Pay transparency is a popular topic for employers today. While it used to be considered taboo, many employers now see pay transparency as a way 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. It can include how employees can find compensation information for open job positions, company beliefs surrounding pay, how salary ranges are determined, and how compensation is discussed 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 22.1% less, on average, than men in 2021.
But gender pay gaps are only one reason pay transparency has become a popular topic. It’s also a way that employers can improve their company culture too. That’s why a study by Monster found that 98% of workers2 favor salary disclosures on job postings.
Besides promoting equality, pay transparency helps your employees better understand how and why they’re paid their current wages and what they can do to achieve higher pay. But ultimately, being open about salary can build trust between you and your employees, attract key talent, and stabilize turnover at your company.
Pros of pay transparency
1. Close pay gaps
Pay gaps are prevalent in all industries in today’s workforce. One way that 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 they’re being paid fairly—especially if they have the same position.
If employers disclose compensation data, it’s harder to ignore a wage gap, and you can work to resolve those discrepancies. This makes transparency efforts a key 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 candidates applying. That’s where pay transparency can be a competitive advantage for you.
Disclosing pay during recruiting efforts establishes a baseline of trust with applicants by showing them how much they’ll be paid upfront. It also allows you to recruit from a wider pool of talented 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 employee 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, raises, and bonuses creates more satisfied team members and increase employee retention. If they’re compensated fairly and equally and can confirm this through pay transparency, they’ll be more motivated and feel more valued.
Being transparent when it comes to pay, especially when current employees are considering promotions and transfers, better engages your employees, which can reduce overall turnover.
4. Promote an open culture
Salary transparency promotes an open company culture as it holds 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. However, 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 pay is determined 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 that your employees can now compare their pay directly to their coworkers. If an employee believes that their job performance is greater than a coworker that is earning more than them, it can create resentment and conflictamong the team, which can end up hurting morale, productivity, and business operations.
A way to stop pay comparisons and disgruntled employees before they start is by having conversations with employees about how salaries are determined. 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 salaries are set, and how to answer questions that may arise, which may require more resources than you have—especially if you’re a small business.
2. Companies may hire fewer people
If you’re paying lower wages, you may be hesitant to make your wages transparent because it can be more difficult to hire top talent. This is especially true if you own a small business and have a tight budget.
Salary is obviously a key factor for 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 can also make it easier for candidates to compare pay between competitors, leaving you with 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 as them—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 the reasons why certain employees are paid 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 once your pay is transparent.
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 you a comprehensive list of states that have enacted salary transparency laws.
|
Effective date |
Company size |
Requirements |
|
|
California |
January 1, 2023 |
All employers with 15 or more employees |
Employers must disclose the pay range for a position to job applicants upon request, whether or not the candidate has completed an initial interview. Upon request, employers also must disclose pay ranges to a current employee that holds the position. |
|
Colorado |
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 pay range for a position to job applicants by the earlier of the following dates: upon request or before or at the time an offer has been extended. 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. |
|
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 job applicants who have completed an interview for a position. They also must provide a pay range to employees who have applied for a promotion or transfer, completed an interview, and have been offered a promotion or transfer, or requested the pay range for a promotion or transfer. |
|
New Jersey |
April 13, 2022 |
All employers in Jersey City with five or more employees |
Employers must disclose the minimum and maximum salary or hourly wage, and benefits for each job, promotion, or transfer. The range should be what the employer, in good faith, believes at the time of posting they would pay. |
|
New York |
September 17, 2023 |
All employers with four or more employees |
Employers must disclose the salary 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. |
|
Ohio |
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 to job applicants. |
|
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. |
|
Washington |
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 posting. |
Other state pay transparency laws
No other states currently require employers to disclose salary ranges to candidates. However, a few states prohibit employers from asking candidates about their salary history to determine pay.
States with these types of laws 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. However, there are other ways you can be competitive in today’s tight labor market.
Besides salary, offering a compensation package complete 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 come in many forms, whether required by federal or state law, or can be optional offerings. A good employee benefits package may include health benefits, life insurance, paid time off (PTO), flexible work schedules, stipends, retirement benefits, and more.
As your business grows, you’ll need more than just wages to entice talented workers. Offering benefits shows your employees you care, highlights your company culture, and improves your overall brand. Better yet, there are many free or low-cost perks you can offer that will work for your budget while still attracting candidates.
Simply put, if you want to keep your employees engaged, pay transparency should be coupled with a front-and-center compensation package, complete with benefits and perks that your employees will love.
Conclusion
Even if your state doesn’t have pay transparency laws, implementing the practice at your company allows you to engage your staff better, improve morale, and increase satisfaction. While starting can be challenging due to potential difficult conversations that lie ahead, it’s worth your while as an employer to close pay gaps and remove potential bias from your salary 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!
2https://www.cnbc.com/2022/10/26/workers-overwhelmingly-support-pay-transparency.html
