Pay transparency laws and what they mean

When it comes to the workplace, there are a lot of practices that can be hard to grasp. Mainly if it involves workers’ pay. One of these practices is pay transparency. This practice lets workers talk about their compensation or that of other workers without fear of payback.

This idea usually involves the wages workers receive. But it also includes overtime pay, bonuses, commissions, vacation and holiday pay, shift differentials, stock options, awards, and other benefits.

What Does Pay Transparency Mean for HR?

Pay transparency allows the sharing, collecting, and reporting of worker pay data. Firms do this both internally and externally amongst staff. But more notably, it promotes fair pay within firms and across industries.

When firms have clear pay practices in place, they are more likely to be competitive in attracting and keeping talent. Experts can enable pay transparency in their firms by relaying how they figure out a worker’s pay. In other words, workers should know that the firm ensures fair pay.

Fair pay means that pay practices are externally competitive and internally equal. Externally competitive means that workers receive their pay like what other firms pay for the same job. Internally equal means that staff receive similar pay to what other workers receive for the same job or job level. For this reason, firms must show that their pay practices support their pay philosophy.

Diving a little deeper with the notion of pay transparency, here are the two national laws that affect this topic most:

National Labor Relations Act (NLRA)

Congress passed this law in 1935. This is a policy in the U.S. that supplies protection involving workers’ full freedom association. Congress designed it to protect workplace equality. They do this by giving workers the right to seek a better work setting without fear of retaliation.

Section 7 of the NLRA grants rights to all non-supervisory workers to discuss wages, hours, and working conditions. Section 7 rights apply to most firms (depending on if they are currently unionized or not) because talking about pay is a crucial step when a worker decides whether to form or dissolve a union.

Executive Order 13665

In April 2014, President Obama issued Executive Order 13665 that requires federal contractors to allow workers to discuss pay. This also forbids firms from disciplining or discriminating against workers who do discuss their pay.

EO13665 also includes enhancements to the EEO-1 reporting needs, which would capture 3,360 data points. The increase in data points has to do with the need to report EEO-1 data within prescribed pay ranges for each category.

The primary difference between the NLRA and Executive Order 13665 is that the NLRA applies to most firms and does not apply to management roles. EO13665 applies to firms who contract with the federal government, and to all levels of workers.

State Laws on Pay Transparency

Each state also can start laws about pay transparency that only apply in that state. There are states that are more liberal than others. But there are many states in the US that are joining this movement in one way or another.

For example, in California, firms cannot discriminate or hit back against workers who chat about pay. Also, they cannot restrict dialogue about pay or require secrecy by either contract or policy. Other states that protect this practice include CO, IL, LA, MA, ME, MI, MN, NH, NJ, and VT.

Benefits of Pay Transparency

This practice can mean many things to various groups and firms. But there is no doubt that it offers a range of benefits.

1. Companies can close pay gaps.

   It is no doubt that workers are happy if they receive fair pay. Also, having the assurance that they receive the same pay range as their colleagues means a lot to them. This approach can help in closing pay gaps within a firm.

2. Improve hiring productivity.

   Pay is the main reason at times job seekers decline job offers. For this reason, being transparent with pay ranges is a good approach. Hiring managers can filter job seekers who will, in time, turn down offers due to pay. As a result, they can focus on the most suitable ones. This helps improve the hiring team’s productivity.

3. Offer a better job seeker experience.

   The hiring process is one way for firms to give a great impression. Also, how a job seeker views the entire process speaks volumes about a firm. For this reason, firms should be honest about pay early on. This could have a good impact on the company brand. Also, it offers a better job seeker experience.

4. Increase worker’s trust.

   Trust is crucial especially within the workplace. Most workers say they trust their company if it is honest about how they pay the workforce. These workers also say they believe their firm pays workers equally. This dynamic creates a workplace setting built on trust which is good for workers and the company.

5. Help keep workers in the company longer.

   When there is trust within the company, all good things follow. The result of this is having workers that are happy. When workers are happy, they have a reason to stay longer. When this happens, firms do not need to worry about workers leaving abruptly.

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   It is no secret that honest pay practices lead to fewer queries from workers on a company’s pay policy. In fact, 85% of firms reporting that their staff know their pay philosophy also report high engagement levels. With such a clear link between pay transparency and worker engagement, it is vital that firms watch this trend closely.