What General Counsel Should Know About Pay Transparency and Equity

California recently adopted one of the most comprehensive workplace equity laws in the US. Starting on January 1, California will join six other jurisdictions requiring employers to include pay ranges on all job postings.

The law adds to this obligation by permitting employees to request the pay range for their role. Additionally, the pay reporting obligations increase, with median and mean pay and contractor pay reports due in May 2023.

These changes will have a substantial impact on national employers and other entities. For many organizations, the changes will be daunting.

In-house counsel may be inclined to suggest their organizations do only what is legally required, for example, posting pay ranges only in jurisdictions where the law requires it. Corporate leaders, however, should consider a bolder alternative: embracing the inevitable pay transparency shift to lead their organizations into that future.

This choice becomes a key differentiator when recruiting and retaining talent in a tight labor market and uncertain economy. And it reduces legal risk.

The window to take this bolder approach is closing fast. Organizations that want to be leaders should act now by owning the narrative, operationalizing pay transparency, and anticipating what’s coming next.

Be a Pay Equity Leader

The early adopter organizations will be able to differentiate themselves as pay equity leaders, just as organizations that removed salary history questions from job applications early did. Boldness now will pay dividends in the future.

Companies that want to lead should post a message to employees that, come January 1, their organizations will include pay ranges for all jobs posted in the US, even in states that don’t require it. This can be done in a news release. This is a leadership moment to lock in the narrative for your organization.

Think this is not doable?

Know that your human resources, total rewards, and talent acquisition teams have to do 90% of the work to comply with the web of laws that are or will be online soon.

California, Colorado, New York City, Washington state, and other smaller jurisdictions currently do, or will, require disclosure of pay ranges in job postings. Other states, such as Connecticut, Nevada and Rhode Island, do or will require proactive disclosure during the hiring process, and others require disclosure upon request.

Some states, like California, require providing information to employees upon request. In some jurisdictions, employers need to proactively disclose it when there are job changes. It is a complicated maze, but doing the work to comply where required is 90% of the work required to comply nationally.

Operationalizing Pay Transparency

Next, support your organization as it shifts from committing to pay transparency to operationalizing pay transparency.

Creating and posting accurate pay ranges is a deceptively complex process. It requires that companies really understand why they pay what they pay and be confident that they are paying employees fairly.

Posting ranges requires finding the Goldilocks-esque range sweet spot. If the ranges are too low, it will make it hard to compete for top talent that may overlook opportunities before they even apply.

If the ranges are too high, companies could alienate current employees whose pay is lower in the range, as internal pay has not kept pace with the recent hot market. If the ranges are too wide, employers could run afoul of the law.

Balancing your market data with your pay equity analysis to model and create ranges you can confidently post ensures they are both externally competitive and internally equitable.

As ranges get shared, employees will want to understand the company’s pay philosophy. Why is my pay what it is? Is my employer applying its pay policies consistently and equitably?

If your HR team is not conducting a pay analysis, start now. These analyses highlight where people in similar roles are not paid similarly so that fixes are made before ranges are rolled out.

But forget the idea that conducting a one-time, black box pay equity analysis will suffice. The ranges must match the continually changing workforce. Only technology enables the real-time analysis needed to match the pay transparency laws.

Anticipate What’s Next

In-house counsel can also lead by helping the business anticipate future challenges. Two changes embedded in the California law provide a predictive road map for the future workplace equity landscape.

First, employers in California will have to report median and mean pay, broken out by job category, race/ethnicity and gender, in the annual reports filed with the California Civil Rights Department, starting in May 2023.

Entry-level roles are paid less than leadership roles, so if an organization has fewer women or diverse leaders, this will increase the median pay gap. So, too, will functional segregation.

Unlike equal pay for equal work gaps, which money can solve quickly, opportunity equity requires seeing diversity gaps in real time, a detailed understanding of those gaps, an action plan, and time. Start now.

Second, the California law also requires employers with more than 100 employees engaged through labor contractors to submit a separate pay data report to the civil rights department. The California law—along with a New Jersey bill poised for adoption—means that thinking about pay equity for contractors will be a wave of the future.

The California law represents an opportunity for in-house lawyers who embrace it. Employers want leadership. This will be a defining time—will you be able to say your organization led on pay transparency, or were they dragged into that future?

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Christine Hendrickson is the vice president of strategic initiatives at Syndio, which provides advanced technology solutions and expert advisers to assist employers with real-time pay and workplace equity. Before joining Syndio, she was a partner and co-chair of the pay equity group at Seyfarth Shaw.