How To Adjust To New Pay Transparency Laws Today

Learn how the new laws would impact recruitment

No matter how you look at it, pay transparency laws are already changing the way U.S.-based companies do business. However, despite recent regulatory advancements, nearly one-third of employers still say they are not ready for such transparency. That is a problem.

California, for example, is one of the first states to make a major move regarding pay transparency. On September 27, 2022, Governor Gavin Newsom signed California’s Pay Transparency for Pay Equity Act (SB 1162) into law. 

Beginning on January 1, 2023, the new law requires employers with 15 or more employees to include the salary or hourly wage range for all posted positions. This is a massive change that will affect the operations of companies throughout the state, and more states are looking to roll out this type of legislation in the near future. 

Businesses have a choice: prepare today and get ahead of the curve to start attracting more high-quality recruits and keep top talent, or be on the back foot once these laws are put into practice across the country. Either way, pay transparency laws are going to make a major impact on recruitment.

The Impact of Pay Transparency Laws on Hiring and Everyday Operations

Before we dive into the finer details, it is important to note that pay transparency laws affect both candidates and existing employees. 

With a pay transparency law in place, the hiring process will look and feel different for both employers and candidates. Job advertisements, for example, will have to include salary data. 

Job candidates will benefit from this data, as it helps them decide which positions to apply for and how to negotiate. Conversely, employers are faced with two unique challenges:
 

• Disclosing how much they are willing to pay a candidate could reduce their negotiating power. 
• Revealing salary ranges could upset existing employees who do not earn as much, leading to higher turnover.

Thus, the impact on both employers and candidates is far-reaching and requires proactive preparation from businesses to ensure employee salaries reflect their value, role and tenure appropriately.

How Employers Can Prepare

From an employer perspective, pay transparency laws are a cue to review internal policies and the pay of current employees. You are likely to find that pay equity issues and/or policies need to be revised to ensure that fair and equitable practices are in place.

The overall impact on business operations depends largely on the level of pay equity and transparency in place before the new law goes into effect. For instance, if a company has always had full pay transparency, this legislation isn’t likely to impact operations. However, if a company has neglected to embrace full transparency to date, it may be necessary to take a broader look at salaries throughout the company and start aligning them today.

Use Pay Transparency to Your Advantage

At first glance, a new pay transparency law in your state is scary. You assume the worst, but that is not necessarily the right outlook. There are many ways to use it to your advantage. 

To start, use this as an opportunity to implement a “full transparency model” within your organization. It is a market differentiator when done correctly because many companies are hesitant to make this change proactively. Set your business apart by being an early adopter.

Plus, it is a misconception that full pay transparency builds resentment between employees, increases turnover, and negatively impacts morale. Sure, this can be true, but there is a better chance that doing it right will:
 

• Make pay gaps a thing of the past and promote equality
• Motivate employees to perform their best to reach the next pay grade
• Eliminate time-consuming and stressful salary negotiations 

To take full advantage of this opportunity, you must be clear about your goals upfront. Address the issue head-on to create an internal policy that not only meets regulatory requirements, but also reflects the best interest of both candidates and existing employees. 

Example goals include a policy that takes a stance for equity and inclusion; an attempt to boost employee morale; a mission to attract the best candidates; and/or a reduction in employee turnover rate.

Final Thoughts

Even if pay transparency laws have not affected your company yet, there is a good chance they will in the very near future. Many states (and cities) have already moved in this direction, with the rest likely to follow closely behind. 

The ability of your organization to successfully comply with new pay transparency laws is critical to its long-term viability. Don’t wait until the last minute to make the necessary changes to your internal policies and day-to-day operations. 

As the Vice President of Client Development for VensureHR, Sandy Kaminski has more than 20 years of experience working in human resources. She has worked for professional employer organizations (PEO) and human resource outsourcing (HRO) divisions for the bulk of her career. Sandy has managed all aspects of PEO and HRO solutions for a diverse array of industries, and was the owner/founder of a human resources consulting firm that specialized in strategic HR.  Visit VensureHR Connect Sandy Kaminski