Pay transparency is on the move again, with the latest step forward being the passage of a new fair pay law in the trend-setting state of California. It’s not only California. By now, every state in the US has legal requirements around pay equity, as does the EU and many countries around the globe. This in turn means a requirement for pay transparency, accountability, and legal reporting.
What do compensation teams and systems need to do to keep up?
California Senate Bill 1162, signed into law on September 27, 2022, requires employers to make salary ranges for positions available to both job applicants and employees and expands pay data reporting requirements to better identify and reduce gender and race-based pay disparities. The measure expands the mandated statewide pay data reporting to also cover contracted employees.
The bill requires employers with more than 100 employees to submit pay data reports that include the median and mean hourly rate for each combination of race, ethnicity, and sex within each job category. Failure to report can lead to a hefty fine. That means managing and analyzing a lot of data.
Transparency on pay ranges means managing a lot of data
California’s bill also requires an employer to provide to an employee, upon request, the pay scale for the position in which the employee is currently employed, and to include the pay scale for a position in any job posting. Third parties posting jobs would also be required to post the pay scale.
Further, the law requires an employer to maintain records of job titles and wage rate history for each employee for a specified timeframe. Failure to comply could result in civil penalties, and persons who are aggrieved by a violation of the provisions of the law can bring civil action.
Still not convinced you want to post salary ranges? Well, if you use a job posting site like Indeed, they may do it for you anyway. “Salary is one of the most important pieces of information that job seekers value when looking at a job, and having more insight into expected salary ranges is one of the top pieces of feedback that we receive from job seekers,” says Indeed. “We encourage all of our employers to include a salary range in their job description. Jobs posted without employer-provided pay data may result in an Indeed estimate to be displayed.” Employers will then have the chance to correct the ranges.
The many faces of pay transparency and equality
Legislators in the US and globally recognize that a lack of transparency around pay is one of the major obstacles to achieving equal pay, and are coming at the problem from a number of different angles. The goal generally is to make sure people – all people – are paid fairly for the work they do, vis-à-vis others. For example, there are requirements either in place or being considered for these different aspects of fair pay:
Equal pay for equal work: Requires that men and women in the same workplace receive the same pay for substantially equivalent work. In the US, the federal Equal Pay Act of 1963 established this requirement. Most European countries have some form of equal pay legislation, and in April 2022 the EU Parliament voted to enter into negotiations with EU governments on a European Commission proposal for a Pay Transparency Directive.
Pay disclosure: Requires employers to disclose information about salary ranges for open positions (externally) or existing positions (internally) to ensure pay is linked to job requirements and performance, and not to unrelated discriminatory factors. California, Connecticut, Colorado, Maryland, Nevada, New York, Rhode Island, and Washington have enacted pay disclosure laws.
Salary history: Prohibits employers from asking for salary history, as this practice tends to lock an underpaid person into lower pay, prolonging cycles of discrimination, rather than linking pay to skills and job requirements. Various US states, counties, and even cities have laws around this.
Pay equity reporting: Requires employers to analyze and disclose any pay discrepancies not attributable to valid reasons such as role, credentials, skills, or performance. California and Illinois have pay data reporting requirements. The US EEOC has gone back and forth on requiring this nationally via its “component 2” pay data reporting, which requires employee compensation information broken down by pay band, job category, gender, and race/ethnicity.
Fair pay reporting requirements vary – a lot
Pay equity is not the same as transparency, but visibility and insight into your employee data are required in order to ensure fair pay. This means, for one thing, testing your data for protected classes in order to assess whether or not your pay practices are unbiased and compliant in theory and in practice.
For each country and state, the reporting requirements can be different. For example, the California law requires that reports must be submitted in a format that allows the Civil Rights Department (CRD) to search and sort the information using readily available software.
As of April 2022, when Mississippi became the last US state to enact pay equity legislation, most states have been looking primarily at gender/sex, while some include race or ethnicity. But a few go quite a bit farther in designating protected classes.
Iowa includes age, race, creed, color, sex, sexual orientation, gender identity, national origin, religion, or disability. Colorado includes those categories plus gender expression and ancestry. Oregon includes marital status or veteran status.
New York also considers predisposing genetic characteristics, military status, familial status, marital status, and domestic violence victim status. New Jersey adds civil union status, domestic partnership status, affectional or sexual orientation, genetic information, pregnancy or breastfeeding status, atypical hereditary cellular or blood trait of any individual, and liability for service in the U.S. armed forces.
Clearly, employee demographic data must be carefully gathered, tracked, and analyzed in order to enable compliance with pay equity laws, as well as to conduct your own internal analyses. For any company operating in the US, compliance is greatly complicated by the differing state regulations.
What does pay transparency require of compensation management systems?
How does your compensation management system relate to pay transparency requirements? To do the necessary analysis and reporting in an efficient and reliable manner requires a robust, centralized compensation management system that can house the needed data and apply the appropriate analytic tools. Without it, HR analysts and compensation teams will be burning the midnight oil to produce reports that may be lacking in accuracy and auditability.
How beqom can help
The best pay equity strategies use tools that can gather, combine, and process all aspects of employee data. The recommendation engine behind beqom helps you to centralize all your relevant data into one universe for analysis. By applying business rules and AI/machine learning, beqom is able to produce the analysis your organization needs to identify current inequities and learn which attributes will lead to pay gaps over time.
The beqom total compensation solution lets you measure compensation across attributes like gender, age, and race, along with factors like job grade, performance, tenure, and location. It then produces actionable intelligence on how you can fix any issues and proactively stop them from happening again.
To discover how beqom can support your needs for providing pay transparency and equity, talk with one of our friendly compensation experts.