With the recent passage of the Pay Transparency Act (PTA), and one provision set to take effect Nov. 1, employers and their recruiters will have to change how they communicate about pay when recruiting.
Employees will gain new rights to information which should help them learn more about the pay offered for a job when they first consider applying. But the new rules will prove impractical for some employers and may not ultimately provide much useful pay information for some job postings.
The first phase of the PTA will:
- from Nov. 1, 2023, require employers to post pay or pay ranges for all jobs;
- prevent employers from trying to stop employees from sharing pay information or discussing their pay; and
- prevent employers from asking job applicants about their pay at their current or other past employers.
These changes are intended to ensure women and minorities are better able to negotiate fair pay equivalent to that earned by men. But nothing in the PTA limits the benefits of these new rules to members of those groups.
Here are a few major impacts we expect to see under the PTA.
Impact 1: Smaller employers will have to consider and post a pay range for each new job
It is fairly common for small and medium-size employers (SMEs) to be vague about compensation in their job ads, sometimes with a view to attracting applications by candidates who may expect higher salaries than the SME can offer. This is done in hopes of convincing them through the interview process that other aspects of the job/firm outweigh the lower pay. For the applicant who does not want to waste time in applications and interviews for a job paying below their minimum requirement, in theory, the new pay range requirement will save time.
The flip side is that the applicant may miss out on a good opportunity – e.g. the start-up that while offering a lower salary range offers low-price options or room for faster advancement not available at most larger employers because the applicant never arranged a first interview to learn about these advantages.
For small firms hiring their first employee in a new role (e.g. their first HR manager), the requirement to post a salary range can be onerous. Sometimes the employer really does not know what is fair pay for a new role and is willing to negotiate with the right candidate. These employers will have to do some homework first in order to establish a pay range to post. Recruiters and HR compensation consultants can provide this insight, along with other hiring services.
Impact 2: Reduced confidentiality of pay
Employers who fiercely protect the confidentiality of pay for each employee and have a policy or even a contractual clause prohibiting discussion of pay, including bonuses, amongst employees or with candidates will not like the PTA. Many do not want employees comparing pay rates with each other. Some want to protect pay rate information from competitors seeking to recruit their employees. Under the PTA, these employers must drop these policies/clauses as they infringe the PTA.
While this probably benefits employees globally, including women and minorities who often earn less but are said to be more reluctant to ask about pay rates or lack sources of pay information, this new requirement to post pay ranges and allow employees to discuss their pay means competing employers (and their recruiters) are better able to gather intelligence on pay scales and target “underpaid” employees for recruitment with higher pay.
Sandra Reder, founder of Vertical Bridge HR, predicts that in cases where existing employees see a job posted with pay scale higher than what they are earning in the same role, there is going to be unhappiness and demands for pay increases.
Impact 3: Expect wider pay ranges in some job postings
Employers who prefer to keep pay rates confidential from co-workers and competitors may decide to post very broad pay ranges to make it difficult for competitors and co-workers to really know the pay offered and/or to attract a broad range of candidates. SMEs with limited information about the “going rate” for a job may also post very broad ranges so that they have plenty of flexibility to set pay according to the qualifications of the candidate. Thus ultimately, posted pay ranges may not be very meaningful for some employers.
Impact 4: Employers are unable to calibrate a pay offer to existing pay
It has been fairly common for employers to ask an applicant what they are making now in order to allow the new employer to ensure the amount offered is an increase or is close enough to existing pay to make the offer attractive. Under the new rule banning such enquiries, employers will have to formulate pay offers without this key information. In cases where an employee rejects a pay offer as “less than I am making now,” a skeptical employer may want to respond that they would only consider increasing the offer if they received verification of such higher earnings – but without explicitly asking for it.
Leah Rubin of Foundation First HR points out that often applicants may hold a title which might imply an existing pay rate they do not, in fact, have. So attempting to make a fair pay offer based just on the title the applicant holds exposes the hiring employer to the risk of overpaying.
Overall, the PTA should improve competition in the labour market, in particular by allowing both job applicants and incumbent employees in a similar role to gather better information about pay rates and thus ask for and get higher pay. Capitalist market theory says this will ultimately lead to higher overall wages and higher pay for the most qualified/in demand talent.
These new rules will only have a modest impact on publicizing possible pay inequities between genders or other groups. For many larger employers who have always posted pay ranges, the PTA adds no new information. Anyone monitoring for pay inequity would have to constantly record job postings, including job duties and the pay range, over many years and then attempt to analyze the data for examples of pay discrimination based on sex or other grounds.
Still to come under the PTA are regulations which will require employers down to 50 employees in ÎÚÑ»´«Ã½ to post aggregated information about pay received by various levels or categories of employee with breakdown by gender and potentially other criteria.
The content of this column should not be considered legal advice.
J. Geoffrey Howard ([email protected]) is the founder of Howard Employment Law.
