What is pay transparency? Everything HR pros should know

More than one-quarter of the US labor force is now entitled to see expected salary ranges when they apply to jobs, thanks to pay transparency laws that have taken effect across eight states and several jurisdictions.

It’s too early to know whether these new laws will have the intended effect of reducing pay inequities, experts told HR Brew. But it’s already changing the way HR pros decide and talk about compensation.

Goals of pay transparency

While federal law prohibits compensation discrimination on the basis of sex, race, or disability, pay gaps in the US persist.

Women earn around 80 cents for every dollar earned by men on average in the US—a gap that has remained fairly consistent over the last two decades. Additionally, white and Asian American workers earn more, on average, than their Black, Hispanic, and Native American counterparts, per BLS data.

Over the last decade or so, legislators have sought to address these disparities with laws banning employers from asking about salary history, as well as policies requiring companies to report pay data broken down by role, sex, and race/ethnicity.

Pay transparency laws are part of a second wave of legislation that specifically focuses on achieving equity, Helena Almeida, vice president-counsel at ADP, told HR Brew. Policymakers advocating for these laws—which are now in effect in California, New York City, Colorado, and Washington State—posit that if job candidates know appropriate salary ranges, they’re in a better position to negotiate, making it harder for employers to perpetuate disparities, Almeida said.

“It’s shedding light on a practice of how pay is set at companies so that the applicants and employees have a basis to negotiate for their best outcome,” Almeida said.

Impact on employers and HR departments

State and local pay transparency laws are having a nationwide impact, given they’re being passed “at a time where we’re also seeing…a significant uptick in workers going remote,” Almeida said.

If an employer is hiring for a remote role and doesn’t know where the employee will be based, they’re likely to comply with stricter pay transparency requirements, she added: “Otherwise you’re playing Whac-A-Mole and trying to change your job application posting by jurisdiction.”

Given so many employers have a presence in jurisdictions like California and New York, where pay transparency is now required, “it’s really become something that everyone needs to think about,” said Megan Nail, VP of total rewards practice with NFP, a benefits consultancy.

The laws are forcing employers to think more deeply about how they pay and why disparities exist within their organizations, Nail said. If an employee approaches their manager because they realize they’re being paid less than similarly situated colleagues, HR pros should be ready to have that conversation, she added.

She advised HR to train their managers to answer questions about pay ranges, including explaining how they were created, on what criteria they’re based, and what skills employees need to develop in order to advance in their roles.

As more data becomes publicly available on how companies pay their employees, some employers are starting to use that information to inform competition for talent, as well, Almeida said; if they can’t raise wages to better align with their competitors, they might consider boosting their total rewards to attract employees.

“It’s not purely a pay issue,” she said.

Does pay transparency reduce pay disparities?

Given most pay transparency laws took effect within the past two years, it may be too early to tell how successful they’ve been in reducing compensation inequities.

Revelio Labs documented some promising results with regard to the gender pay gap in the state of Colorado, which enacted pay transparency in 2021. Between January 2021 and January 2023, the share of women being hired into upper-management positions increased from 41.5% to 43.8%, overtaking nearby states with similar shares of female workers. This suggests seeing more information about pay may give women “that additional push to perhaps go ask for that promotion, go ask for another, higher title,” Lisa Simon, senior economist with Revelio, told HR Brew.

In nearly two dozen US metro areas, the pay gap has closed entirely for women under the age of 30, where they earn the same amount or more than their young male counterparts, according to a 2022 Pew Research analysis of US Census data. However, Pew added, research suggests that the pay gap widens as women age, which may help explain why it persists at the national level.

One study suggests pay transparency may have unintended negative effects, such as leading employers to compress wages overall. Employees may have less room to negotiate their salaries as managers become more cognizant of what equitable pay looks like, Nail said.

Still, pay transparency appears to be shifting the tenor of discussions surrounding pay, she added: “Compensation is typically the most poorly communicated aspect of our entire work experience. People don’t like to talk about it. It’s uncomfortable; they don’t understand it. I think some of this is changing the tide on that.”