What New Pay Transparency Laws Mean for Pay Inequality

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What New Pay Transparency Laws Mean for Pay Inequality

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If you’ve always wanted to know how much money your coworkers make, it's a good time to be in the job market.

A new California law called The Pay Transparency for Pay Equity Act will take effect in 2023, requiring companies in the state with more than 15 employees to include salary ranges on job postings, to provide current employees with the pay scale for their positions upon request, and for employers with more than 100 workers to maintain job title and wage histories for each employee, expanding pay data reporting requirements.

Similar pay transparency legislation has passed or is expected to, in states from New York to Colorado. The growing push for more pay transparency is intended to be a win for workers.

Researchers find that most people significantly underestimate what people earn in similar jobs elsewhere, which in turns holds them back from seeking better paid jobs or asking for more in their current role.

Thus, the historical culture of salary secrecy has traditionally benefited employers, allowing wages to stagnate in the United States for decades.

In addition to evening the bargaining power between employers and employees’, pay transparency is expected to streamline the hiring process for both parties, as job applicants in states with this legislation will be able to see a clear range of what a position pays before going through the effort of applying and interviewing for a role. Both parties can avoid a situation in which they invest time and resources into the interview process only to find they have completely mismatched expectations around pay.

Pay transparency legislation is also a tool with the potential to narrow ongoing wage gaps, like those experienced by women and people of color.

Hence the name of the California legislation, The Pay Transparency for Pay Equity Act.

Secrecy around pay has allowed discriminatory pay and hiring practices by employers to go unchecked. With more transparency around how much a particular position pays, employees can better assess whether their current pay is fair while also tracking market rate for their position to determine whether they might be better served by taking a job elsewhere.

Studies in countries that already have these practices in place have found that disclosing salary ranges has been shown to help narrow these wage gaps.

For those groups that have been subject to these pay disparities, knowing what a potential job might pay, or the actual pay range in their current position, can give them the information they need to better advocate for themselves. If employees find themselves below the published pay range they can approach HR with the data, and say, “I see a posting for my position or similar position with high pay.”

Being required to post salary ranges also puts the onus on employers to proactively review their compensation practices. If they do see pay discrepancies do emerge, they should be prepared to close them or explain them.

All of that being said, we should not expect for this legislation alone to resolve pay inequity. Some companies in countries that have similar salary transparency requirements for example, have been shown to exploit loopholes to understate their wage disparities.

And even with transparent salary ranges, historically marginalized groups may still find themselves clustered at the bottom of the published pay range, while others remain disproportionately represented at the top.

Getting to pay equity requires company leadership not only to be willing to acknowledge their pay discrepancies but to take the time to understand why they exist in the first place, and take meaningful steps to address it – taking a closer look at practices around recruitment and retention, training and development, and management and evaluations, along with their pay policies.

Image: RyanJLane/E+ via GettyImages

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