Pay Transparency Laws and What to Consider Next
Disclaimer: This is not legal advice but guidance on what to consider and prioritize as an executive team, as new pay transparency laws go into effect across the country.
On November 1, 2022, New York City had a pay transparency law go into effect that requires covered employers to include a pay scale in advertised job postings. On the first of the year, California will join New York City, Colorado, and Washington state — all of which have passed pay transparency laws, but each differs by state and locality, which is making it quite confusing for companies and operators to implement. Because the purpose of these laws is to encourage a more equal playing field in regards to compensation, not force employers to take down all of their postings because of the unclarity around compliance, this will hopefully serve as a helpful thought-provoking guide for what your company should consider. But PLEASE NOTE: this is not formal legal advice, so please contact the necessary parties to see what this means for your startup's specific circumstances.
As of the writing of this article and as mentioned above, the primary pay transparency laws to be aware of are in California, New York City, Colorado, and Washington. Based on available guidance, California and New York City’s pay transparency laws only require covered employers to disclose a base salary range for any publicly facing job postings. Whereas, in Colorado and Washington, covered employers must include a pay range, and a general description of any benefits, bonuses, commissions, or other compensation for any publicly facing job postings. That said, in both Colorado and Washington, employers are not required to assign a monetary value to such benefits or other compensation but overly general descriptions, such as “competitive benefits offered” do not satisfy the pay transparency requirements. Are you dizzy yet? Let’s take it step by step.
What is a Covered Employer and How do Policies Vary?
Here is a quick cheat sheet:
California
As of January 1, 2023, employers with 15 or more employees must include a position’s pay scale in any job posting, regardless of whether the company directly recruits candidates or engages a third party.
Employers must also provide to current employees, upon request, the payscale for such employer’s currently-held position.
Colorado
The pay transparency laws apply to entities that employ at least one person in Colorado and if an employer has no employees in Colorado at the time it decides to hire or promote, then it is not covered by the posting requirements even if it considers a Colorado applicant or ultimately hires someone who would work in Colorado. It does not apply if the position is performed outside of Colorado or only includes modest travel to Colorado.
For each job posting, covered employers must disclose the rate or range of compensation and a general description of all benefits and other compensation associated with the position.
New York City
As of November 1, 2022, New York City’s pay transparency law went into effect for employers who have four or more employees (including independent contractors and owners), with one of them being in New York City. The law also applies if the job will be performed at least in part in New York City, including work performed remotely from an employee’s home.
Covered employers who post a job must disclose the minimum and maximum salary range for the position. The law does not require that employers create a job posting in order to hire individuals.
Washington
As of January 1, 2023 employers with 15 or more employees will have to follow new pay transparency laws, if the employer has at least one Washington-based employee, or for remote postings that could be performed by an employee in Washington, even if the posting states that the employer is not considering applicants from Washington.
Covered employers will need to disclose the salary range and a general description of benefits and other compensation for each position that is publicly advertised.
Now What?
If you have employees doing work in any of these areas, or who possibly could, then you will need to do the following:
- Create a reasonable compensation range for each advertised job posting. The definition of “reasonable range” is making a good-faith effort to establish pay ranges for your roles.
- You can use third-party compensation consultants to understand the market. Listen to your recruiters and the ranges they are hearing. If you have people in these roles in your company, use these to establish ranges.
- If your job opening is posted on your company’s website, on LinkedIn, etc., then it needs to follow applicable pay transparency laws but if you do not post it publicly or advertise it, these rules do not apply.
- Include a general description of any bonuses, commissions, or other compensation the employee will be eligible for, as well as a general description of the company’s benefits. (Examples: Health/dental/vision coverage, 401K match, unlimited paid time off).
- Remember that the monetary value of such benefits is not required, but a general description is required.
Remote Workers
As of now, if you offer a remote option in the position you are hiring for, and if there is a chance you could hire an employee based in Colorado, New York City, California, or Washington because you offer the position remotely, then you’ll need to follow these pay transparency laws even if you do not currently have anyone based there. If you already have employees in any of these places, then you need to abide by these transparency laws.
Grace Periods
New York City’s laws went into effect on November 1, 2022, and its employment law has a 30-day grace period, so if you violate the law, you will have 30 days to resolve it and meet compliance requirements. As long as you do, no financial penalties will be issued. Grace periods vary by jurisdiction (and some jurisdictions do not have grace periods) so please look into what laws apply to you and your team.
Other States to Track
Connecticut, Maryland, Nevada, and Rhode Island, as well as several localities such as Cincinnati, Ithaca, and Jersey City, each has pay transparency laws that are narrowly tailored with their own requirements.
For example, the Connecticut pay transparency law only requires that an employer provide a wage range upon an applicant’s request or at the time the employer makes the employee an offer of employment.
“In Nevada and Maryland, the wage range need only be disclosed after the applicant has interviewed and/or applied for the position. That said, in Maryland, even after an applicant has applied for a position, the wage range only needs to be disclosed upon the applicant’s request. In Connecticut, Nevada, and Maryland, if employees are to be paid commissions or bonuses as compensation for labor or services rendered, then those amounts likely would need to be quantified and reflected in the “wage range” that must also be disclosed.
Documentation
Once you have completed the above, an important step is documenting how you came up with these ranges. Work with your executive leadership team to document the leveling and compensation evaluation process used to establish the system for your team. This is important in case you ever need to establish how you got to a “reasonable range” for your team and company. The documentation component of this is not shared externally but it is established internally and used as an internal reference for the compensation team.
Cash vs. Equity
Equity, options, and RSUs are not currently included in the pay transparency laws that are passing, nor is assigning value to them publicly. The only requirement is the minimum and maximum salary range and/or overview of benefits. So what this means is that if equity is offered in the role you are hiring for, or another form of bonus like dollars at work in a venture capital fund, you need to at least give a general description of the equity/bonus/dollars at work but you do not need to assign it a value publicly.
Contractors, Interns and Employees
Generally, part-time employees, temporary employees, and interns are covered by pay transparency laws. Establish hourly rates and compensation offerings for these roles just like you are with all the others.
Training and Education
As you work through this process, it is very important that your people and financial leadership team work closely together. Establishing the levels and reasonable compensation, informing current employees, and getting alignment on which employees are at which levels and why these will be the most time-consuming parts of this process. Loop your hiring managers in early, give people visibility into how you developed and executed this process, get relevant salary data and develop descriptions for each role and level and then educate, educate, educate. As you develop your visibility strategy, consider the following questions:
- Who did you talk to?
- Where did you gather data from?
- How did you turn this into leveling, compensation, equity, and bonus for your team?
When it comes to setting yourself, your company, and your team up for pay transparency, take your time and get this right. Then make sure your team is prepared to set compensation context for candidates in their first discussions. It’s also good to share your compensation strategy with your larger team to make sure everyone is prepared to keep the tone consistent throughout the interview process for candidates that are involved in interviewing. This will hopefully help your team provide a better candidate experience and a better employee experience in the long term, building and retaining the strongest team policy while also staying compliant as rules continue to vary state by state.
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