Pay Transparency Law Spurs Workarounds, Buy-Ins

Pay transparency laws are taking effect across the country with the intention of closing pay gaps. They have also made the recruiting process smoother. However, some companies have not complied with the law or posted wide ranges to exploit a loophole.

By Lora Korpar

Salary transparency laws have gained traction across the country. They aim to create more equality by requiring salary ranges on job listings. But how do these laws work in practice?

New York City implemented its pay transparency law at the beginning of November. A similar law in California will take effect at the start of 2023. Colorado, Nevada, and Washington also have laws requiring salary transparency when offering the job or when employees ask.

Some companies have complied with New York City’s measure, while others appear to be ignoring it, accepting the risk of a financial penalty. Several companies in the middle of this spectrum have found a workaround by posting ranges wider than $100,000.

The trends in New York City could be harbingers for California following the implementation of its law Jan. 1, 2023. How the law works in California can have consequences, not just in the U.S., but in other countries, because California is the fifth-largest economy in the world.

Salary transparency laws intend to decrease pay inequalities by providing the information to empower people to negotiate higher salaries. And they are popular concepts with workers. However, the initial response to them has varied, leaving their future impact in doubt.

“I think that job seekers will find it very helpful in terms of understanding what their earning power is and potential is for the job they are seeking,” said California State Sen. Monique Limón, the sponsor for the state’s pay transparency bill. “It is considered a best practice among? many businesses in terms of identifying what the salary is when a job posting is going on. I think that this is important for both the employee and the employer in order to maximize time, energy, and strategy in terms of what the best fit is.”?

Are Some Companies Using Loopholes?

Though pay transparency laws require companies to post “good faith” salary ranges, some companies have chosen to post wide salary ranges instead. A principal product manager at Wells Fargo in New York has a salary range of $138,500-$287,600. The range for a senior publishing editor at the Wall Street Journal is $50,000-$180,000.

“I think in some cases [the law’s implementation] certainly is going the way in which we intend it, but as always, you have organizations and folks who want to skirt the law,” said New York City Council Member Nantasha Williams, the primary sponsor for the city’s salary transparency bill. “It could create a lot of issues within the company if one person is getting paid a particular amount versus another person. So there's probably tons of reasons why they're doing things of that nature.”

Harry Stone, global acquisition talent lead for a social media tech company, said companies sometimes post wide salary ranges because they aren’t hiring for a specific role, but are looking for talent at various levels.

“They could be looking for somebody that might have five years of experience all the way up to 20 years of experience,” Stone said. “Most people would get paid very differently, but it's the same type of role and that company might just… be open to good talent and is not necessarily focused on a specific target level.?

“I think when a company is more structured and has it ironed out that they need let's say a VP or a director, that's a little bit easier… because it's a pretty set standard rate they might be looking for. And that's where some of the discrepancy might come in. This could be a loophole, but it could also be the actuality of what the role might pay because the role is open to various levels.”

Looking ahead to the law’s implementation in California, Limón said she anticipates some companies will post wide salary ranges, but “the keyword is ‘some.’” She believes most companies will be on board, if not due to the penalties for not complying, because of public pressure to comply.

“No law can motivate or encourage any business to do what's best for their employees,” Limón said. “However, I think that in a post-pandemic world where so many industries and sectors are looking for the best, most competitive, qualified workforce, it is going to work against them.?

“They are not going to be able to keep up with their competition that is posting more accurate reflections of a salary range. Employees looking for jobs that are aware of this will gravitate to employers who are more transparent and honest about what their salary package is.”

A search through New York City job postings shows that not every company has complied with the law. Though no civil penalty is in place for a company’s first violation of the law, not responding within six months of a violation notice can cost up to $250,000.

In California, the maximum penalty for a second violation is $10,000. California employers with more than 100 employees must also file an annual pay data report. The penalty for failing to file is $100 per employee on the first violation and $200 per employee for each subsequent year the company does not file.

This begs the question: Will this deter large companies with money to burn?

“I think the spirit of the law is very clear that it is not our desire for companies to find loopholes to skirt the law,” Limón said. “We have heard over the last two years how important it is for businesses to find the most competitive and qualified labor force. Part of how we reach that is really identifying what it will take for the employees to apply. So I think that it's really a combination of [the law and public opinion] that will motivate [employers] to be compliant.”

What Are the Effects of Pay Transparency Laws?

Clear salary ranges can show job seekers what their work is worth and people who already work at a company whether they are underpaid.

Women of color continue to see the largest wage gaps in the U.S., so these laws intend to help traditionally marginalized groups advocate for themselves during the salary negotiation process.?

“[This law is] giving women and people of color better tools to properly negotiate for a better salary,” Williams said. “We don't think it'll solve all of the issues around pay parity, but we hope and intend that it provides additional tools to support folks who are negotiating salaries and taking on jobs.”?

Though the New York City law has been in effect for less than a month, recruiters and human resources professionals are seeing benefits.

“From my own personal view, it’s exciting to see,” Stone said. “Instead of typically waiting until the end of a recruiting call to discuss compensation and to see if that conversation was even worthwhile, we can have that discussion up front.”

“I think this makes my job a little bit easier because for [my New York City clients, salary] is not really a discussion anymore,” added Paula Ciccimarra , the director of human resources at Answer Human Assets. “I don't want to waste my time sorting through candidates who in the end find out our range is way too low for them. So I think it'll take that one step away and just make the recruiting process much smoother.”

However, Ciccimarra said posting salary ranges can cause issues for smaller companies that can’t pay as much, especially if the salary is the only factor the job seeker is looking at.

“A lot of my clients are very small, and a couple of them are nonprofits, so a lot of times they can't really compete out there with salaries,” Ciccimarra said. “They worry that putting a salary range in there is going to automatically deter somebody from even applying. They would rather the candidate see and read the entire job description of the company and the cause, then the salary.”

What is the Future of Salary Transparency?

Public demand could spur more pay transparency measures. A survey published in April by software company Visier found that 79% of respondents said they want some form of pay transparency. Sixty-eight percent said they would switch employers for more pay transparency, even if the pay is the same.

Calls for salary transparency have encouraged legislation across the country. Some companies have also decided to implement salary ranges across the board, not just in areas where it is required. Companies like American Express and CitiGroup announced they would add salary ranges to all U.S. job postings.

“I definitely think more and more states will come on board, though it'll take time,” Ciccimarra said. “But I think if they see the other states doing it, employees will make noise and say, ‘Hey, when are we doing this?’ I think it will trickle around to other states.”

“I think that other legislators are already looking at something like this,” Limón added. “And I think given the fact that California is the fifth-largest — and perhaps becoming the fourth-largest — economy, there are many employers that already do this and will do this to comply with California. And so we do expect that there will be a ripple effect to many workers in this country.”?

Top Takeaways

Effects of Pay Transparency Laws

• Pay transparency laws try to help job seekers and underpaid workers understand what their work is worth and negotiate for the salary they deserve.
• Salary transparency makes the recruiting process smoother because salary conversations can happen upfront.
• Some companies have tried to circumvent the law by posting wide salary ranges. However, sometimes they do this because they are hiring at various experience levels, and the salary range is really that wide.
• Some hope that public opinion will pressure companies to comply with salary transparency laws even if the civil penalty doesn’t.
• Many people want more salary transparency, which could lead to the introduction of more measures. Some companies have already implemented salary transparency across the board.