Employers: Pay Transparency Might Apply to Your Current Employees
Estimated reading time: 9 minutes
By now, I’d like to think that most organizations know about the wave of pay transparency laws that are being enacted around the United States. As of this article, eight states (CA, CO, CT, MD, NV, NY, RI, and WA) have some form of salary transparency legislation. In addition, six cities including Cincinnati, Jersey City, and New York City have adopted wage transparency laws.
But recently, I read an article in the Foley & Lardner LLP newsletter that caught my attention. It was about pay transparency laws applying to current employees. So, I reached out to our friends at Foley and asked if they would share their knowledge.
Michael Ryan is a labor and employment senior counsel in Foley’s Houston office. His practice includes unfair competition and trade secret laws, non-competition agreements, classification of employees and other wage and hour matters.
As always, please remember that Michael’s comments shouldn’t be construed as legal advice or as pertaining to any specific factual situations. If you have detailed pay-related questions, they should be addressed directly with your friendly neighborhood labor and employment attorney.
Michael, thanks so much for being here. Before we start talking about employee pay transparency, let’s discuss something that often comes up in pay-related conversations, which is employees talking about how much they make. Some employers are very opposed to employees talking about their pay. Is it legal for employees to talk about their salary?
[Ryan] Yes, regular (non-supervisory) employees can absolutely discuss their salary with other employees.
It is true that many employers take the position, for various reasons, that employee compensation is confidential and should not be discussed in the workplace, but it is actually illegal to have a blanket policy prohibiting such discussions. The National Labor Relations Board (NLRB) views employee discussion of their wages as a fundamental employee right protected by Section 7 of the National Labor Relations Act, which permits non-supervisory employees to ‘engage in other concerted activities’ for their ‘mutual aid or protection’. So, if an employer has a general policy prohibiting discussions of wages in the workplace, no matter the business justification for the policy, they need to be aware that the policy is likely illegal.
Pay transparency laws within job postings is a hot topic right now. In a recent Foley newsletter, you mentioned pay transparency could extend to current employees. Are states enacting separate legislation that gives current employees the right to know pay ranges? Or is this a part of the pay transparency laws already in effect? Maybe both?
[Ryan] Generally, we have seen pay transparency for current employees in the same legislation that requires pay transparency for applicants in job postings, it just is not as commonly included or talked about as much,which is why we wrote the Foley newsletter about this issue. Notably, anyone can see if an employer’s job postings is compliant with a pay transparency law – the job postings are publicly available on the internet; far fewer people are able to see what an employer is doing internally, behind closed doors, so the issue tends to get less traction/public attention. But employers need to be aware of their obligations, which is why we are drawing attention to pay transparency requirements for current employees.
Pay transparency for current employees is not universal, however. There are a couple handfuls of states and municipalities that have pay transparency laws, and that number keeps growing every year, but while most such laws require pay transparency in job postings, only a subset of those laws have pay transparency requirements for current employees. There are also large distinctions in the scope of such laws. For example, an employee in California has a right to know the salary range for their position, but they have to ask for this information and they can only ask once per year. Conversely, in Washington state, the employer has an affirmative duty to provide this information any time a current employee is promoted or offered a new internal position, whether the employee asks for the information.
I’m glad you mentioned how accessible pay information is on job postings. Let’s back up just a moment. Can you briefly talk about the advantages and disadvantages of pay transparency – for both organizations and employees?
[Ryan] Sure. Talking about the “advantages/disadvantages” of pay transparency is somewhat subjective, but there are some generally accepted advantages and disadvantages. What people may be surprised to learn is that an advantage for employees or employers is not necessarily a disadvantage for the other party.
FOR EMPLOYEES: Many people consider access to more information to be a primary advantage that is helpful for negotiating higher wages (which would be a disadvantage to that employer’s profits). For example, if you’re an ‘Accountant I’ making $45,000/year and you learn that the salary range for all Account Is at your company is $45,000-$85,000, you automatically know you are the lowest salary for your position in the company. That employee can then use that information to their advantage, to negotiate a promotion or higher salary with their current employer, or to seek out a higher salary elsewhere.
But if you’re an Accountant I making $85,000/year – the highest in the company – the employer may be lesslikely to give you a raise based on having to disclose that figure through pay transparency. Similarly, if you are an Accountant I looking to make $100,000 by lateraling to another company, the employer who pays its Accountant Is $45,000-$85,000 may not be willing to hire you at your expected salary because their current Accountant Is will ask for more money when they learn the new employee is making more than them. This is a perfect example of what it means for pay transparency ‘advantages/disadvantages’ to be subjective.
FOR EMPLOYERS, pay transparency is generally seen as a disadvantage at the negotiating table and higher wages – usually one of an employer’s largest overhead costs – is a disadvantage to an employer’s profitability. But, if all employees know the salary range for their position, it can stabilize a workforce where the range is small. Take the same hypothetical as above but make the salary range $70,000-$75,000. Employees who see that range are more likely to view themselves as fairly compensated because they know they are roughly the same as their peers. This could stabilize a workforce by reducing the types of factors (feeling undervalued/underpaid) that often lead to lateral transfers and loss of skilled talent.
To follow up on your comments about stabilizing the workforce, there was a trend a few years ago about having complete transparency with everyone’s salary. The idea being that everyone knew what everyone else was earning. Would you say that publishing pay ranges is different from publishing wages? Why or why not?
[Ryan] Most pay transparency laws emphasize pay ranges because of the reality of the situation that no two workers are exactly alike, and employees or applicants for a position do not have enough information to translate specific employee wages to their situation. For example, two people with the same job title at the same company may get paid the exact same amount, or their pay may be different for a wide variety of legitimate factors, such as experience, tenure, specialized skills, unique responsibilities, etc. Just telling employees and applicants a wage for a specific worker does not contextualize the specific education level, years of experience, or unique job responsibilities that employee has that led to that salary as compared to a worker with the same job title but different skills and experience levels.
One of the things I’m seeing with the publishing of pay ranges is what might be considered the publication of a ridiculous range. For example, this position pays between $1.00 and $2,000,000/annually. And if this is what companies do for external candidates, what’s to say they wouldn’t do it for current employees. Is there any advantage to this strategy? If not, what should organizations consider?
[Ryan] Wildly inaccurate salary range disclosures like the one you describe are mostly or entirely improper in any of the jurisdictions that have pay transparency laws for the exact reason you identify: the range is facially ridiculous. Most pay transparency laws require some element of good faith when setting the salary range.
That’s not to say that a salary range has to be narrow to be proper. An employer may be willing to hire a junior or senior level employee for a particular job, depending on the candidate pool, willingness to train a less experienced worker, etc. In those situations, the salary range for that position may properly be large, encompassing both a low end that would apply if the company ultimately hires a junior level employee it has to train (who would never earn the high end of the range) and a high end for a senior level employee that does not require training (and likely would not accept the job for a salary on the low end of the range).
Employers seeking to avoid disclosing exact salaries via a large range have to balance that goal with not alienating qualified applicants (junior level applicants who see the high end of the range and get the false sense that they can get paid that salary, only to find out after interviewing that will never happen / senior level applicants who don’t even apply because the low end of the range is too low).
Last question. If an organization is thinking about pay transparency, are there any things they should consider before sharing pay ranges?
[Ryan] Employers need to be proactive if they have pay transparency obligations or anticipate they will have such obligations in the future. We regularly see that more proactive organizations benefit from changing rules and regulations while organizations slower to change generally get left behind.
Depending on the size of the organization, it may be appropriate to designate one person as the gatekeeper for pay transparency compliance (smaller employer), or to establish a pay transparency policy that a dedicate group of employees, such as the human resources department, is in charge of systematically applying (larger organization). Employers want to emphasize consistency in this process to ensure compliance with applicable laws.
Other things employers may consider is conducting a ‘pay equity audit’ which requires the employer to evaluate salaries across their organization, identify discrepancies, investigate the cause of the discrepancy, and potentially address the discrepancy before their obligation to post salary ranges arises. This could take a couple of forms like stratifying job titles to reflect differences in salaries based on experience (So Accountant becomes Accountant I/II/III), or changing employees’ salaries to ensure the salary range does not appear problematic (e.g. did you give that super star lateral candidate a 25% premium on salary over current employees with the same job title? If so, maybe it is time for a raise for those other employees).
I want to extend a huge thanks to Michael for sharing his knowledge with us. If you’re not already subscribing to the Foley Labor & Employment Law Perspectives newsletter, be sure to check it out.
I recently published an article about the importance of employees understanding their compensation. Employees – at every level – know they need to understand how pay works. And a big part of that is knowing what the pay range is for the job. And frankly, employers should want employees to understand their compensation as part of financial wellbeing.
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