Employee total compensation, which includes the base salary plus the value of any benefits received in addition to salary, has traditionally been shrouded in secrecy as proprietary information. Employers typically did not disclose the pay and benefits package outright in job postings, instead choosing to make the information known to top candidates who progress to the final stages of the interview process or as part of making an offer. A series of rapidly expanding state laws, however, aim to reduce the gender and racial pay gaps that persist today by a combination of banning employers from asking questions about a candidate’s salary history and transparency about pay practices by requiring disclosure of pay ranges in job postings. This change in attitude about compensation will create challenges and opportunities for employers.
Arguably, a company’s compensation structure and by proxy its recruitment strategy could constitute a trade secret and public disclosure could compromise the employer’s ability to remain competitive in hiring and retaining top talent. However, compliance is not optional when faced with state pay transparency and “salary history ban” provisions. Pay transparency has also proved to provide benefits related to employee engagement such as fair pay, trust, increased employee engagement, better retention rates, and improved productivity (ADP). February 2023 research from HR Dive showed 44% of job listings have employer-provided salary information, up from 18% in February of 2020.
Employee’s Right to Discuss Wages with Coworkers
Under the National Labor Relations Act (NLRA or the Act), employees have the right to communicate with their coworkers about their wages, as well as with labor organizations, worker centers, the media, and the public. Wages are a vital term and condition of employment, and discussions of wages are often preliminary to organizing or other actions for mutual aid or protection. Policies that specifically prohibit the discussion of wages are unlawful as are policies that chill employees from discussing their wages. Employees have these rights whether or not they are represented by a union.
Pay Equity
Pay equity, also known as “Equal pay for equal work,” is defined as paying employees equally for performing “substantially similar” or comparable work, regardless of their gender, race/ethnicity, or other protected category characteristics. In 1963, Congress passed the Equal Pay Act (EPA), protecting women from wage discrimination based on sex.
An individual can file a compensation discrimination complaint due to a perceived violation of the EPA with the U.S. Department of Labor. According to the DOL, any individual who files an equal pay claim, or assists an individual in filing an equal pay claim, is protected from unlawful retaliation by their employer. If there is an inequality in wages between people of different sexes who perform substantially equal jobs, employers must correct the discrepancy by raising the lower wages to equalize pay; reduce the wages of other individuals to obtain parity is not permitted. The DOL will look at several factor to substantiate an Equal Pay Act Claim. Some include:
- the jobs being compared must require substantially equal skill, effort, and responsibility
- the jobs being compared must be performed under similar working conditions including physical surroundings like temperature, fumes, and ventilation as well as hazards
- the jobs being compared must be performed within the same establishment
- “skills” are measured by factors such as the experience, ability, education, and training required to perform the job – not the skills the individual employees possess
- “establishment” is a distinct physical place of business rather than an entire business or enterprise consisting of several places of business
Pay equity does not mean that all individuals will receive the same pay, even for workers who occupy similar roles. Pay equity is about fairness, and fairness considers differences between people that are nondiscriminatory, such as years of experience, education, special skills, and location. The EPA permits unequal pay for equal work if the disparity is the result of wages being set pursuant to: 1) a seniority system; 2) a merit system; 3) a system which measures earnings by quantity or quality of production; or 4) any factor other than sex.
The Pew Research Center report The Enduring Grip of the Gender Pay Gap, notes, “The gender pay gap – the difference between the earnings of men and women – has barely closed in the United States in the past two decades. In 2022, American women typically earned 82 cents for every dollar earned by men. That was about the same as in 2002, when they earned 80 cents to the dollar.”
The National Women’s Law summarizes the obstacle faced by women in the workforce, “When an employer does not provide job applicants or employees information about the pay for open job positions, women lose out. The outdated practice of keeping pay secret allows discrimination and unjustified pay gaps to flourish and keeps employees from trusting they are paid fairly. Disclosing the pay or pay range for a position may help close gender wage gaps. Pay range transparency gives job applicants crucial information that can help them negotiate for higher pay or make more informed choices about which jobs to go after. Transparency around pay ranges also provides businesses with an opportunity to proactively review and evaluate their compensation practices and address unjustified disparities between employees, while helping them attract and retain talent.“
As pay transparency laws require salary disclosures, it gives women information on what the marketplace says a position is worth and helps women decide whether they want to apply for a position.
Recent studies have shown that pay transparency has helped improve pay equity by reducing pay gaps across gender, ethnicity, and other categories. It may also help boost productivity. Pay transparency can help boost employee retention, as well as help increase the number of candidates who apply for a job.
Status of Pending Federal and Current State Laws
There is no comprehensive federal law on pay transparency. The Salary Transparency Act was introduced in the U.S. House of Representatives in 2023. If passed, the bill would amend the Fair Labor Standards Act to require an employer providing an employment opportunity to disclose the wage range for such employment opportunity to employees and applicants for employment, and for other purposes. The Act has been referred to the House Committee on Education and the Workforce.
The Paycheck Fairness Act (PFA) (S. 728 and H.R. 17) was reintroduced in the House and Senate in March 2023 but has not progressed past placement on the Senate Legislative Calendar. The PFA will:
- broaden the definition of “establishment” by stating that wage comparisons may be made between employees who perform substantially equal jobs at any of the employer’s places of business in the same county
- clarify the “factor other than sex” defense must be based on a bona fide, job-related factor such as education, training, or experience that is consistent with business necessity
- will allow prevailing plaintiffs to recover compensatory and punitive damages
- requires DOL and the EEOC to collect data on compensation and other employment-related data by race, nationality, and sex
On January 30, 2024, the Federal Acquisition Regulatory Council (“FAR Council”) proposed a new “Pay Equity and Transparency in Federal Contracting” rule for government contractors. The proposed FAR clause would prohibit prime contractors and subcontractors from seeking an applicant’s compensation history when making employment decisions, restrict contractors from relying on an applicant’s compensation history even if the applicant volunteered the information, and requires employers to disclose the compensation and benefits offered for any position performing work “on or in connection” with a federal contract.
Several states have enacted pay transparency legislation. In accordance with a 2020 California law, private employers with a workforce of 100 or more employees and/or 100 or more workers hired through labor contractors are obligated to submit an annual report to the Civil Rights Department (CRD). This report includes vital information regarding pay, demographics, and other workforce data. The law aims to encourage self-assessment of pay disparities and voluntary compliance with equal pay and anti-discrimination laws.
An article entitled 2024 State-By-State Pay Transparency Laws from Forbes provides summaries of applicable states legislation. A February 2024 article by Mercer indicated at least 15 states and localities have passed pay transparency laws.
| Effective Year | Locations | Requirements for applicants? | Requirements for employees? |
| 2020 | Cincinnati, Ohio | Yes | Not specified |
| Toledo, Ohio | Yes | Not specified | |
| Maryland | Yes | Not specified | |
| 2021 | Connecticut | Yes | Yes |
| Nevada | Yes | Not specified | |
| 2022 | Jersey City, New Jersey | Yes | Not specified |
| Ithaca, New York | Yes | Not specified | |
| New York City | Yes | Yes | |
| Westchester County, New York | Yes | Yes | |
| 2023 | California | Yes | Yes |
| Rhode Island | Yes | Yes | |
| Washington | Yes | Yes | |
| 2024 | Washington, D.C. | Yes | Yes |
| Hawaii | Yes | Yes | |
| 2025 | Illinois | Yes | Not specified |
(Source: Mercer)
A SHRM article, The Real Effects of Pay Transparency in Business, noted “The recently enacted New York state pay transparency law, for example, states that “the range may extend from the lowest to the highest hourly wage or salary that the employer in good faith believes at the time of the posting it would pay.” Some organizations have in turn posted wide ranges that are the equivalent of not having a range at all (e.g., a range of $90,000 to $900,000 for an advertised position). The same articled says “Colorado imposes fines ranging from $500 to $10,000 per violation for failing to include wages in job ads. In the law’s first two years, Colorado handed out a total of $237,000 in fines against five companies. New York City’s labor department racked up 300 tips from the public about noncompliant companies in the first six months of its pay transparency law.
Challenges for Employers
As pay transparency becomes the norm, employers will have to adjust their total compensation planning. External and internal factors making this a challenge include:
- Regulatory Complexity – There is currently no universal standard for pay transparency disclosures. Some States require job postings to include salary ranges or minimum salaries, while others do not.
- Inconsistent Pay Practices – Organizations may need to re-examine how pay decisions are made and how jobs are evaluated ensuring management decisions are non-biased and based on current market data. Employers should document the legitimate factors in the compensation policy that would explain pay differences such as pay structures, performance, experience, skills, and market benchmarks. Use objective benchmarks and market data to formulate standardized salary bands for every position. One of the largest and most comprehensive sources of free salary information is the Bureau of Labor Statistics (BLS) with salary survey data for many positions in various industries and geographic locations. Employers may also factor in the cost of living for geographic locations as a factor for determining the base pay. The U.S. government does not publish an official cost of living index. However, the U.S. Bureau of Labor Statistics (BLS) publishes the Consumer Price Index (CPI), which measures the cost of goods and services changes over time for various geographic areas. The number 100 represents the national average and reporting areas, generally cities, counties, or regions, are assigned a number, either above or below 100, based on how they compare to the national average.
- Employee Fear and Resistance – Existing employees may feel sharing compensation information might infringe on their personal privacy so companies need to set the right boundaries and expectations with employees before beginning to share sensitive information. Employees who understand why they earn their specific level of pay are much more likely to trust their employer, and that trust can go a long way toward boosting a company’s ability to recruit and retain top employees.
- Communication and Training – Let employees know how pay transparency helps employees and managers make better pay decisions. Pay transparency in practice can vary from openly sharing information about employee compensation, providing general guidelines on compensation practices to disclosing specific salary information or pay scales for each position in the company. Prohibiting employees from talking about their income has been illegal since 1935 (National Labor Relations Act).
- Pay Disparities -Public disclosure of salaries can lead to employees feeling demotivated or dissatisfied due to perceived pay disparities even when differences are justified by experience or performance. Companies should analyze their pay compensation systems, identify pay gaps, and be prepared to correct the pay gaps.
- Market benchmarking -Employees can easily compare their salaries with market rates, potentially feeling underpaid and prompting them to seek better offers elsewhere, leading to higher turnover. Platforms like Glassdoor, PayScale, and Salary.com facilitate the anonymous sharing of salary data. According to a survey conducted by people-analytics firm Visier, as many as 20% of workers would prefer to keep their salaries confidential. While younger employees are more open to this change, older generations may be uncomfortable with it and see it as an invasion of privacy.
For small employers who worry that wage transparency will hurt recruiting—and speed up turnover—when employees and candidates see how much more they could earn elsewhere, the employer should use the power of a positive employer brand to showcase why it is a top place to work: open culture, career paths offered, ways it provides value to employees, fringe benefits, PTO offered, and work-life balance benefits such as remote work. Some candidates will focus solely on the base salary offered by a position, but most will consider the total “package.” The World Economic Forum lists several reasons (other than competitive salary) that attract and retain workers such as “being happy and content at work, having a stable job, having a good work-life balance, having good colleagues and flexibility.”