Pay Transparency: What You Need to Know

The public policies underlying pay transparency laws have existed for decades, in the form of anti-discrimination laws and equal pay laws. For example, the federal Equal Pay Act of 1963 prohibits employers from paying women lower wages than men for equal work on jobs that require comparable skill, effort, and responsibility. Title VII of the Civil Rights Act (“Title VII”) prohibits discrimination in employment based on protected class status such as age, race, or gender, and allows wage discrimination challenges to employer pay practices.

Many states have legislated similar protections, enacting a variety of laws prohibiting wage discrimination. For example, in Maryland, the Equal Pay for Equal Work Act mandates that employers cannot discriminate in the payment of wages based on sex or gender identity for substantially similar work. Discrimination also includes providing less favorable employment opportunities based on sex and/or gender identity. In Virginia, the Equal Pay Act prohibits employers from discriminating on the basis of membership in a protected class (including sex) in the payment of wages for substantially similar work or in providing less favorable employment opportunities based on protected class.

To augment these protections, states and jurisdictions nationwide are implementing new “pay transparency” legislation and are strengthening equal pay and non-discrimination requirements. This patchwork of pay transparency legislation can take many forms, however in general the requirements can be categorized as follows:

(1) Prohibitions or limitations an employer’s ability to request or use a candidate and/or employee’s salary history;

(2) Requirements that an employer provide to a candidate and/or employee, upon request, information regarding the salary range of a position;

(3) Requirements that an employer disclose salary range in job postings; and

(4) Prohibitions against requiring employees to disclose their wage information.

Many pay transparency laws combine two or more of the above. 

Salary History. Historically, employers have utilized a candidate’s salary history as a basis to evaluate or compare applicants, set compensation ranges, or negotiate salaries. However, reliance on salary history during the job application and salary calibration processes can perpetuate lower earnings trends for women and employees of color. The practice also assumes that an applicant earning a lower salary is unequal to an applicant who has earning a higher one. Salary setting that is not market-based can be predicated on factors other than merit, including individual negotiation, familiarity with the candidate, temporary absence from the workforce or part-time work due to child or dependent care responsibilities, and unconscious bias favoring men over women.

In order to combat this structural bias and narrow wage gaps, states and local jurisdictions have enacted legislation that restricts the use of salary history information during the job application process.  For example, the California Equal Pay Act provides that except in one very limited circumstance pertaining to salary information disclosable to the public pursuant to federal or state law, employers are prohibited from seeking an applicant’s salary history. The Maryland Equal Pay for Equal Work Act prohibits employers from requesting or making employment decisions based applicants’ salary histories, unless such wage history is voluntarily provided by the applicant and the employer uses, or seeks to confirm, such information only after an initial offer of employment with an offer of compensation in order to support a wage offer higher than the initial wage offer. These laws motivate employers to analyze market-based compensation data and set salaries accordingly.

Pay Disclosure. Pay disclosure requirements are also part of pay transparency legislation in a growing number of jurisdictions. These laws take the form of: (1) requiring employers to provide a minimum and maximum pay, or a pay range, for a given job upon the request of the applicant, or (2) requiring employers to include pay range information in all applicable job postings.

In California,  employers must provide the pay scale (i.e., the salary or hourly wage range for a position) for a given position to both employees and job applicants upon request. In Maryland and Rhode Island, employers must provide the pay range or rate for the position to which the applicant is applying upon request (and in  Rhode Island, an employer should provide the pay range for the position to which the applicant is applying before discussing compensation). Additionally, in Rhode Island, an employer must provide the employee’s wage range for the employee’s position at the time of hire and when an employee moves into a new position.  Furthermore, in Rhode Island, during the course of employment, upon an employee’s request, an employer shall provide the wage range for the employee’s position.  There are also certain localities in which employers must provide the pay scale for the position which an applicant applies, upon the applicant’s reasonable request; for example, Toledo, Ohio. As such, employers should ensure that they are aware of and maintain compliance with all laws that are relevant in the jurisdictions in which they do business and in which applicants apply.

The newest form of pay disclosure laws require that employers include pay range information in job postings. For example, such laws have emerged in California, Colorado, Washington and New York City. In New York City, the Pay Transparency Law makes it a discriminatory practice for an employer to advertise a job, promotion, or transfer opportunity without stating the minimum and maximum annual salary or hourly wage for such position in such advertisement.  At the time of posting, the minimum and maximum annual salary or hourly wage should be the range that the employer in good faith believes it to be at the time of posting. In Colorado, the Equal Pay for Equal Work Act requires employers to disclose a good-faith estimate of compensation (i.e., the hourly rate or salary compensation, or range thereof) in all job postings, including but not limited to promotions.  In addition, employers are required to provide a general description of all of the other benefits and other compensation that will be part of the offer to the hired applicant. Regarding opportunities for promotion, the Colorado Equal Pay for Equal Work Act mandates that an employer make reasonable efforts to announce or post, or otherwise make known, all promotional opportunities to all current employees on the same calendar day and prior to making a promotion decision. Similarly, in Washington, the Equal Pay and Opportunities Act requires employers with 15 or more employees to disclose in each posting for each job opening the wage scale or salary range and a general description of all the benefits and other compensation to be offered to the hired applicant.  Additionally, upon transfer or promotion, upon an employee’s request, the employer must provide the wage scale or salary range for the employee’s new position.  Employers in California  with fifteen or more employees must now include the pay scale for a position in any job posting (and require any third-party job advertisers engaged by the employer to do the same).  In these jurisdictions, an employer’s noncompliance with the law will be investigated by the relevant Commissions/Agencies and violators will be penalized.

Employers with employees in New York should be aware of similar pay disclosure requirements being implemented later this year. As of September 17, 2023, employers, employment agencies, and employees or agents of either, when advertising a job, promotion, or transfer opportunity that can or will be performed at least in part in New York, must disclose compensation ranges and the relevant job description. 

Similarly, New York City’s  Pay Transparency Law does not apply to positions that cannot or will not be performed, at least in part, in the City of New York.  Portions of Colorado’s Equal Pay for Equal Work Act do not apply to employees/jobs entirely outside of Colorado:  the promotion posting requirements do not apply to employees entirely outside of Colorado and the compensation posting requirements do not apply to jobs to be performed entirely outside of Colorado or to job postings entirely outside of Colorado.  The Labor Commissioner has interpreted the pay scale disclosure in job postings requirement under the California Equal Pay Act “to mean that the pay scale must be included in the job posting if the position may ever be filled in California, either in-person or remotely.”  Under the Washington Equal Pay and Opportunities Act, “all applicants, including existing employees, who apply to a posting recruiting Washington-based employees, with an employer …, including employers who may not have a physical presence or employee in Washington State, are protected by the law.”  For nationwide employers, and employers with a growing remote workforce, these compliance requirements pose great practical challenges and legal risk.

Laws Protecting Employees’ Rights to Share Wage Information. Another form of pay transparency law protects employees who disclose wage information in the workplace. The National Labor Relations Board (NLRB) has taken the position that employees have the right, under the National Labor Relations Act (NLRA), to discuss their wages, benefits, and other similar information with other employees so as to ensure equity in the workplace. The NLRA has statutory jurisdiction over private sector employers whose activity in interstate commerce exceeds a minimal level.

However, even if the NLRA does not specifically apply to a specific employer, many jurisdictions have codified the NLRA protections into state law. For example, in Vermont, it is illegal to require employees to refrain from disclosing or discussing wages. Further, employers are prohibited from making employment conditional on an applicant’s agreement not to disclose or discuss their wages or to inquire about or discuss the wages of other employees.  One limited exception to this law is that, unless otherwise required by law, an employer may prohibit a human resources manager from disclosing the wages of other employees. And while Maryland has certain exceptions to its rule, employers may not prohibit employers from inquiring about, discussing, or disclosing the wages of the employee or another employee, or taking any adverse employment action against an employee from inquiring about the employee’s or another employee’s wages, disclosing the employee’s own wages, discussing another employee’s wages (if those wages were disclosed by the other employee voluntarily), or asking the employer to provide an explanation as how the employee’s wages were determined. Similarly, in Virginia and in Washington, D.C., employers are prohibited from discharging or taking any other retaliatory action against an employee for discussing wages or compensation with another employee.

Pay transparency practices continue to increase as legislators and regulators seek to create equitable workplaces in which pay practices are not driven by implicit or explicit bias. The laws described above are meant to be illustrative and are not exhaustive of the extent and reach of the laws detailed, or in the identification of the states/localities that have codified such laws. Employers should stay up to date on pay disclosure legislation in their jurisdiction(s) in order to both ensure compliance and employee retention. Contact us if you need more information .