Pay Transparency Laws: Updates and Best Practices
October 21, 2024
By Helena Almeida, Vice President, Counsel, ADP
Pay transparency laws are being enacted across the U.S. If you have clients operating across state lines, you know how complicated staying compliant with these laws can be. Business owners need to understand what’s coming and how they can prepare.
Why Pay Transparency Laws?
Despite efforts to combat pay inequality over the past six decades, pay gaps still persist in the United States especially among women and underrepresented individuals. In 2017, there were only four states that banned employers from asking applicants about previous pay, a practice that often perpetuates pay inequities. This year, 22 states and 23 localities have salary history bans. This is seen by many as the first step to closing pay gaps.
Pay transparency is the next significant step in reducing pay inequity. In Connecticut, this requires the employer to provide a salary or hourly pay range when an employee requests or applicant is made an offer of compensation, whichever is earlier. Currently eleven states – including Connecticut – and the District of Columbia have passed pay transparency laws and many more states are discussing enacting such legislation.
Connecticut Pay Transparency Legislation
The Connecticut pay transparency bill (Public Act 21-30) went into effect on October 1, 2021 and applies to any employer with one or more employees, both in the state and employees working remotely. The components to Connecticut’s pay transparency law include equal pay for comparable work, wage range transparency, salary history ban and freedom to discuss wages with others without fear of retaliation.
An employee or prospective employee who feels an employer has violated the law may bring a civil action within two years of a violation. A successful claimant may obtain compensatory damages, punitive damages and attorneys’ fees and costs.
How You Can Help
CPAs are in a unique position to help their clients navigate these legislative changes. As an advisor, suggest some of these best practices:
Establish a clear compensation policy. A compensation policy can help establish and explain a fair and consistent structure for pay and benefits. Salary is not the whole picture but it often gets the most attention. In fact, total compensation can include benefits, employer contributions to retirement plans and other non-salary perks. The clearer the explanation of what goes into the pay package, the easier it will be to have conversations with both candidates and current workers.
Do an internal pay audit. Use both internal and external data to audit the organization’s compensation. Benchmark against competitors in the industry and all locations where the business hires. Make sure, however, that the benchmarks used are drawn from a deep, unbiased dataset that is current.
Educate managers. Let’s say a new hire is going to make $15 an hour and the current jobholder makes $10 an hour. This might raise questions, so HR and management should prepare to respond in an honest and appropriate way, explaining how the organization sets pay and what factors go into it (e.g., location, experience, benefits, competition, budgets). It may also be a good opening to discuss the current employee’s prospects for growth and development.
The good news is that businesses can use this as an opportunity to benchmark their compensation packages to the local labor market. Paying fairly can lead to more successful employee retention and better recruitment of new employees, as well as remaining compliant with the law.