Pay transparency has become a pivotal discussion point among employers, employees, and legislators. This practice, which involves the open communication of salary information, is reshaping recruitment dynamics, employee satisfaction, and legal compliance. As businesses strive to meet the demands of a new generation of workers and navigate an increasingly regulated environment, understanding the nuances of pay transparency is more crucial than ever.

What is Pay Transparency?

Pay transparency is when an employer openly communicates pay-related information to current or prospective employees through established practices. Employers can provide this information through various channels, such as online job sites, job postings, or during an interview.

What are the Pros and Cons of Pay Transparency?

Pay transparency affords an excellent opportunity to cultivate trust and strengthen relationships with current employees, even if your compensation is less than your competitors. It can also help streamline your recruitment efforts and help ensure that candidates applying for the job are willing to work for the indicated pay. In addition, embracing pay transparency makes your company more attractive and can reduce time-to-hire. Finally, even when not required, providing this information can help you stay ahead of pay disclosure mandates.

On the other hand, implementing pay transparency practices comes with financial and legal risks. Many employers are hesitant to enact such measures because they are concerned about how existing employees may react. After all, pay transparency can reveal unintended pay gaps and trigger more questions from current workers. In addition, providing this information can leave organizations vulnerable to pay equity lawsuits. Businesses should carefully consider the benefits and disadvantages of implementing pay transparency practices.

Do Employees Want Pay Transparency?

The tight labor market has led employees to make new demands, including pay transparency. Pay-related websites, such as Glassdoor, have helped normalize salary transparency as an integral part of an individual’s employment search and facilitate employee-driven conversations about pay. With a growing number of millennials and members of Generation Z in the workforce, these younger generations and entry-level employees have a different take on compensation.

A recent survey by Gartner found that job seekers consider the estimated compensation before applying.  

44%¹ of candidates will only apply for a position or attend an interview if they know the salary band and 50% have completely abandoned an application or interview process because the pay did not meet their expectations.

Salary information is vital to job applicants because they want fair compensation. Applicants also view pay transparency as a way to develop trust with their potential employer from the outset of the employment relationship.

Which States and Cities Require Pay Transparency?

California, Colorado, Connecticut, Hawaii, Maryland, Nevada, Rhode Island, and Washington have passed pay transparency laws in recent years. In addition, some cities have adopted pay transparency laws, including Ohio—Cincinnati and Toledo; New Jersey—Jersey City; New York—Ithaca, New York City, and Westchester County.

Employers should be aware that pay transparency laws vary by jurisdiction. Some jurisdictions only require employers to provide pay ranges if the candidate requests them, while others require employers to disclose them upfront, as evidenced by California law. 

Pay transparency can foster a more equitable work environment, reduce gender and racial pay gaps, and align with the expectations of a new generation of workers. Employers who adopt pay transparency practices may find themselves in compliance with legal requirements and become more attractive to potential employees. It's about committing to fairness and trust in the employer-employee relationship.

This publication is distributed with the understanding that CBIZ is not rendering legal, accounting, or other professional advice. The reader is advised to contact a professional before taking action based on this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.