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January 19, 2024

Exploring pay transparency: Laws, benefits, and best practices

Discover the benefits of pay transparency for existing employees and job candidates.

Summary

  • What is pay transparency?
  • Where are pay transparency laws enacted?
  • How to maximize the positive impact of pay transparency

Today’s HR professionals must handle several new rules and regulations, all while ensuring candidates and current employees have a positive experience with their organization. Easier said than done, right?

One of these quickly evolving rules is pay transparency. It isn’t mandated in every state but impacts companies in every industry. As candidates’ demands change, clearer communication surrounding a role’s compensation is becoming a requirement for many job seekers. And for existing employees, pay transparency decreases the intent to quit by 30%, according to Payscale.

Learn what pay transparency is and how to leverage this practice to positively impact your company.

What is pay transparency?

Pay transparency—also known as salary transparency and wage transparency—refers to being open about compensation and benefits with employees and job candidates. The company’s location determines the specifics of these laws and what mandates are required. But overall, pay transparency is meant to keep candidates and employees informed about their pay.

In most states with regulations enacted, pay transparency requires employers to:

  • Provide any job applicant with the salary range for a posted position at a specified point during the hiring process.
  • Give an employee’s pay range upon request when changing jobs or hiring.
  • Include salary range in job postings.

One thing to note is that the employer, HR managers, and other company leaders in charge of spearheading pay transparency initiatives need to fully understand the broader purpose of this movement. While the term pay transparency may cause people to think of an organization sharing all financial details with the public or paying each employee the same wage, the actual definition is much more nuanced.

In reality, competitive payment means salaries will fall within a set wage range. For example, someone with more experience in a role may get paid slightly more than someone who’s just starting—even though the job titles are the same. This isn’t a sign of favoritism or bias; it’s a way for employers to reward performance and experience in the field. But, of course, how individuals are paid is completely dependent on the company.

Becoming compliant with salary transparency rules doesn’t necessarily happen overnight. It can require significant change to business operations and a focused management strategy with clearly defined goals and approaches. But even though it takes time, every step toward more open communication about compensation is a move closer to achieving this goal.

Where are pay transparency laws enacted?

Nine U.S. states currently ​have pay transparency legislation, with one other going into effect in 2025. These states are:

  • California 
  • Colorado
  • Connecticut
  • Hawaii
  • Illinois (1/1/2025)
  • Maryland
  • Nevada
  • New York
  • Rhode Island
  • Washington

While there are slight differences among each of the pay transparency requirements passed by the state legislature, each aims to make the workplace healthier and more communicative. There are also a few specific cities that have designated laws, even if the state doesn’t, including but not limited to:

  • Cincinnati, Ohio
  • Jersey City, New Jersey
  • Ithaca, New York
  • New York City, New York
  • Toledo, Ohio
  • Westchester County, New York

If you’re in one of these cities, you must follow the mandated pay transparency rules. And if you’re in a location like Ithaca, where there are New York City and New York State legislation, your company will need to stay compliant with both sets of rules.

Pay transparency: A brief history

The National Labor Relations Act was passed in the United States in 1935, defending the rights of professionals working in the private sector to talk about pay among one another. In 1945, Congress introduced the Women’s Equal Pay Act (which failed to pass), and in 1963, the Equal Pay Act was signed into law. In addition, the Office of Federal Contractor Compliance Programs has protected the workforce since its foundation in 1977.

Since then, many movements have been introduced and passed, moving the country closer to where it is today. California was the first to adopt pay transparency legislation in 2018, with the other mentioned states following suit.

Why is the U.S. pay transparency law important?

By having a pay transparency policy in place, employers are held accountable for their actions and encouraged to pay individuals more consistently. However, pay inequalities still exist in today’s workplace. In fact, the U.S. Census 2020 data found that women earn 83 cents for every dollar a white man makes.

Beyond more equal compensation and less pay discrimination, salary transparency increases job performance and retention because it makes employees feel more valued and important. This produces high-quality work for your company and helps boost a more positive company culture where everyone can thrive.

Pay secrecy can lead to a sense of unimportance or lack of zeal, resulting in individuals putting in less effort or leaving a job altogether. When all workers can earn a wage based on their abilities and performance, it encourages a positive work ethic and instills a sense of belonging and confidence in each employee.

Lastly, a pay transparency policy helps job candidates better financially prepare to work for your business, ensuring they have the proper amount to support themselves and their families now and into retirement. With salary information automatically put into the job listing, job applicants can determine if the role is a good financial fit for them and their family’s needs.

How to maximize the positive impact of pay transparency

Here are some tips to consider to promote pay transparency best practices in your business:

Be proactive

You don’t have to wait until wage transparency is mandated within your state. Start making positive changes to how you compensate employees now and reap the benefits sooner. While this isn’t accomplished by simply releasing compensation data internally and moving on, there are some tasks you can do now to make the process easier for you and your team:

  • List the pay range or hourly wage in any job posting from now on: This can help you get into a rhythm of providing this information without needing to be asked for it and may even draw more attention to your listings.
  • Talk to your employees about their needs: Although this takes time and energy, speaking one-on-one with your current workers to see if their needs are being met can ensure the wages are fair and competitive. If you notice a trend where people are worried about money or aren’t making a sustainable amount for their family, it may be time to reassess your company wages. 
  • Create company-wide salary goals: It’s essential to create a big-picture plan of how pay transparency could look within your organization. Before making any changes, it’s critical to determine the why behind this transition and identify actions that help move the company forward. 
Look closely at your market to ensure pay is fair

While you may feel your company compensates people fairly, it’s vital to look at the market to see what jobs in your industry pay employees. This could include companies of any size, as long as they’re doing roles similar to yours. This can help your brand stay competitive and keep workers happy.

It may be time to reevaluate your compensation plan if you consistently see the same industry roles at other companies paying their employees more or including more benefits.

Communicate your plan

Once you have key objectives to maximize pay transparency practices within your company, let your employees know. Be open with managers and other staff about the philosophy behind your compensation and benefits plan and answer any questions people may have. This could include explaining the pay structure selected—whether it’s commission-based, salary, hourly, or a hybrid model—and any possible changes people may need to be aware of. Ultimately, you want people to know what’s happening with their salary because it impacts them directly.

Partner with Marsh McLennan Agency

Lastly, work with a trusted human resources consultant who can guide you through the complicated process of becoming more transparent with compensation. Our team at Marsh McLennan Agency delivers a wide breadth of national HR consulting services based on your company’s specific requirements, including:

  • Compensation services and total rewards
  • Concierge HR outsourcing
  • “HR On Call” subscription service
  • HR projects, special services, and attorney-led compliance
  • HR transformation
  • Human resources compliance and operational reviews
  • Interim professional placement
  • Talent acquisition

Whether you’re attempting to stay compliant with pay transparency regulations or want to create a better work culture for your employees, our team can provide data-driven recommendations and tools for your HR team. Reach out to a specialist to learn more about HR consulting services offered by Marsh McLennan Agency.