How Pay Transparency Leads to Pay Equity

By Helena Almeida, Vice President - Managing Counsel at ADP

Achieving true pay equity in the workplace is an evolving process. Over the years, federal and state laws have tried numerous approaches to addressing inequitable pay practices. In addition to federal equal pay regulations, almost every state has their own equal pay laws, requiring equal pay for equal work or equal pay for “similarly situated” employees. More recently, laws have been enacted to prohibit wage secrecy, and to break a chain of unequal pay by prohibiting employers from asking applicants about past salary history. Massachusetts was the first state to ban salary history inquiries in 2016, and subsequently, 21 states and 21 local municipalities have enacted salary history bans, with requirements varying by location.

Today, states and municipalities are taking additional steps to tackle pay inequities in the workplace. Several states and local jurisdictions have enacted pay transparency laws requiring the disclosure of pay ranges. For example, as of November 1, New York City employers with four or more employees must provide a salary or hourly wage range when they advertise a job, promotion or transfer opportunity. Similar laws are now or may soon be effective in California, Colorado, Connecticut, Maryland, Nevada, Rhode Island, Washington State and New York State. Several cities and counties have also passed pay transparency laws, fueling a trend towards providing salary range information either in job postings or if an applicant or employee requests it.

Why do we need another anti-discrimination law?

As recently as 2020, women in the U.S. earned only 84% of what men earned, as reported by Pew Research Center. This means women would need to work 42 days more to earn the same as men. Black women earned 58% of what non-Hispanic white men took home, according to the 2020 U.S. Census. In a 2017 Pew Research Center study, 42% of women workers reported experiencing gender discrimination, and 25% said they were paid less than their male coworkers who were doing the same job.

In an effort to address these gender and racial pay gaps, states and local jurisdictions continue to enact pay transparency requirements. The hope is that increased transparency will make it easier to identify systemic pay inequities and empower job seekers and employees to demand equal pay. Addressing potential wage disparities at the start of employment can also help prevent an unjustified pay differential that can last throughout an employee’s career.

Pay transparency laws attempt to level the playing field and ensure that all candidates and employees know the pay or salary to which they may be entitled. While these laws may not solve for all pay inequities, they are an essential piece to achieving pay equity in the workplace.

The Impact on HR

Talent acquisition or HR professionals may have difficulty navigating pay transparency rules. Determining an appropriate salary range must account for a host of factors, including experience, education, geography and job duties. Employers must decide on a pay range, and then be prepared to share and support this information. HR personnel may also need to address a current employee’s concerns if they see the job posting and have questions about how their salary matches up to the advertised range. HR professionals and supervisors should be trained on how to have these conversations.

And before these conversations surface, employers should gather the data needed to support pay decisions and rectify any pay inequities within the organization. A payroll provider may have benchmarking data that allows the company to confidently set pay ranges based on position, title, industry and geography.

The Impact on SMBs

While large companies may have the resources to conduct compensation analyses, small- to medium-sized businesses (SMBs) may struggle to meet the requirements of pay transparency and pay equity legislation. To start, SMBs should develop detailed job descriptions to frame job duties and the appropriate compensation range. Even if the job holder wears a variety of hats, define the role as best as possible. 

SMBs can also use the data at their disposal by asking their payroll provider to provide benchmarks for similar jobs in their industry or geography. SMBs can learn what their competitors are offering – information that may be available in certain jurisdictions now through job postings. In the end, set a salary range that is commensurate with the job requirements, reflects what the business can afford, and recognizes the competitive nature of a tight job market.

Keep in mind that salary is just one aspect of compensation. Consider what else an employer can offer candidates – health benefits, perks, paid time off, work/life balance, remote/hybrid work, a positive organizational culture, or career development. These additional benefits can differentiate a business from its competitors and highlight the company as an employer of choice.

The Impact on Companies in Multiple Jurisdictions 

For larger companies that have employees in different states, varying pay equity requirements may pose new challenges. For example, Colorado’s 2021 pay transparency law requires companies to disclose an hourly or salary range along with a general description of benefits. California is expanding its pay transparency law in 2023 to require certain employers to disclose pay scales to employees, not just applicants. With multiple jurisdictions enacting laws requiring the disclosure of salary and pay information, and an increase in remote work, employers operating in several locations may choose to develop a nationwide process for job postings to capture all applicable requirements. This type of process may not only help with compliance requirements, but it may also better position the company to attract talent from across the country.

Going Forward

ADP Research Institute (ADPRI) conducted a study of gender pay inequity to determine the relative contributions of recruiting, base pay and incentive pay to an overall gender pay disparity across the U.S. workforce. The study examined differences in base pay and incentive pay between genders both at time of hire and after six years in the same organization. The research found that a disproportionately higher number of women were initially hired at lower pay. And, the average bonus amount for women was less than two-thirds of the amount paid to men who had equivalent base pay, age and tenure.

The goal of pay transparency laws is to attack these types of pay inequities at the beginning of the employment process so that they don’t continue throughout an employee’s career. Key actions that employers can take to help promote pay equity in the workplace include:

• Conduct a comprehensive pay equity review that encompasses base pay, incentive pay and total compensation.
• Review recruiting practices and training provided to hiring managers to negotiate salary and incentives for new hires.
• Create an HR technology ecosystem that monitors and analyzes all aspects of compensation on an ongoing basis.

Paying employees equitably makes economic sense. Fair pay practices can help attract and retain top talent and create change at a macro level. Using real time data to reduce legitimate pay inequities can lead to more money flowing back into the community, strengthening the local economy and bettering workers’ lives.

Helena Almeida is Vice President - Managing Counsel at ADP.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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