Money, politics, and religion. Many of us know these as taboo topics to be avoided in polite conversation, at the dinner table, and in the workplace.
However, recent legislative and societal trends are drawing money out of that category. In fact, candid money conversations are radically reshaping the workplace. The trend goes by many names: pay transparency, pay equity, and salary transparency. The big idea is that candidates, employees, and lawmakers are now demanding that employers be open about how their teams are being paid.
There’s no doubt pay transparency is having a moment. Laws in Colorado, California, New York, and others, now have laws that require employers and businesses to disclose pay ranges in job ads and to their current teams.
Managers need to be prepared to not only comply with these new laws but to respond to questions about the way they’re paying people. If that makes your stomach churn a little bit, you’re not alone. The best advice is to train yourself to get comfortable talking about money with your team. If handled correctly, the right kind of money conversations with your team will bring some real return on your investment (money pun intended). To truly understand how this impacts your business, we need to go back in time.
Pay Equality: A (Painless) Legal History
National Labor Relations Act
Dating back to 1935, this act is the basis for giving employees the right to talk about wages with one another. Remember, this is legal in ALL 50 states.
Equal Pay for Equal Work
Pay transparency is rooted in the Equal Pay Act of 1963, which requires employers to pay men and women equally for equal work. Over time, that idea has been expanded to include other protected classes, including race, age, religion, national origin, sex, disability, pregnancy, military status, and others.
Start Low, Stay Low
More recently, the Equal Employment Opportunity Commission (EEOC) and many states have banned the use of salary history when considering candidates for employment. This means employers cannot ask about salary history on applications for employment.
The idea is simple: “start low, stay low” – meaning if you base current wages on what someone has been paid in the past, you’re simply perpetuating past discrimination. Instead, the EEOC urges you to set pay based on the value of the position.
These three already existing laws serve as the foundation for the current wave of legislation: pay transparency laws.
Pay transparency requires salary ranges for each position to be disclosed to candidates. Disclosure happens in the job ad, in the offer of employment, and/or in job descriptions.
Pay transparency is spreading quickly, already required in places like Colorado, California, Rhode Island, and New York. Like many other HR trends, we expect to see this spread to many other places throughout the country.
Big Lift for a Small Business
Pay transparency has been widely reported as an employee-friendly trend. Theoretically, pay transparency prevents employees from being undervalued and underpaid, and in particular for illegal reasons like gender or race.
Setting pay ranges, updating documents, and communicating ranges to your current team is a big lift for a small business; many of whom are already low on time and resources.
In small offices, pay ranges simply are not discussed. Often, you only have one or two people in each position. If your most experienced assistant was hired 10 years prior to your least experienced assistant (not to mention in vastly differing hiring markets), you may have never once considered the pay range for that particular role.
As an inadvertent result, many small businesses have significant pay discrepancies. These owners and managers fear disclosing pay ranges due to the fallout on your current team. What if your most experienced assistant finds out that your least experienced assistant is making close to the same amount as she is? Will she quit? Will she ask for a raise? Is that enough for her to pressure you into giving her whatever she wants now?
This fear is not unfounded: studies show pay transparency has negative effects if the revelation of disclosure is that employees perceive they are, or actually are, unfairly paid. On the other hand, pay transparency can result in greater motivation, better hiring outcomes, and more team cohesion when the disclosure is that employees are fairly paid.
As employer advocates, though, CEDR has been discussing the value of pay transparency for years. Pay ranges, and pay transparency, can be tools you use to leverage more efficient hiring and to hone in on the skills you need to add to your team. Our best advice today? Have an intentional, controlled approach to employee wages, whether or not you’re required by law to do so.
If you’re not sure where to get started, you’re not alone. For most business owners, this can be a new and daunting task. Start with this simple self-audit to get you going in the right direction, and then have a better idea of where you need to go after.
IMPORTANT NOTE: A self-audit should be conducted transparently, with only managers or owners. If you find inadvertent discrepancies or problems with your current team’s wages, you want the opportunity to correct them without increasing possible liability.1
✓ Does your application or job ad ask candidates for salary history?
It really shouldn’t, regardless of where you are located.
The EEOC has said that basing pay on past compensation can perpetuate past discrimination. CEDR keeps our members up to date on the many states and cities that outright prohibit the use of salary history in hiring.
Instead, you can generally ask for salary expectations.
✓ Do your interview questions discuss salary history?
Again, do not ask about this in any interview questions. If a candidate voluntarily discloses this information, you should still focus your conversations and notes on salary expectations and whether those fit into your range offering.
✓ Are your hiring managers trained on best practices in discussing salaries with candidates and employees?
In hiring, managers need to know to avoid salary history and need to be trained on basic discrimination principles. This includes their verbal and written conversations with candidates and even internal note-taking practices.
Importantly, managers should also be trained on how to respond to current employees’ pay discussions and pay inquiries – the big takeaway being that they should not be retaliating against folks for discussing their wages.
✓ For each position in your office, do you have a pay band?
Here’s where things get sticky – ideally you have an established pay band for each position in your office. Front desk employees may range from $15 to $25 per hour. Assistants may range from $20 to $30 per hour. You can set a range as wide as you need to set it, to allow for experience, negotiation, and the full scope of the position.
However, we recommend if you are in a state requiring pay transparency that you set as accurate a range as possible. A range of $15 to $150 per hour is pointless and more likely to cause issues than prevent them.
✓ For each employee in your office, do they fall within the appropriate band for their role?
Look at your current team. Is anyone misplaced on a range? It’s easy to increase someone, but not as easy to correct if someone is too high on the range. If you discover discrepancies, you need to work with an expert to correct them in a safe, effective way.
✓ For each job ad and job description do you post a pay range?
CEDR’s updated sample job ad and job description, include pay ranges. You are required to update these documents if you are in a state or city requiring pay transparency. Even if you are not in one of those locations, updating these documents is valuable.
1For this reason, some experts also recommend conducting an audit within the confines of the attorney-client relationship so that all results and decisions remain confidential.