Addressing Persistent Pay Gaps Through Pay Transparency Legislation

As of 2024, women in the United States still earn only 84 cents for every dollar earned by men, with pay disparities affecting over 90% of occupations, including those predominantly held by women. These gaps are even more pronounced among minority, racial, and ethnic groups when compared to white men. To address these persistent issues, pay transparency laws have emerged as a key strategy to reduce these disparities. Across the U.S., new legislation is being introduced to mandate greater openness regarding compensation for both employees and job candidates. In particular, California has implemented several recent legal requirements that aim to bolster pay transparency.

Salary Postings Under Senate Bill 1162

One of the most significant changes in California law, effective in 2023, is the requirement for employers to disclose pay scales in job postings. Senate Bill 1162 mandates that all employers, including those hiring remotely for California-based roles, include the pay range for a position directly in the job posting. This law applies to all positions that may be filled in California, with no exceptions for remote work. Notably, employers cannot provide this information via a separate link or QR code; it must be clearly stated in the job posting itself.

The statute defines a “pay scale” narrowly, referring solely to the salary or hourly wage range that the employer reasonably expects to pay for the position. Information about bonuses, benefits, and perks, such as paid time off, is not required under California law (though other jurisdictions may differ in their requirements). Employers who fail to comply with this mandate may face penalties of up to $10,000 per violation, with enforcement conducted by the Labor Commissioner based on the specifics of each case.

Beyond the job posting requirements, employers are also obligated to provide current employees with the pay scale for their position upon request. This could lead to uncomfortable situations, especially when employees discover discrepancies in pay within the same role. While employers are not required to disclose pay scales for positions held by other employees (e.g., managers or peers), job postings may reveal this information, causing potential tension if employees perceive disparities. Additionally, employers must maintain records of job titles and pay rates for a specified period, with penalties for failure to do so.

Prohibition on Salary History Inquiries

California has long prohibited employers from seeking a candidate’s salary history, a law that has been in effect since January 2018. Employers are forbidden from asking directly or indirectly about a candidate’s past compensation, including through third parties like recruiters. While applicants may voluntarily share their salary history, employers are prohibited from using that information to justify pay differences between employees of different genders. This requirement is designed to prevent perpetuating historical wage gaps and ensures that pay decisions are based on the job and the applicant's qualifications, rather than prior compensation.

Pay Data Reporting Requirements

Employers with 100 or more employees are also required to submit detailed pay data to the California Department of Fair Employment and Housing. This includes reports that break down employees by race, ethnicity, sexual orientation, and job category, with additional details on the median and mean hourly pay rates within each category. These reports must be submitted annually, reflecting data from a specific pay period in the prior calendar year. Remote employees assigned to a California establishment must also be included in this report.

These pay data reports are not yet subject to public disclosure through the Public Records Act, although the legislature is considering making them available to the public. Failure to comply with the reporting requirements can result in fines ranging from $100 to $200 per employee, depending on whether it is a first-time or repeat violation. Employers must pay careful attention to these requirements to avoid costly penalties and reputational damage.

The Expanding Landscape of Pay Transparency Laws

California is not alone in introducing pay transparency laws. Other jurisdictions, such as Colorado, Illinois, and New York, have also implemented similar requirements, each with its own nuances. For example, Illinois has gone further than California by requiring employers to submit employee-level pay data to the Department of Labor, including detailed information about each employee’s compensation. This data is made publicly available, and employees in Illinois can request anonymized pay data for their job categories.

Some states have adopted more comprehensive rules requiring the disclosure of not only salary ranges but also bonuses, equity, stock options, tips, and other forms of compensation. Employers with operations across multiple states may find it increasingly challenging to ensure compliance with the varying requirements. In particular, jurisdictions with more detailed requirements may require employers to disclose a wider range of compensation elements than California’s current law.

Potential Future Developments: What’s Next for Employers?

Looking ahead, it’s likely that other states will adopt more stringent pay transparency requirements in the near future. California, for example, may eventually follow the lead of other jurisdictions by requiring more detailed disclosures about compensation, including bonuses, equity, and other incentives. Additionally, as the push for greater transparency continues, more states may begin to make pay data reports publicly accessible, following the example set by Illinois.

Employers in California should be particularly aware of emerging trends in other jurisdictions that could impact their practices. For instance, some states, such as Colorado and Illinois, are now requiring employers to disclose information about career progression and promotion opportunities within job postings. This includes details about promotion requirements and expected timelines for career advancement. These developments could significantly affect how employers structure and communicate growth opportunities within their organizations.

Moreover, jurisdictions like New York are now requiring highly detailed job descriptions in postings. These descriptions not only include pay scales but also provide comprehensive details about job responsibilities, expectations, and performance metrics. This trend could result in legal challenges related to discrepancies between posted job descriptions and actual job duties, especially in areas such as accommodation cases or breach of contract claims.

Best Practices to Address Pay Transparency Laws

Given the rapidly evolving landscape of pay transparency laws, HR professionals and employers must take proactive steps to mitigate risk and ensure compliance:

1. Develop and Regularly Audit Pay Scales: Employers should ensure that pay scales are well-defined for all positions and regularly audit them for equity concerns. Pay equity audits can help identify disparities in compensation based on gender, race, or other protected characteristics.
2. Review Job Postings for Compliance: Employers must continually monitor job postings to ensure they comply with pay transparency laws in every jurisdiction where they operate. This includes ensuring that the required pay range is included in job postings and that the information is easily accessible.
3. Conduct Pay Equity Audits: HR professionals should work closely with legal counsel to conduct periodic pay equity audits. These audits help identify potential disparities and mitigate legal risks before they become public issues.
4. Train Hiring Managers and HR Personnel: Providing regular training for HR staff and hiring managers on compensation practices and compliance with pay transparency laws is essential. This will help ensure that they are prepared to address any questions or concerns that may arise regarding compensation and job offers.
5. Maintain Transparency and Communication: As transparency increases, employers must be ready for questions about pay disparities. If employees raise concerns about compensation differences, they should be handled with care and transparency, emphasizing company philosophy and the factors that influence pay decisions.