Pay Transparency is Here to Stay. How Can You Build Salary Ranges in Good Faith?
Pay transparency. It’s a topic on many HR leaders’ minds. With a renewed focus on inequality in pay, many local and state governments are putting laws into place with the intent of positively impacting pay equity for underrepresented groups.
- With NYC, California, and other jurisdictions passing pay transparency laws, it’s important for HR leaders to be prepared for how to stay compliant in their organizations.
- Start by looking at your internal salary data by job level, function, and geography to identify the median or average salaries.
- Avoid publishing salary ranges that are too broad.
- Be ready to document and explain the reasoning behind the salary ranges and philosophy to create a truly equitable pay culture at your organization.
Most recently, New York City enacted a pay transparency law requiring employers to state the minimum and maximum salary within job advertisements. The law applies to any company that has at least four employees, one of which is based in NYC. It also impacts any jobs that could be performed in whole or in part in NYC – in other words, postings for remote roles are not exempt.
NYC isn’t the first nor the last jurisdiction to pass such a law. California is close behind, launching a state-wide law effective January 1st, and we anticipate more local and state governments following suit through the next year.
As this trend in pay transparency continues to grow, employers need to rethink how they approach their pay ranges to not only meet the demands of these new laws but also to ensure consistency and equity across their organizations.
So how can organizations create salary ranges in “good faith”?
- Leverage data. It’s important first to analyze your internal data. Look at salaries by job level, function, and geography to identify the median or average salaries. You should also leverage external benchmarks through a compensation benchmarking tool. Again, you can examine market data by job level, function, and geography to see how your current range compares to the broader market. As one way to potentially calculate a range in good faith, you can calculate a percent below and above those averages or medians based on geography, experience or education, scope, etc. It’s important to note that you should also proactively identify any employees that may be below your identified range. Once these ranges are shared publicly, you can anticipate employees asking why they fall below or on the lower end of said range.
- Try not to make your range too broad. As a workaround, some companies originally tried to state excessively large ranges such as $100,000 to $300,000. However, some local agencies – like the Colorado Department of Labor – are fining a few businesses and issuing hundreds of warnings to businesses with too broad of ranges. Broad ranges also can indicate to a candidate that you lack a transparent culture, which can detract from the overall quality of your applicant pool. If you do have a broader range, you need to ensure you have a good faith reason to do so, such as the role is remote and the salary will be based on a candidate’s geography (e.g., on the higher end of the range if based in NYC) or that the role can be done with varying levels of work experience. Additionally, if an employer has no flexibility in the salary being offered for one particular role, it is ok to make your range smaller.
- Document, document, document. To truly build a range in “good faith” you will have to put some forethought into those ranges. If you are able to document and explain why you’ve created a range, it will help you mitigate risk. It also helps ensure that you are truly building a more equitable pay culture at your organization and makes it easier to explain to employees your pay philosophy.
Pay transparency is here to stay. If you have employees in multiple states, it’s better to prepare at large for these laws versus trying to manage multiple processes as more laws come online.
At the end of the day, these laws are meant to close the racial and gender wage gaps and generally remove the stigma around talking about salaries. Preparing now not only ensures you stay compliant but also builds a culture of transparency and equity in your organization.
Disclaimer: Please note that this guidance is not legal advice. We suggest consulting with an employment lawyer if you have any questions about complying with pay transparency or pay equity laws.