How Pay Transparency Laws Impact Business—and Workers

The process of job hunting is exhausting, and can leave you with many unknowns. Alaina, an Alaina-based biotech sales representative in Denver, Colo. was looking for work online over the last year. She found at least one thing she wanted: a salary. Colorado’s Equal Pay for Equal Work Act was enacted in Jan 2021. Sponsored by four female Democrats, it requires job listing sites to list compensation information. The only U.S. State to require this transparency is Colorado. New York City, however, plans to adopt its pay disclosure law on Nov. 1, 2022. This will force companies that have more than 4 employees to disclose their salary ranges.

The New York law was initially set to take effect on May 15, 2022, but after pushback from businesses in late April, the city council delayed the start date to November 2022, and amended the law to only apply to hourly and salaried positions that are physically performed in New York City—showing how controversial this type of legislation can be.

For job hunters like Alaina (who asked for her first name to continue her job hunt), transparency can be an asset. It makes the search more efficient—and clarifies some big question marks well in advance of putting together a cover letter and going through an interview process.

Gapsquare and XpertHR, workforce analytics firms, have released a new report that found over 80% of U.S. employers had done pay equity audits. This shows the importance of legislation to balance the system. For businesses and HR departments, pay transparency is a needed reminder to keep equity at the fore—but, as companies in Colorado have discovered, it’s also a big operational headache.

Ben Wright founded Velocity Global eight years ago as “kind of an Airbnb” for helping businesses set up the structure for international workforces. “We’ve got the platform to ensure that you are hiring, paying, onboarding people, literally anywhere on the planet, 185 countries, all 50 United States,” he says over the phone from his home base in Denver, Colo. Velocity Global employs about 1,000 people globally itself—many based in Colorado, which Wright describes as “generally a business-friendly state.” Pay equity has been central to his business since the get-go, he says, so when the law came into being, he fully understood the intent. However, the process of applying it has proven difficult.

“Out of the gates, suddenly, every job posting had a salary, right? You cannot paint every single person in every single job with that same brush,” he says. “Maybe you’ve got somebody on board who is less experienced or had a change of career. So we’re not necessarily going to pay as much. But you’ll earn your way into a better salary if you succeed.” With the new law, that flexibility is limited. “It just created so much angst and anxiety across the board. We lost some good people because of it,” he says; some employees exited after adjustments were made. “Frankly, we actually limited our ability to go get people at higher compensation, who we would have wanted to be in those roles, because they look at it and you have to pick a standard pay for that role,” he says.

Wright suggests that the Colorado law is too expansive, given the widespread acceptance of remote work in companies. “What you pay somebody for a job in Denver is completely different from what you pay somebody in London is completely different from what you pay somebody in Kuala Lumpur,” he says. Plus, Wright says most countries don’t have similar regulations—even worker-friendly populist states like Brazil and France. Canadian businesses based in Ontario have to disclose the ranges of salaries on their listings. The EU, however, is looking into similar legislation. Some countries, such as Norway and Denmark have already made salary data available to the public upon request.

Over at the Colorado Chamber of Commerce, President and CEO Loren Furman shares some of Wright’s concerns. “This statute has probably caused some of the most consternation to Colorado employers, more than many of the laws that we’ve seen over the last couple of years,” she says. The bill itself has good intentions, she says, calling it “fairly innocuous” in its early stages in 2019, especially in a pre-pandemic environment where remote work was less of a norm. “When the statute got interpreted through rulemaking, it got a lot more complicated and stringent on employers, and a lot more requirements than I think any of us anticipated,” she says. In the most recent legislative session, the Chamber was working with the governor’s office to change the statute to make it less onerous for employers to adapt to. In a tough hiring market, “it’s a workforce problem for the state of Colorado,” Furman says.

However, the ultimate effect is? “It increased compensation, on average, across the board,” Wright says of his employees’ new conditions. “If they win, we all win. That’s all great. But you know, it’s also within the confines of whether the organization can continue as a profitable enterprise.” He says Velocity Global is “slightly less profitable” as a result. To manage this transition they had to spend more on HR and lost some staff. “Equal pay is important. I just think there’s more thoughtful ways to go about implementing such a thing,” he says.

While Wright says that the business leaders he’s spoken with have been “quite upset” about the legislation, a sentiment echoed by Furman, not all companies begrudge the change. StoneAge Tools stands out as an unusual industrial cleaning company. It is 100% employee-owned with an employee stock ownership program, or ESOP. Based in the small town of Durango, Colo. (“Go to the middle of nowhere and hang a left,” jokes director of human resources Betsy Fitzpatrick), it’s the type of company that has always been unusually transparent in its finances, with about 160 employees. “I initially viewed the Equal Pay for Equal Work Act as a negative, but I now appreciate the accountability it creates,” says CEO Kerry Siggins. To ensure compliance with the act they benchmarked every employee in the company and discovered a disparity in the wages of lower-paid employees. The new minimum wage was $20 per hour. “I am proud of these changes,” Siggins says.

Fitzpatrick was the HR director. He says the adaptation to new laws has been worthwhile. “I had already been anticipating it for a couple of years,” Fitzpatrick says. Her advice to HR managers preparing for changes: “Don’t be reactionary, be proactive.” She recognizes that the intention is to “correct a very long legacy of discrimination and unequal treatment in the workplace. And so for me, I don’t begrudge work that is of that nature. So embrace it.”

It also restricted the candidate pool for hiring and recruitment. Siggins says that candidates tend to “self-select” when they have the available compensation information. Now, pay conversations are held in the first round rather than at the second or third interview. “They’re not going to waste their time with us, and we’re not wasting our time either,” she says.

That’s certainly been the case for Alaina, the biotech sales job seeker. Her salary expectations were quite standard for the industry. “I really, really, really like this law,” she says. “Companies are now having a really hard time keeping Millennials. We have been screaming from the top of our lungs for the last five, ten years that we don’t feel appreciated.” This helps level the playing field between employers and employees, she says. “It makes workers feel like they’re not getting the short end of the stick.” Pay conversations have become much more normalized amongst her peers over the past few years, and this just adds to that trend.

Alaina believes that the next position she will hold is a better one. Alaina is closing in on her job search and expects to sign a contract within the next few days. “And I will be making a lot more,” she says, proudly. Although New York City delayed the law’s implementation, workers could find themselves in similar situations to Alaina when they finally take effect next autumn. They will be equipped with more knowledge and better able to negotiate for higher wages.

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