstood
Many employers determine pay based on a variety of reasons. With pay transparency, employees might insist that employers pay them the same amount as another person doing a similar job—even if they don’t have the same skill set or performance level. This can lead to potentially overpaying employees, which can blow your budget.
A mistake many employers make is not communicating why certain employees receive more or less than others. Specifying in your compensation strategy how you determine pay, such as by skill set, specialized job category, or previous experience, can lessen the chance for misunderstandings.
Pay transparency laws by state
In the past, how transparent an employer wanted to be regarding employee compensation was up to them. However, over the past few years, many states have drafted legislation requiring employers to implement transparent compensation policies in the workplace.
The chart below shows a comprehensive list of states that have enacted salary transparency laws.
|
Effective date |
Company size |
Requirements |
|
|
January 1, 2023 |
All employers with 15 or more employees |
Employers must disclose the wage range for a position to job applicants upon request, whether or not the candidate has completed an initial interview. Upon request, employers must also disclose pay ranges to a current employee in the position. |
|
|
January 1, 2021 |
All employers |
Employers must disclose compensation or a good-faith compensation range and a description of benefits and perks in all job listings. |
|
|
Connecticut |
October 1, 2021 |
All employers |
Employers must disclose the wage range for a position to job applicants by the earlier of the following dates: upon request, before, or when you extend an offer. Employers also must provide the pay range for an employee’s position upon hiring, a change in the employee’s position, or upon an employee’s request. |
|
Hawaii |
January 1, 2024 |
All employers |
All employers in the state must provide new hires at least the hourly wage or salary advertised in job descriptions. All job listings must include a reasonable salary or hourly rate. |
|
Maryland |
October 1, 2020 |
All employers |
Employers must provide the wage range for a given position to job applicants upon request. |
|
Nevada |
October 1, 2021 |
All employers |
Employers must provide the wage rate or range for a given position to applicants who have completed a job interview. They also must provide a pay range to employees who have applied for a promotion or transfer, completed an interview, have been offered a promotion or transfer opportunity, or requested the pay range for a promotion or transfer. |
|
April 13, 2022 |
All employers in Jersey City with five or more employees |
Employers must disclose the minimum and maximum salary (or hourly rate) and benefits for each job, promotion, or transfer. The wage range should be what the employer, in good faith, believes at the time of posting they would pay. |
|
|
September 17, 2023 |
All employers with four or more employees |
Employers must disclose the wage scale or salary range for all jobs, promotions, and transfers that can or will be performed, at least in part, in the state. The range may extend from the lowest to the highest hourly wage or salary that the employer, in good faith, believes at the time of the posting it would pay. |
|
|
Cincinnati: March 1, 2020 Toledo: June 25, 2020 |
Cincinnati and Toledo: All employers within these cities with 15 or more employees, including referral and employment agencies. |
Cincinnati: Employers must provide the salary range for a position to job applicants upon request as long as the applicant has been offered the position. Toledo: Employers must provide the wage range for a given position. |
|
|
Rhode Island |
January 1, 2023 |
All employers |
Employers must disclose the pay range for a given position to job applicants upon request before discussing compensation. Employers must provide the pay range at the time of hire when the employee moves into the new position and upon request during the employee’s career progression. |
|
January 1, 2023 |
All employers with 15 or more employees |
Employers must disclose the salary or salary range and a general description of all of the benefits and perks to be offered to the hired applicant in each job description. |
Other state pay transparent laws
No other states currently have pay transparency requirements. But, a few states prohibit employers from asking prospective employees about their salary history to determine pay.
States with these types of legal requirements include the following:
- Alabama
- Delaware
- Hawaii
- Illinois
- Maine
- Massachusetts
- New Jersey
- Oregon
- Vermont
How offering employee benefits can offset lower salary ranges in small businesses
If you’re a small business, you may not have the budget to offer the same size salary to job candidates and employees as larger companies. But you can be competitive in other ways in today’s tight labor market.
Besides salary, offering a compensation package with various employee benefits and perks is crucial for attracting and retaining talent. Even if you offer a competitive salary, 82% of employees said an employer's benefits package is an important factor in whether or not they accept a job offer with the organization.
Employee benefits are indirect compensation provided to employees in addition to their base wages. They can be required on the state or federal level or be a voluntary offering. A good employee benefits package may include health benefits, life insurance, paid time off (PTO), flexible work schedules, stipends, retirement plans, and more.
As your business grows, you’ll need more than competitive company wages to entice talented workers. Offering benefits shows your employees you care, highlights your company culture, and improves your overall brand. Better yet, you can offer many free or low-cost perks that will suit your budget while attracting candidates.
Simply put, if you want to keep your employees engaged, a pay transparency policy should accompany a front-and-center compensation package filled with benefits and perks that your employees will love.
Conclusion
Even if your state doesn’t have pay transparency legislation, implementing the practice at your company will engage your staff, improve morale, and increase job satisfaction. While starting can be challenging due to potentially difficult conversations that lie ahead, it’s an essential element to closing pay gaps and removing potential bias from your compensation decisions.
If you’re a small business with a smaller salary budget, you can offset your salary by highlighting employee benefits and perks in your compensation package as a way to attract top talent.
If you’re ready to boost your benefits package, contact us, and we’ll get you started right away!
This article was originally published on January 4, 2023. It was last updated on October 9, 2023.
- https://www.epi.org/blog/gender-wage-gap-widens-even-as-low-wage-workers-see-strong-gains-women-are-paid-roughly-22-less-than-men-on-average/
- https://hiring.monster.com/resources/blog/workers-want-pay-transparency/
- https://www.shrm.org/resourcesandtools/hr-topics/talent-acquisition/pages/pay-transparency-reduces-recruiting-costs.asp
