Everything You Need to Know About Salary Transparency

While many companies are still uncertain about the benefits of openly sharing what people earn, the time is quickly coming where they may have little choice.

Salary transparency laws have been on the books in some states for two years, but they haven’t had strict enforcement polices, and several companies have found workarounds. But the start of 2023 brought three more states on board: Rhode Island, Washington, and most importantly, California.

That follows salary transparency laws in New York that were signed into effect late last year (and are expected to go into effect this fall). More than 27 million people are employed in New York and California, according to the Bureau of Labor Statistics.  And with the bookend states focused on disclosure, it’s going to be a lot harder for companies to ignore the laws.

The number of states with transparency laws will continue growing as well. Hawaii and Chicago are considering them now, as are Connecticut, Massachusetts, New Jersey, Vermont, Virginia, West Virginia and Washington, DC.

That’s going to be quite a shift for some employers. A study by advisory firm WTW found 31% of business saying they aren't ready to comply with the laws and 46% said they’re doing so slowly, fearing possible fallout from current employees.

At present, most states require companies to offer “good faith” salary ranges for jobs. But the openness of that phrasing has led some companies to post ranges so wide that they’re functionally useless, often spanning $100,000 or more between the minimum and maximum fields.

Other businesses have opted to exclude applicants in states that have salary transparency laws. That’s going to be harder, though, as ignoring states like New York and California means companies will risk losing access to qualified applicants, who are increasingly migrating toward listings that highlight a salary range. Appcast, a job advertising platform, found that the cost-per-click for ads with pay listed in the title is about 35% lower than ads without pay information in the title.

"We expect the recent wave of pay transparency legislation to continue," Mariann Madden, North American fair pay co-lead at WTW, said in a statement. "Job seekers and current employees want to know and understand that they are treated fairly and are provided with equal opportunities to thrive and grow within the organization."

That said, the penalties for companies that continue to flout salary transparency laws remain fairly toothless. New York, for instance, does not charge a civil penalty for a company’s first violation, and subsequent ones are capped at $250,000. California has a threshold of $10,000, noting it will charge companies that do not file an annual pay data report $100 per employee on the first violation and $200 per employee for each year it fails to do so moving forward.

Part of the confusion and reluctance surrounding salary transparency is the lack of cohesion in the laws. Each state has slightly different requirements, which can make it something of an administrative nightmare for larger companies.

California requires employers with 15 or more workers to list salary ranges on job postings on a company’s hiring page or third-party job boards. In Washington, though, you also have to include ranges on print ads—and list any company benefits the new hire will receive. Rhode Island, meanwhile, doesn’t force companies to post pay ranges on job ads at all. However, they must comply when job applicants request the information.

This openness about earnings might be jarring for older workers, who were raised to keep salary information to themselves. But as millennials and Generation Z become more and more a part of the workforce, it’s likely to spread.

And proponents note that with that transparency, it will be harder for things like discriminatory wage practices and the gender pay gap to continue. It’s just a step, but it could be a powerful one.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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