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Pay transparency remains the hottest trend in equal pay legislation across the country. New York’s Paycheck Transparency Act was signed into law by New York Gov. Kathy Hochul on March 3 and is scheduled to go into effect on September 17.
The law requires employers to disclose compensation or the scope of compensation in any job advertisement, promotion, or transfer opportunity.
In addition, employers must also disclose the job description of the position, if any. Employers are required to maintain records showing the history of compensation ranges for each job opportunity and the job description of the position.
As part of the negotiated change, the amended law applies to job postings that will actually be executed in New York. This means that the law does not apply to teleworkers who reside entirely in other states. However, the amendment also states that it will cover job functions that are actually performed outside of New York, but will report to a supervisor, office, or other work location in New York. Additionally, New York City has slightly different standards.
This new law will not affect an employer who already practices pay transparency in their job postings. But if you take a peek at job boards like Indeed and LinkedIn, you’ll notice that most employers currently don’t disclose the pay range in their job postings.
Pay transparency laws can have potential benefits and drawbacks for employers. Laws are motivated by justice and fairness. When employers disclose their earnings to their employees, it can help prevent wage discrimination based on all protected characteristics such as gender, race, and age. It supports a more comprehensive environment. Pay transparency forces employers to build objective standards for roles in their companies. Pay transparency can improve employee retention and employment. Organizations that discuss compensation openly may be more attractive to potential candidates, as well as to current employees who are less likely to leave in search of better pay elsewhere.
I know many job seekers who do not apply to companies that do not disclose pay ranges. They trust employers who embrace equal pay. In fact, employers who keep their compensation ranges at market level (the 50th percentile) or above market (the 75th and 90th percentile) boast that it is a strategy that attracts the best people.
One executive told me that he worked for companies that paid below or only market wages. They suffered from high turnover rates and costly fouls. His current company pays above-market rates and has a selective hiring process. The company experiences higher productivity rates and lower turnover.
However, many employers see pay transparency as a risk and a disadvantage. They may not feel comfortable sharing salary information. They may not have invested in wage compensation analysis. Their fear may often lie in fears of being perceived as clearly offering below-market wages. They may also fear revealing how workforce shortages have led to higher wages for new employees that have not been passed on to existing employees.
Pay transparency will expose pay disparities, which will likely lead to domestic discontent. Employers are also worried about losing their competitive edge. Pay transparency can provide competitors with insight into an organization’s salary structure, which may put a company at a disadvantage when attracting top talent.
If the change toward pay transparency is not properly structured, transparent compensation may inadvertently shift the focus from job performance to compensation comparisons, which may affect performance-related outcomes.
Ultimately, the impact of New York’s new pay transparency laws will depend on factors including employer size, industry, culture, and how the requirements are implemented. An employer conducted a compensation analysis and a pay equity study. They have been experiencing very low response to their job advertisements. Not surprisingly, they find that more than 50% of their workforce falls into the lowest percentile.
However, what was the problem? Among individuals in the lowest percentiles, 70 percent were female. When the organization’s pay data was reviewed based on gender, most of the male workforce fell in the middle to high percentiles. The findings revealed the organization’s unintentional discriminatory hiring practices, which were immediately corrected.
To prepare, a compensation analysis should be performed so employers can understand how their pay rates compare to survey data in the same size, industry and geographic region. A pay equity study will reveal any internal disparities and risks. Although there are potential challenges, many companies have found that the benefits of enhancing pay equity, trust, and talent attraction outweigh the drawbacks. However, careful consideration and strategic planning are crucial when adopting the new law and its corresponding changes.
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