California Law Could be a Tipping Point in Pay Transparency Movement
Workspan Daily
September 14, 2022
Key Takeaways

  • New California pay transparency law. California is poised to implement a pay transparency law that follows Colorado’s lead in requiring employers that operate in the state to provide salary range information on their job postings.  
  • Nationwide pay transparency strategy. The increasing commonality of distributed workforces combined with the breadth of talent residing in states with pay transparency legislation will force organizations to implement a nationwide pay transparency strategy. 
  • Avoid overly large salary ranges. Employers should work to develop precise, narrow ranges for job postings, as overly large salary ranges will have external and internal ramifications.  
  • Additional requirements. California’s law will go beyond providing salary ranges for job postings, as it also requires employers in the state to provide their median and mean pay gaps as well as a contractor pay report — both are first-in-the-nation requirements. 

California is the latest state to put forth legislation that requires organizations that operate in the state to become more transparent about their pay practices.  

The state’s legislature passed a bill on Aug. 30 that requires all employers in the state with at least 15 workers to include the hourly rate or salary range on job listings. The bill is expected to be signed into law by Gov. Gavin Newsom later this month and employers will be required to comply with the legislation beginning Jan. 1, 2023.  

California would become the seventh state to enact a pay transparency law, joining Washington, Nevada, Connecticut, Maryland, Rhode Island and Colorado. Maryland requires pay to be disclosed for job postings upon request, and Connecticut, Nevada and Rhode Island require disclosure during the hiring process.  

California’s law follows Colorado, which went into effect in January 2021, and New York City, which goes into effect in November, in that it specifies that employers must provide salary information on the job postings themselves.  

While pay transparency has become more en vogue in recent years, the California law could serve as a tipping point for many organizations, as it represents a significant expansion of talent — 19 million workers — who will now be covered under such legislation.  

“Employers are going to have to start looking at having a nationwide approach to pay transparency,” said Christine Hendrickson, vice president of strategic initiatives at Syndio.  

Another element that expedites the nationwide approach to pay transparency is the increasing commonality of distributed workforces. The core principles of compensation strategy have been challenged by this new remote work reality, including how to address geographic pay differentials. Expanding pay transparency legislation forces the hand of many employers from a business standpoint, as failure to comply dramatically shrinks the talent pool from which an organization can hire from.  

Initially, some large employers skirted the Colorado law by indicating in job postings that the remote position was not available to Colorado applicants. Hendrickson noted that this was likely a stopgap measure by organizations that weren’t prepared for the fast-moving legislation in the Centennial State. With the widespread legislation across the country that is forthcoming, that is no longer a prudent strategy for top organizations.  

“It’s one thing to say you’re not going to hire folks that are based in Colorado,” she said, “but if you’re also excluding candidates in California, New York City, Washington and elsewhere, then it becomes a pretty unsustainable process and you’re just shrinking your labor pool.”    

Salary Ranges  

As organizations and compensation professionals in particular work become more transparent about how they pay, compensation experts agree there are various pitfalls to avoid.  

Most prominent, perhaps, is to eschew overly large pay ranges on jobs. Boyd Davis, global head of compensation planning at Unit4, shared an example of a client that had a pay range for one position from $100,000 to $250,000. As Davis notes, a pay range this large has ramifications both externally and internally.  

“Try to explain that when ranges are published,” Davis wrote. “Many senior leaders rose to their position in an environment where pay was quite secretive, and they are resistant to changes that the compensation team wishes to make.”  

Hendrickson echoed Davis’ sentiments,  stating that when candidates come across job postings with inflated pay ranges, they are far less likely to apply.  

“These larger ranges are really turning off job applicants,” Hendrickson said. “There’s a natural incentive to avoid those expansively wide ranges and I would bet we’ll see a narrowing of those ranges due to those downstream consequences.”   

Hendrickson added that expansive ranges make it far more complicated to explain to both prospective and existing employees where they sit on that range and why. To provide narrower and more accurate pay ranges, organizations need to be diligent in evaluating compensation throughout the year if they aren’t doing so already, Hendrickson said.  

“Employers need to own their own narrative in how they’re going to approach ranges,” she said. “Have a very clear understanding of what your roles pay and then also why folks fit in at various points in that range. If you post these expansively large ranges, I think employers are going to regret it.”  

Additional Requirements  

California’s law will go beyond providing salary ranges for job postings, as it also requires employers in the state to provide their median and mean pay gaps as well as a contractor pay report — both are first-in-the-nation requirements.  

The median and mean pay gap is not about equal pay for equal work, but rather equal access to opportunities, Hendrickson explained. As an example, if an employer has more women working in its HR department and more men in its IT department and the pay disparity for those roles are significant, it will show up on the median pay gap.  

Additionally, employers in California that have more than 100 contractors will have to file pay reports for those workers. This means organizations will have to gather pay and demographic information from staffing companies, which has never been a requirement.  

This, of course, will be especially relevant to large California-based tech companies such as Apple, Google and Meta, which have sizable gig workforces. It’s unclear how the law will apply to other companies such as Uber, Lyft and DoorDash, which have a majority of workers classified as independent contractors.  

“California is either first or they’re playing catchup and adding on these additional things,” Hendrickson said. “Two to four years from now, the discussion is really going to be around those two things — how we pay contractors and how that aligns to paying employees in an organization and then this focus on equal access to opportunities.”    

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