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Salary History Bans and Pay Transparency: What Business Owners Need to Know

Pay equity continues to be a hot topic in the United States. The U.S. Department of Labor (USDOL) reported in 2022 that women across all categories earned only 83% of what men were paid. Despite this, progress is being made in addressing pay discrimination at the state and local levels. In 2023, several new regulations aimed at closing the pay gap will take effect, and business owners should take notice.

Pay Transparency

One way states and localities have addressed pay discrimination is by requiring employers to disclose information about employee pay ranges. Seven states and several local jurisdictions have laws that require employers to be transparent about pay ranges and scales, with amendments in Rhode Island, Washington, and California taking effect this year. These regulations require employers to post pay ranges on job postings and provide pay scales to candidates and existing employees who apply for open positions.

While pay transparency is a powerful tool for discouraging discrimination and building a company culture of trust and honesty, it can also present challenges for employers, including:

  • Employee relations – Pay transparency regulations may lead to increased employee complaints and dissatisfaction, particularly if employees feel that they are being paid unfairly in comparison to their peers.
  • Data collection and analysis – To comply with pay transparency regulations, employers may need to collect and analyze data on their current pay practices. This can be a complex and time-consuming process, especially for larger organizations with multiple locations and a diverse workforce.
  • Legal issues – Employers may face legal challenges if they are found to be in violation of pay transparency regulations. Penalties for non-compliance can include fines and penalties, and employers may also be at risk of being sued by employees for discrimination.

Salary History Bans

Some governments have addressed pay discrimination by adopting salary history bans, which forbid employers from asking potential new hires about their compensation in previous roles. These laws are meant to prevent employers from considering a candidate’s prior compensation when making an offer and thereby perpetuating a cycle of discrimination. As of 2022, there were 21 state and 21 local salary history bans in place across the country. Penalties for violating these bans can reach up to $250,000.

The Bottom Line

As 2023 starts, employers need to stay informed about continued legislative efforts to mitigate pay discrimination across the country. It’s not just the right thing to do—it can also be a strong recruitment and retention tool for your business. By ensuring pay equity for all employees, you can help to attract and retain top talent and maintain a fair and just workplace.

But staying on top of changing regulations isn’t easy, and that’s where partnering with a PEO can help. If you need help resolving compliance issues, designing employee handbooks, or navigating the complexities of HR more generally, please get in touch!

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