Law360
Some company and human resources executives shudder at the thought of employees discussing pay among themselves. They worry about employees finding out what their colleagues make and what issues that might cause.
Due to the increase in pay transparency legislation, however, companies are being forced to get comfortable with pay-related discussions. For example, starting on Jan. 1, California began to require all employers, regardless of size, to provide current employees with the pay scale for their position upon request.[1] Other states and even some local jurisdictions have similar requirements.[2]
Although a comprehensive analysis of all state and local pay transparency requirements is beyond the scope of this article, there are best practices that can be commonly applied. This article analyzes common pay transparency requirements in the context of current employees, how employers can best prepare to comply, and how to address the anticipated challenging questions and conversations that may follow.
What Triggers an Employer’s Obligation to Provide a Current Employee Their Wage Range
Whether an employer is required to provide a current employee with pay scale information differs by state and local jurisdiction.
For example, in California, Connecticut and Rhode Island, an employer must provide pay scale information upon the employee’s request.[3] In Nevada and Washington, employers must provide pay scale information in connection with promotions and transfers.[4]
Even in states without pay transparency laws, employers must be mindful of an increasing number of local ordinances mandating pay disclosures. For example, although New York state will not, until Sept. 17,[5] have a law requiring pay transparency, employers in New York City must include a position’s minimum and maximum salary or hourly wage when advertising a job, promotion or transfer opportunity.[6]
Preparing for Current Employee Pay Scale Requests
Given the requirements to provide pay scales to current employees under various circumstances, as well as other state and local pay scale disclosure requirements, if an employer has not already established pay scales for each position in its organization, now is the time to do so. This process will take time, careful thought and planning.
As the first step, employers should consider consulting with internal or external compensation and/or human resources professionals who can assist with a pay audit. During the pay audit process, the employer should organize current pay data, review current pay practices, establish a compensation philosophy and research competitive market compensation.
This work will help an employer to then determine appropriate pay scales by position based on each role’s relative worth and level of responsibility.
If the pay audit uncovers that certain employees’ pay is outside the identified pay scale for the applicable position — whether too high or too low — it is important that the company address those outliers by determining why the disparity exists and make any necessary modifications. This may include making pay adjustments, limiting future eligibility for pay increases, or other means to eliminate what could appear as an unlawful discriminatory pay practice.
While addressing pay issues, employers should consider developing or improving compensation-related policies and procedures. This may include addressing who can approve raises or pay increases based on promotions or transfers, who is responsible for confirming such pay adjustments are within the applicable pay scale, and who needs to be notified of any pay changes or the discovery of any pay outliers.
It is important to communicate these and related policies, processes and procedures to all impacted stakeholders. Further, an employer will need to engage in the ongoing maintenance of its pay scales since employee pay is ever-changing. This should include determining the appropriate interval to review and update pay scales moving forward.
Complying With Current Employee Pay Scale Requests
With pay scales established, employers should also consider how it will manage employee pay scale requests.
Will frontline managers and supervisors be responding? Or will all requests be directed to a central person or department for response? If so, which one, and how should the response be made? Here are a few recommendations:
- Designate who will respond to pay scale requests.
Consider establishing a process in which all pay scale responses will come from a single source within the company, which can assist with consistency and accuracy.
- Determine how the response will be made.
Consider responding to pay scale requests in writing and placing a copy of the response in the requesting employee’s personnel file to minimize employee claims that their pay scale requests went unanswered.
- Communicate with managers and supervisors about pay scale disclosure requirements.
Try to avoid having frontline managers be blindsided if they receive a pay scale request. Train them on how to respond and consider providing them with a script.
- Remind company leaders and frontline managers that under the National Labor Relations Act employees are free to discuss compensation and related issues.
Note that, even though employee inquiries regarding pay scales may make managers feel uncomfortable, the company cannot retaliate against an employee because they make a pay scale request, discuss compensation or share with others how much they make.
Dealing With Uncomfortable Pay-Related Questions
Perhaps the most unsettling thing about these new pay transparency laws is the unease employers initially feel about receiving pay-related questions from employees and the potential difficult conversations that may follow.
To combat those concerns, employers should focus on the goal of pay transparency laws — the elimination of discriminatory pay practices — and consider how they can use uncomfortable conversations about pay to their advantage, since being more transparent about pay can improve corporate culture. Below are a few examples:
What if employee X asks why they make less than employee Y?
An employer is not required to discuss employee Y’s pay with employee X, and the employer should tell employee X that information about another employee’s pay is considered confidential between the employer and that employee.
The employer’s response to employee X’s question should be general and focus on the factors that may affect differences in pay, such as tenure, experience, skill and education. Pay disparities can also be attributable to differences in various positions’ responsibilities.
An employer should treat this as an opportunity to explore employee X’s career goals and expectations. If employee X is interested in making more money and/or being promoted, this presents an opening to discuss what employee X can do to improve their chances for a pay increase or promotion — such as skill improvement or education — and what their potential career path could be.
Such discussions can improve an employee’s sense of place and encourage them to work toward those next steps.
What if an employee sees a job posting or a competitor’s job posting?
More specifically, what if an employee sees the employer’s job posting for their same or a similar position with a pay range that lists higher pay than what the employee currently makes? Or, what if an employee sees their same role posted by a competitor company with a higher pay scale?
Several states including California and local jurisdictions now require certain employers to include pay scales and, in some cases, other compensation and benefits information, in their published job postings.[7]
This is another way employees may become aware of pay scales and the differences in pay between their own roles and those of their co-workers or similar positions in other companies. It is expected that employees will focus on the high end of a pay scale and wonder why they are not making that number.
Such inquiries about pay scales in job postings create similar opportunities for productive conversations with employees about their goals to increase their pay and seek promotions. Employers’ responses to these inquiries should focus on the objective nondiscriminatory factors that lead to differences in pay.
The discussions can address the relative level of experience sought for the posted position and the requirements for the position, which the inquiring employee might not meet and what the employee can do to develop those skills and the support the employer can offer to the employee.
Conclusion
As pay transparency requirements continue to expand nationally, employers should prioritize the development of established pay scales and compensation philosophies. Doing so will prepare the employer to respond to an increasing number of pay disclosure obligations, and has the added benefit of creating a structure for more transparent discussions with employees regarding skill development and associated pay increases.
Over time and with practice, lifting the veil on the secrecy surrounding pay and the factors that affect it can prove to be a win-win for employers and employees in managing expectations while also creating a framework that promotes pay equity.
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Maria Z. Stearns is a partner and chair of the employment group at Rutan & Tucker LLP.
Joanna L. Blake is of counsel at the firm.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] Cal. Lab. Code § 432.3(c)(2).
[2] See e.g., Conn. Gen. Stat. Ann. § 31-40z(a)(4),(b)(9) and R.I. Gen. Laws § 28-6-22(c) (wage range to be provided on the employee’s hiring, change in position, or upon request); Nev. Rev. Stat. § 613.133(2) and Wash. Rev. Code § 49.58.010(2) (wage range to be provided in connection with promotions and transfers).
[3] See id.
[4] See id.
[5] New York Legislative Bill S.9427-A/A.10477 (2022).
[6] N.Y.C. Admin. Code §§ 8-102 and 8-107(32) (employers must include a position’s wage range when advertising a job, promotion, or transfer opportunity); see also similar requirements under Ithaca City Code §§ 215-2 and 215-3; Jersey City Municipal Code § 148-4.1; and Westchester County Mun. Code § 700.03(a)(9)(i).
[7] Id.; see also Cal. Lab. Code § 432.3(c)(3) (certain California employers to provide pay scale in any job posting); Col. Rev. Stat. § 8-5-201(2) (most Colorado employers to provide in any job posting, including for promotion, base compensation and general description of other compensation and all benefits); Wash. Rev. Code § 49.58.010(1) (most Washington employers to provide wage scale or salary range and a general description of all benefits and other compensation in each job posting).
