With little action happening at the federal level on pay-equity legislation, the issue is following the same path as other popular labor issues like minimum wage and paid sick leave: State and local governments are deciding to take action. But as more state and local municipalities prohibit questions about job candidates’ salary history, multistate employers are being left in a compliance lurch.
Proponents of the bans advocate that eliminating salary history from the job-negotiation process protects women who have a history of past wage discrimination, also known as the “carried-over effect.” If a starting salary is based on a candidate’s previous salary history at an employer where wage discrimination may have occurred, the discrimination carries over to the new salary and is perpetuated over time.
On the other hand, opponents argue that knowing salary history is important for efficiency and in determining how to make the most competitive offer to a candidate.
Is there a right or wrong answer in this debate? The answer, inevitably, is that it’s complicated, and it likely depends on the long-term effect — which won’t be known until research is conducted to analyze the gender pay gap after these laws have been in effect for some time. For total rewards professionals eager to stay in compliance with the law, it’s important to know whether these bans will impede your work, and think about where the profession should stand on this increasingly debated issue.
Massachusetts was the first state to pass a law prohibiting employers from asking job candidates about salary history, including compensation and benefits information. The state law received bipartisan support and was signed into law by Republican Gov. Charlie Baker on Aug. 1, 2016, and goes into effect on July 1, 2018. The effort has been seen by many as a blueprint for how other states and cities can combat gender pay discrimination.
The Massachusetts law permits candidates to voluntarily disclose their salary history if they choose, and employers can verify this information once an offer of employment is made to the prospective employee.
Since the Bay State passed its ban, many others have followed suit: At publication, California, Delaware, New York, Oregon and Puerto Rico have passed similar laws. Oregon’s law was the first to be enforced, having taken effect on Oct. 6, 2017. However, employers can’t be sued under the law until Jan. 1, 2019. Delaware’s ban took effect on Dec. 14, 2017, and the remainder are going into effect this year.
At the city level, New York City, Philadelphia, Pittsburgh and San Francisco have passed ordinances that make it illegal for employers to ask candidates about salary history, although some of these bans are limited to city employees. The city of Philadelphia’s ordinance already has been challenged in court, and it is unclear when or if it will be enforced.
It's important to know whether these bans will impede your work, and think about where the profession should stand on this increasingly debated issue.
Enter the Fray
Not surprisingly, employer groups aren’t keen on the new bans. In California, a coalition of business groups led by the California Chamber of Commerce sent a letter to members of the state Senate urging senators to oppose AB 168, the legislation, now law, prohibiting employers from asking about salary history.
The letter argues that “salary data can be utilized as a reference regarding whether the employee’s expectations of compensation far exceed what the employer can realistically offer. Requiring both the applicant and employer to waste time on the interview process which, for highly compensated employees, could be lengthy, to then ultimately learn at the end of the process that the employee would never consider taking the compensation offered is unnecessary.”
Other arguments against these bans include:
- Employers in competitive industries use salary and total rewards as a competitive advantage and want to offer top talent an enticing rewards package. Not knowing a candidate’s rewards history and preferences hampers an employer’s ability to offer a competitive rewards package.
- State and federal laws already prohibit gender-wage discrimination. These bans aren’t necessary, and there’s no evidence they will reduce the gap.
WorldatWork’s Pay Equity Statement
WorldatWork released its pay equity position statement in 2016. The goals were to outline where the association and the profession stand on the issue of pay equity, and the role compensation experts should play in the ongoing debate about how the federal government should enforce pay-equity standards. Approved by the association’s board of directors in February 2016, the statement is regularly reviewed and updated. At the time, the consensus among WorldatWork compensation experts was that the association should oppose public policies that prohibit employers from asking candidates about relevant total rewards history:
WorldatWork believes employers should have access to all relevant employment information when determining compensation for an individual during the hiring process. It is not the intent of our profession to continue past pay inequities when hiring new employees. Compensation should be tied to the specific job and market forces that dictate the rate of pay for that job. In order to make a compelling offer of employment to candidates, WorldatWork opposes policies that prohibit employers from requesting a job candidate’s total rewards history during their consideration and interview process.
Does this statement reflect where the profession stands today? As more states and cities implement laws prohibiting the use of salary history, will this practice evolve? A recent WorldatWork survey on pay equity practices found that 15% of organizations are no longer asking about job applicants’ salary history. The association will continue to survey its members to see if this data point increases over time as more local laws go into effect.
Pay Expectations and Salary Ranges: A Good Move?
Many of the state and local laws prohibit employers from asking potential candidates about salary history, but do permit questions about salary expectations or requirements. Along with erasing concerns about past salary disparities, asking about salary expectations allows candidates to control their own negotiating position. It also puts them in a position of needing to know their own worth and the demands of the market.
Does this sufficiently counter the business argument that not having salary history information creates undue burdens and inefficiencies in the negotiation process? What happens when a candidate makes it all the way through the interview process only to find a $30,000 disparity in terms of expectations and actual salary range?
The interview process needs to include some way to determine whether the employer and the prospective employee are in the same ballpark in terms of salary. Who should disclose first? The employer revealing the salary range for the position, or the candidate expressing his or her desired salary expectations?
This push and pull may be addressed in more recently passed state laws. For example, California’s newly passed law requires employers to provide applicants with the pay scale for the position. The law doesn’t define pay scale, but the language does indicate that the legislature expects employers to provide prospective employees with some pay information if it is reasonably requested.
Playing by the Rules
Organizations operating in the jurisdictions that have passed bans prohibiting employers from relying on or asking questions about salary history need to ensure they update their hiring practices and educate hiring managers. Because laws differ between states and cities, organizations need to determine how they best want to approach compliance. Will it work for your organization to have different hiring practices in different locations?
It’s also worth considering whether it’s a smart strategy to change your hiring practices entirely and completely stop asking candidates about salary history regardless of where you do business. This will save employers from having to ensure that their practices are in check with each local law.
Employment applications may need to be updated, and hiring managers need to be educated on how to:
- Approach salary negotiations
- Ask about salary expectations
- Respond to pay-scale questions from job applicants.
When pricing jobs, it’s important to rely on market data and salary surveys. This data can help both employers and employees in determining an equitable range for a given position, and it removes any consideration of past earnings. Fine-tune your compensation strategy. Communicate and educate employees so everyone understands how your pay guidelines work and enhance your overall business goals.
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