Pros and cons of pay transparency and the legal requirements around it
Employers have been facing all kinds of recruiting challenges and questions over the past few years, including the rising issue of pay transparency. Many states and major cities have begun introducing new legislation requiring varying levels of salary transparency, including several states that now require job postings to include a salary range.
With this area of employment law constantly evolving, employers need to stay up to date on the requirements. However, the majority of states still do not require pay transparency in job postings, leaving businesses to decide whether or not they want to adopt the practice. Human resources teams and business owners across the country need to weigh the pros and cons of including salaries in their job postings to decide whether it will give them a recruiting edge or hinder their hiring efforts.
Find out whether pay transparency is the right move (or even the required move) for your business and explore potential benefits and drawbacks below.
What is pay transparency and why does it matter?
Pay transparency in terms of recruiting often refers to the act of disclosing the salary range for a job that you are posting. This is a practice that has become increasingly popular in recent years, and is even legally required in some states and cities. Pay transparency aims to reduce gender pay gaps and other pay inequities impacting marginalized communities.
By providing a set publicly available salary range, candidates can not only find jobs in their desired pay range more easily, but salaries become more fairly focused on the requirements of the position rather than how well an applicant negotiates their salary during the offer process. The Pew Research Center found that women were slightly less likely than men to ask for more money during salary negotiations, and that 42% of women report that they don’t feel comfortable asking for higher pay. When all candidates are aware of the budgeted salary for a position, they can more comfortably navigate salary discussions and the organization should notice a decrease in pay gaps related to gender or ethnicity.
Pay transparency can also take other forms. It may involve disclosing the available salary range during the interview process or when discussing internal transfer opportunities rather than in a job posting. The core goal of pay transparency is to make information on compensation for new positions and existing roles more readily available and accessible for candidates and employees.
What states require salaries to be shared in job postings?
Pay transparency laws are becoming more common, with new laws going into effect in states like California and New York just this year.
California
Employers with 15 or more employees overall and at least one employee based in California are required to include wage ranges in job postings. In addition, all employers must disclose salary information for an employee’s current position or an applicant’s targeted position if the employee or applicant requests it.
Colorado
Under Colorado’s Equal Pay for Equal Work Act, employers must include the pay range and benefits offered for the role in every job posting. Employers with at least one employee working in Colorado must also provide the pay range for any remote job listing if the work could potentially be performed in Colorado.
New York
One of the latest states to join the pay transparency movement is New York. Employers in New York state with four or more employees must have an hourly rate, salary, or salary range in their job advertisements.
Washington
The state of Washington requires employers with 15 or more employees that engage in business in the state or recruit for jobs that could be filled by Washington-based employees (including remote workers) to include compensation information in job postings. This law goes beyond most state laws regarding pay transparency by extending to include employers that do not currently employ anyone within the state. Washington also requires a bit more than the standard salary range. The posting must include salary information, a general description of the benefits offered, and information about any other forms of compensation offers including bonuses, stock options, commissions, or relocation reimbursements.
Other laws regarding pay transparency
There are also local laws in several jurisdictions including New York City, Jersey City, Cincinnati, and Toledo that require salary transparency in job postings. In addition, employers should be aware of state laws requiring pay transparency at other points during the hiring process. States like Connecticut, Rhode Island, and Maryland require employers to provide a salary range at the applicant’s request but do not require it to be listed in job postings. Other states like Nevada require salary disclosure when a candidate interviews for a role.
Benefits of pay transparency in job postings
Even if your company isn’t required to include salary data in job postings, there are some compelling reasons to do it.
Pay transparency helps employers reach the right applicants
Posting salary ranges ensures that you find applicants whose needs will match your budget.
This is particularly true for remote roles. If you are an employer primarily based in a low-cost-of-living state posting a job listing for an entry-level job, you probably don’t want to be drowning in applicants from Los Angeles or New York City. Job seekers in these regions require higher salaries due to the cost of living and that’s likely not in the budget for a small business from a lower cost of living state.
It makes the recruiting process more efficient
When done correctly and transparently, listing a salary range in the job ad should make the recruiting process and salary negotiations run more smoothly. Both sides will be on the same page regarding compensation, so organizations should see a higher offer acceptance rate after instituting pay transparency.
It shows commitment to equity and transparency
Many businesses have amped up their diversity, equity, and inclusion (DE&I) efforts over the past several years. Showcasing an organization’s commitment to DE&I is also becoming a popular recruiting practice, and for good reason. In a Glassdoor study, 76% of candidates reported that workplace diversity is an important factor when evaluating potential employers and job offers. Including transparent salary data is a great way to build trust with candidates and demonstrate your commitment to DE&I from the very first impression.
Having clear, consistent salary ranges can make financial planning easier
Budgeting for new hires and ongoing labor costs is easier when you have clearer salary bands and you stick to them. You don’t technically need to institute pay transparency to set salary bands for each role, as you could do so behind the scenes and not disclose the set range to applicants, but salary transparency tends to help standardize pay in an easy-to-budget way.
Part of the purpose of pay transparency is to close wage gaps and improve pay equity. When done correctly, you should be paying fairly similar wages to each person working under the same job title with a bit of variation based on education and experience. For budgeting purposes, it’s easier to decide on a more narrow salary range (typically spanning about $10,000) and only seek out applicants who are willing to accept pay in that range. Without pay transparency, there is often much greater fluctuation in pay across the same job category simply based on how much an applicant was willing to push during negotiations. Sometimes employers even get to the end of the recruiting process and end up going over budget to meet the demands of a candidate that they really want.
With pay transparency, both parties know the available wage range and are typically happy to stick within the budget. No employee should be majorly underpaid or overpaid, and you as the employer will go into the hiring process with an accurate forecast of how much you’ll need to spend (and with the peace of mind that the candidates you’re interviewing will accept that amount).
Potential drawbacks of pay transparency in job postings
While there are numerous benefits of pay transparency for candidates and organizations, there are some potential drawbacks that businesses and HR professionals should consider.
Employers may receive fewer job applicants
Many job seekers sort through postings on job boards by salary, so some great candidates may not even see your job posting if the salary doesn’t match their search. In the long run, this isn’t much of a drawback as those candidates likely would have rejected the offer anyway if you weren’t able to pay what they were looking for.
Many employers do prefer to cast a wider net and bring in as many applicants as possible to find the perfect hire. Sometimes that is because they are willing to pay more than initially budgeted for the perfect candidate, other times it’s because they’re hoping to sell candidates on their organization throughout the interview process and get them to take the lower salary.
Candidates are sometimes willing to take a slight pay cut for better flexibility, benefits, or a more positive work environment/company culture, so the thought process is not completely unfounded. However, compensation is still one of the most common reasons that people change jobs, so you’ll likely have better retention in the long run if you focus on appealing to applicants that are looking for a salary range you can comfortably meet.
Salaries don’t account for the full compensation package
In some industries, bonuses or commission payments represent a significant portion of an employee’s annual compensation. In these instances, posting a salary range may not be advantageous to employers as the base salary is often fairly low in commission-based jobs, but the actual take-home earnings will be much higher.
It can also be challenging to provide an accurate salary range as the earning potential will vary greatly based on the employee’s work ethic and sales skills as well as harder-to-predict factors such as the overall economy and global events impacting the demand for certain products or services. Employers could still exercise pay transparency by sharing details about their pay practices during the interview stage, such as explaining the commission structure to candidates. Another option is to average out their current employees’ annual earnings to get an idea of the average compensation range including commission or bonus payouts and include that range in the job listing.
Current employees may also see the salary ranges
Some of your current employees will likely see the job posting and the pay information that you post, this is especially true if you are using social media sites like LinkedIn where employees likely follow your company and share openings with their network. The goal of pay transparency is to make salary data transparent for both current and prospective employees, but many employers aren’t quite on board as it can cause employees to question their own pay and encourage requests for raises if the listed salary is higher than what you are paying them. However, if you are doing regular compensation increases and proper salary benchmarking, this shouldn’t really be a big drawback.
Competitors will see your salary ranges too
Competitors will always be able to see some employee salaries through sites like Glassdoor, but having a pay transparency policy will give them verified, up-to-date information on your company’s compensation. Like the above matter, it’s not a huge issue if you’re paying competitive rates.
However, small businesses and growing start-ups don’t always have the funds to pay the highest salaries. If competitors see that your business is paying lower rates, they may amp up efforts to poach your top talent. Employers concerned about this should review PayScale or Glassdoor to review the market rates and pay data for their region and industry to see where they stand.
