As our readers are aware, pay transparency laws were a trending national topic in 2022, and we have not seen this trend slow down to begin 2023.
We recently wrote about the various pay transparency laws that went into effect on January 1, 2023, which require many employers to disclose a position's wage ranges in their job advertisements. However, there is another aspect to some of these laws that many employers may be overlooking: in states like California and Washington, pay transparency laws also give current employees the right to know the wage ranges for their positions.
In California, employers are now required to provide current employees the wage range for their position upon request. This extends to all Golden State employees and employers — regardless of size — whereas the requirement to post the wage range in job postings is only required of employers with 15 or more employees.
In Washington, the requirement to provide wage ranges to current employees is mandatory when an internal candidate is promoted or offered a new position within the same company.
These states join Connecticut, Maryland, and Rhode Island in establishing pay transparency rights for current employees, a movement which is growing nationally. As a result, employers need to consider taking proactive steps to mitigate issues before they arise, even where disparities in employee pay ranges are not a result of any discrimination or intentional inequity.
For example, did your company hire that rock star lateral employee who negotiated 50% more base salary than you budgeted for the position? If a current employee with the same job title asks to see the wage range for their position, that outlier salary that is 50% more than the previous top of the range will likely lead to uncomfortable questions about why current employees with similar titles are not compensated similarly. Likewise, many employers offer market-level compensation when seeking to attract new hires, but a review of the salaries for current employees with the same job titles may reveal salaries well below the market because the employer's annual raises and compensation practices failed to keep pace.
So, how does an employer with pay transparency obligations to current employees address these pay disparities, or even identify them in the first place?
For starters, employers should consider performing a "pay equity audit" to proactively assess their compensation practices across their workforce. The primary purpose of such an audit is to determine if outliers like the examples above, while not occurring based on any discriminatory intent, may statistically suggest or show a disparate impact on employees of color, women, or employees in other protected categories. Additionally, even if the data does not show a disparate impact based on protected categories, it may identify disparities where high-performing employees are not at or near the top of their respective wage ranges, and an employer can build significant goodwill and loyalty with those high-performing employees by proactively raising their salaries. Employers should be mindful, however, that states like Rhode Island make it illegal to lower an employee's salary to correct any disparities in compensation for similar positions. Instead, the onus is on the employer to raise the salaries of the other employees or take other actions to promote equity across their labor force.
Another option is for employers to stratify job titles within departments such that employees with more advanced skills and experience are not categorically grouped with less experienced employees. By properly addressing job classifications, when an employee requests to see the pay range for their position, the pay range will exclude those stratified employees and reflect a more accurate range based on the employee's true level of skill and experience.
Growing pay transparency rights for current employees, along with the FTC's recent proposal for a federal ban on employee noncompetes, are poised to give employees significantly more leverage with their current employers, which is only further magnified by ongoing labor shortages and high employee mobility.
As 2023 kicks into full gear, employers analyzing pay transparency requirements increasingly need to assess their situation internally, in addition to addressing their job postings and external hiring practices.
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