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States Leading the Way in Push for Pay Transparency

Editor’s Note: Workspan Daily will be publishing monthly columns fromFortney Scott for the benefit of our readers and to encourage further discourse on topics vital to workplace equity, employment law and compensation professionals. New to WorldatWork? Please feel free to join the discussion in our new online community,Engage, or send your thoughts

Over the past several years, widespread social justice movements demanding pay equality, along with the high-profile equal pay litigation involving the U.S. women’s soccer team, have created a groundswell of support for new pay equity and pay transparency legislation.

While President Biden has made clear that closing gender and racial wage gaps will be a priority for his administration, thus far his attempts to pass new legislation have stalled. Instead, state policymakers have continued leading the charge on pay equity, passing new, more progressive laws that place an emphasis on increasing pay transparency in the workplace.

To date, the legislation falls into two broad categories. One set of laws require employers to disclose wage ranges to prospective or current employees, with the other legislative approach requiring employers to report wage data to the state government. In either case, employers should expect increased scrutiny and visibility of their compensation practices going forward, as these trends are expected to continue at the state level.

A Shift Toward Mandatory Disclosure of Wage Ranges

Ever the leader in employment legislation, California was the first state to pass a law requiring disclosure of wage ranges to job applicants. The law, which became effective in January 2019, requires California employers to provide prospective employees with a pay scale for the position they are seeking, provided the applicant has completed at least one interview for the role and specifically requests the information.

Following California’s lead, Washington state enacted a variation of this approach in mid-2019, giving job applicants the right to request salary information for the position after a job offer is made and internal applicants the right to request a wage scale or salary range if they are “offered an internal transfer to a new position or promotion.”

More recently, states enacting wage range laws have taken the added step of making the disclosure of the ranges automatic. Colorado provides the most dramatic example by forcing employers to place wage range information in the public domain. Under a provision of Colorado’s Equal Pay for Equal Work Act, effective as of Jan. 1, 2021, employers are required to “disclose in each posting for each job opening the hourly or salary compensation, or a range of the hourly or salary compensation, and a general description of all of the benefits and other compensation to be offered to the hired applicant.”

This law even covers job postings for positions which could be performed remotely in Colorado. To avoid coverage under the Equal Pay for Equal Work Act, some employers created job postings which explicitly excluded Colorado applicants. This prompted the Colorado Department of Labor and Employment to issue guidance explaining that all jobs which can be performed in Colorado are covered, regardless of any disclaimer in the job posting.

Other states took less dramatic approaches to mandatory wage range disclosures. Earlier this year Connecticut and Nevada began requiring employers to automatically provide job applicants with wage or salary ranges for the position. In Nevada’s case, job applicants must receive the information after the first interview. In Connecticut the information must be provided either when an offer is made or at the request of the applicant, whichever is earlier.

Both states extend similar rights to internal candidates for transfer or promotion and Connecticut even allows employees to request a wage range at any time. A similar law goes into effect in Rhode Island in 2023 and more states are likely to pass legislation in the coming years.

Pay Data Reporting Laws

In 2019, the Equal Employment Opportunity Commission (EEOC) discontinued the collection of EEO-1 Component 2 pay data, which had required all private sector employers with 100 or more employees, and federal contractors with 50 or more employees to submit detailed pay data reports sorting employees by EEO-1 job categories, as well as by gender, race and ethnicity. In announcing the termination of the reporting requirements, the EEOC cited the significant burden it placed on employers as well as the questionable utility of the data.

Despite this pause in pay data collection, there is no doubt that the Biden Administration intends to reinstitute some form of pay reporting as part of its efforts to combat pay inequality. The only question that remains for employers is whether the EEOC will renew the Component 2 data reporting requirement, or utilize a different method for collecting pay data.

In this regard, the EEOC has funded an independent study being conducted by the National Academies of Sciences, Engineering and Medicine, to analyze the “quality and utility” of the Component 2 data that was collected. The study, which is slated to be finished by the end of this year, should provide the EEOC with valuable information as it considers what future pay reporting requirements will look like.

While employers wait on new federal pay reporting requirements, states have started passing their own legislation requiring employers to submit pay data.

Once again, California led the way. In September of 2020, California Governor Gavin Newsome signed legislation that essentially continued the EEO-1 reporting requirements for California employers. As a result, California employers with 100 or more employees are now required to submit annual pay data reports, which sort employees by job category, pay band, gender, race and ethnicity, to California’s Department of Fair Employment and Housing, which will use the data provided to identify wage patterns and enforce equal pay laws.

Earlier this year, Illinois followed suit enacting its own pay reporting requirements as part of a broader amendment to the Illinois Equal Pay Act. Moving forward, the new law will require Illinois employers with 100 or more employees to apply for an “equal pay registration certificate.”

In order to apply for certification, employers must submit a report listing employees separated by gender and race/ethnicity categories and the total wages paid to each employee. Additionally, employers must also provide a compliance statement signed by a corporate officer or legal counsel, which, among other things, must certify compliance with the Illinois Equal Pay Act and that the average compensation for the employer’s female and minority employees is not below the average compensation for male and non-minority employees.

Notably, California and Illinois are not the first states to require some form of wage reporting. Since 2014, Minnesota has required state contractors with 40 or more employees to certify compliance with state’s equal pay laws and to submit data showing wage ranges for each job title.

However, unlike the newer laws, Minnesota only requires covered employers to break down pay data by gender, race and ethnicity if the state requests this information as part of an equal pay audit. The broader scope of the California and Illinois requirements exemplify the recent trend toward greater pay transparency.

Although not as prevalent as the pay disclosure laws, pay data reporting requirements are another tool being used by state policymakers in their efforts to drive pay transparency and combat pay inequality. As a result, employers should expect that other states may join this trend in the future.

All signs point toward a continuation of the recent trends in state-level pay equity laws. As a result, the onus will fall on employers to navigate the growing patchwork of state laws in order to determine what requirements apply to them, and to ensure compliance moving forward.

Additionally, with the increased focus on pay transparency, employers will be well-served to conduct annual pay equity analyses to identify, and if necessary, correct any unexplained disparities. Such analyses should be conducted pursuant to the attorney-client privilege.

Relevant WorldatWork Resources:

About the Authors

John Clifford is counsel at Fortney Scott LLC, and is a member of the firm’s pay equity practice.

Savanna Shuntich is an associate at Fortney Scott, LLC, and is a member of the firm’s wage and hour practice.

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