Getting pay transparency right: Best practices and state comparisons
Recently, a wave of states and local jurisdictions, including California, Colorado, New York and Washington, have passed pay transparency laws with varied requirements for employers.
Recently, a wave of states and local jurisdictions, including California, Colorado, New York and Washington, have passed pay transparency laws with varied requirements for employers. In addition, a significant number of other jurisdictions, including Kentucky, Massachusetts, Missouri and South Carolina, have introduced pay transparency legislation that may result in additional obligations for employers.
The goal of the various pay transparency laws is to promote equal pay by requiring employers to disclose the pay range for positions in job postings. By requiring such transparency, employers, in theory, will be precluded from paying employees—in protected categories such as age, gender and race—wage rates that are less than the rates paid to employees outside of the protected classes for substantially similar work.
Overview of pay transparency laws
While there are a multitude of pay transparency laws, the below is a summary of the most radical pay transparency laws—i.e., laws that can easily apply to a foreign employer and that require proactive disclosure by an employer.
California
As of Jan. 1, 2023, under California’s pay transparency law, employers with 15 or more employees who perform work in California must include a pay scale (i.e., the minimum and maximum salary or hourly wage the employer reasonably expects to pay) in job postings. Unlike other states, California does not require employers to include benefits for the advertised position in the job posting. The posting requirement applies not only to external job postings, including postings by third parties (such as Indeed), but also to internal job postings for open positions and for promotions or transfers.
In addition to the posting requirement, California’s pay transparency law allows current employees to request the pay scale for their current position. Violations of the pay scale disclosure requirements may result in civil penalties ranging from $100 to $10,000 per violation.
California’s pay transparency law also requires a pay data report (due in May 10 for the prior year) for employers with 100 or more employees, including at least one employee performing work in California or reporting to a California office. The pay data report is required independent of an employer’s EEO-1 report. Under the pay data reporting requirement, employers must submit annual pay data reports detailing employees’ job category, race, ethnicity, sex, pay band and total hours worked. A report is required for each establishment in California.
In addition, if a company employs 100 or more workers through labor contractors during the calendar year, the employer must submit a separate pay data report for the labor contractors if the contractors perform work within the employer’s “usual course of business.” Employers who fail to submit the required annual reports may be fined up to $100 per employee for initial violations, and up to $200 per employee for subsequent violations.
Colorado
Under Colorado’s pay transparency law, which was one of the first pay transparency laws to take effect in 2021, any employer with at least one employee physically located in Colorado is required to include a reasonable estimate of the hourly rate or salary range in all job postings for new positions and promotion opportunities.
Colorado also requires employers to include in the posting a general description of bonuses, commissions or other forms of compensation as well as a general description of benefits including healthcare, retirement, days off and other benefits reported for federal tax purposes. The posting requirements apply to remote positions that could be performed in Colorado, but do not apply to jobs that are performed entirely outside of Colorado, even if the posting is accessible by Colorado residents. Violations may result in fines of $500 to $10,000 for each violation.
Washington
Washington state’s pay transparency law, effective Jan. 1, 2023, applies to employers with 15 or more employees working within the state, even if the employer does not have a physical presence in Washington. Under the law, employers must include a “most reasonable and generally expected” wage scale or salary range in job postings as well as a detailed description of all eligible benefits, including health care benefits, retirement benefits, vacation benefits and other paid time off benefits.
Washington’s pay transparency law applies to internal postings as well as external job postings, including third-party postings. An employer who violates the law may be required to pay actual damages, double statutory damages or $5,000, whichever is greatest. An employer may also be subject to civil penalties ranging from $500 for a first violation to $1,000 for a repeat violation.
New York City and New York state
New York City and New York state both passed wage transparency laws that apply to employers with four or more employees performing work (even partially) in the respective jurisdiction. Under the laws, covered employers must include in job postings a “good faith” minimum and maximum salary range for the advertised position, promotion or transfer opportunity. Employers are not required to include a description of benefits in the posting.
New York City’s wage transparency law took effect Nov. 1, 2022. While the New York state law does not take effect until Sept. 17, 2023, on Feb. 13, 2023, the New York state legislature expanded coverage of the law to apply to jobs that will not be performed in New York state, but that report “to a supervisor, office or other work site in New York.” As a result, if an employee is located outside of New York but reports to a manager who is located in New York, the employee would count toward the coverage threshold.
Under New York City’s law, an employer may be subject to a fine of up to $250,000 per violation, subject to a 30-day cure period for the first violation. Under New York state’s law, employers may be subject to civil penalties of up to $1,000 for a first violation, $2,000 for second violations and $3,000 for subsequent violations.
Best practices for compliance
While other jurisdictions’ wage transparency laws vary in scope and requirements, there are steps Texas employers can take to ensure compliance.
First, employers should ensure they know where their remote employees are located and require remote employees to notify the company if they move. By having a clear understanding of where employees are located, employers will know if they are subject to any jurisdictions with pay transparency requirements. Notably, an employer cannot avoid pay transparency requirements by stating in a posting for a remote position that it will not accept applicants from a jurisdiction with a pay transparency law. Employers may also want to consider whether it should develop a national practice with respect to job postings to ensure compliance with all potentially applicable pay transparency laws.
Second, if an employer is subject to a pay transparency law, the employer should ensure that it complies with the applicable posting and reporting requirements. This will likely require an employer to conduct an internal pay audit, which should be done in conjunction with legal counsel, to determine the appropriate wage range and benefits for a job posting and to identify any pay outliers. If an employer is subject to California’s pay data reporting requirement, counsel can assist not only with preparing the report, but also reviewing agreements with labor contractors to ensure the inclusion of appropriate provisions related to pay data reporting.
Third, employers should regularly audit job postings to ensure they reflect any changes in compensation or benefits for the advertised position. For instance, if an employer offers an applicant a higher salary than advertised in order to lure the applicant, the employer should consider updating the posting to reflect the higher salary. Employers should also pay close attention to third-party postings and consider limiting third-party postings in jurisdictions with pay transparency requirements.