Tackling the Changing Pay Equity Landscape

5 min read
Oct 28, 2022 6:00:00 AM

In the United States, it’s illegal to pay people differently on the basis of race, color, religion, sex (including gender identity, sexual orientation, and pregnancy), national origin, age, or disability. But wage gaps within these protected groups persist. For example, Latinas earn just 49 cents for every dollar white men earn.

Many state and local governments are enacting their own compensation laws to address some of the root issues leading to pay inequity.

Trends and changes in pay equity legislation

Salary history bans have been a growing trend in recent years and the most progressive laws are beginning to include pay transparency measures as well. 

For example, California’s new pay transparency legislation goes into effect on January 1, 2023 and stipulates that companies with California employees:

  • Must share salary range information with current and prospective employees
  • Must include salary information in job postings
  • Must maintain detailed pay records
  • May not ask candidates for salary history or use any salary history information to create employment offers

Similarly, Colorado’s Equal Pay for Equal Work Act went into effect on January 1, 2021 and stipulates that Colorado employers:

  • Must include salary information in job postings
  • Must announce promotion opportunities to all employees, including salary information
  • Must keep records of job descriptions and salary ranges
  • May not ask candidates for salary history
  • Are encouraged to perform regular pay audits

Pay equity laws extend beyond the U.S. as well, including Canada’s Pay Equity Act and local legislation that can vary province to province.

Pay equity best practices to ensure compliance—and do the right thing for your employees

Pay equity legislation will continue to evolve. Following these best practices can help you prepare for those changes while also building a more equitable workplace for your team members.

1. Don’t ask for a candidate’s salary history

Salary history bans currently exist in 21 states and another 21 localities. That’s because knowing a candidate’s pay history can influence your own compensation decisions and perpetuate wage gaps. 

It’s no surprise salary history bans are so common—because they work. Following salary history bans, women saw an 8% increase in pay, and Black employees saw a 13% increase. 

Some employers instead ask about salary expectations. This can help ensure alignment but it’s important to be mindful of the expectation gap and how it can impact pay equity. 

The expectation gap varies by race and gender, and nearly mirrors the eventual wages paid to each group. For example, white women request 92 cents for every dollar White men expect, and earn 93 cents for every dollar their White, male counterparts earn. Black women request 88 cents, and earn 89 cents. 

If you choose to ask for salary expectations, do so early in the recruitment process and silo that information away from compensation decisions when you go to make an offer.

2. Build salary ranges for your roles

Depending on where you hire, you may be required to share your salary ranges with employees and candidates. For example, Pennsylvania requires that employers disclose the pay scale in job postings and Maryland requires employers to furnish salary bands upon a job applicant’s request. 

Even if your jurisdiction doesn’t have pay transparency requirements, building salary ranges enables fair pay practices while giving you something to measure against for pay equity. 

Keep in mind that salary negotiations can derail your pay equity efforts. Around 70% of men and women negotiate their initial salary offers, but 7% more men are successful. And women of color are 19% less likely than a White man to receive a raise when they ask for one, and men of color are 25% less likely. If there are times you feel negotiation is necessary to close candidates and retain talent, consider revisiting your salary bands and adjusting compensation for all eligible employees.

3. Include salary ranges in job postings 

Salary range transparency in job postings is required in a growing number of jurisdictions including California, New York City, Washington, and Jersey City. 

Sharing salary ranges in job postings can also help you attract talent. Pay is the most important factor when searching for a job and 68% of job seekers said they’d be more likely to apply if the job listing included the position’s salary range.

A best practice to share a subset of the entire range so you don’t hire people at the top. This ensures each team member’s compensation has room to grow throughout your regular review cycles.

4. Address the opportunity gap

People from marginalized groups are underrepresented in every level of company management, impacting their earning potential. For example, white men hold 35% of entry level roles, 44% of manager roles, and 66% of C-suite roles. By contrast, women of color hold 18% of entry-level roles, 12% of manager roles, and only 3% of C-suite roles. While white men’s representation increases at every job level, representation for marginalized groups decreases.

Pay data reporting requirements in some jurisdictions will highlight these inequities. For example, California employers will need to share the number of executive leaders and mid-level managers by race, ethnicity, and sex—alongside pay data.

Whether or not you’re subject to reporting requirements, track representation and mobility data for yourself. If you find that employees from marginalized communities aren’t being hired or promoted into leadership positions, dig further into your data to understand why and address the problem. For example, you might take a page from Colorado’s Equal Pay for Equal Work Act and make internal announcements around promotion opportunities.

5. Measure pay equity regularly

Even with the best intentions, pay equity can get off track. New hires, promotions, and off-cycle raises represent individual compensation decisions that can add up to significant pay gaps. 

Analyze pay equity at least once or twice a year to find and address discrepancies. Regular review cycles are a great time to do this. Maintaining pay equity in tandem with merit-based adjustments and cost-of-living increases allows you to prioritize spending your budget where it’s needed. And if you use a platform like Compaas, you can even see the effects your raise cycle will have on pay equity—before changes hit payroll.

Regularly measuring and addressing pay equity can help you maintain fair pay—and may mitigate the risk of legal trouble. In Colorado, evidence of a pay audit within two years of a civil action may demonstrate that you acted in good faith. 

Final thoughts on the future of pay equity 

New pay equity legislation is being enacted regularly and it’s in your best interest to keep up. It’s the right thing to do, it’s legally mandated, and it’s good for business. In fact, 82% of workers said they feel more engaged and fulfilled by their work when they’re paid fairly, and 81% say they are more productive and loyal to their employers.

Pay equity is important now and it will continue to be in the future. Stay on top of new mandates and best practices so you can adjust your compensation practices accordingly.

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