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Understanding the Pay Transparency Movement

Pay Transparency An Emerging Trend Your Company May Soon Face | VertiSource HR

Pay transparency is one of the hottest trends in state labor laws. New York became the latest to require pay transparency when a new law took effect in mid-September 2023. Perhaps your state has not yet taken up the question of pay transparency. Do not assume that means lawmakers never will. Pay transparency is an emerging trend your company may soon face.

What It’s All About

Pay transparency is the practice of openly sharing information about employee compensation. That information might be shared internally or with external parties. It can also be voluntary or mandated by law. New York’s law requires employers with at least four or more employees to include compensation information when posting available jobs, internal promotions, or transfers.

Other states have different ways of implementing pay transparency principles. The point is this: companies affected by such laws must keep detailed records about employee compensation. They must also be prepared to publish the information as state laws require.

Different Means of Reporting

Unfortunately, pay transparency can be a confusing matter for employers with operations in multiple states. There are different means of reporting compensation, beginning with individual salaries. This is considered the most basic level of transparency inasmuch as every employee knows what their colleagues are making.

There are three other options:

  • Salary Ranges – Rather than reporting individual salaries, companies report salary ranges instead. Reporting is based on position, not individual earnings. Those interested in the data can learn the salary range for a given position but not what colleagues earn.
  • Salary Bands – Reporting salary bands goes one step further. It accounts for employee skills, performance, years of service, etc., all of which can affect employee compensation among different employees in the same role.
  • Compensation Philosophy – The least transparent means of reporting is compensation philosophy. Reporting in this way would dictate explaining how the company determines compensation for individuals, roles, etc.

Pay transparency is not black-and-white. It differs significantly across industries and companies. It can also vary quite a bit between states, depending on how laws define transparency.

Who Has Access to the Information

Another area of variation is who actually gets access to compensation information. Companies basically have three options here: internal, external, and full. They should be pretty self-explanatory.

An internal strategy gives access to all employees within the organization. No one outside of the organization has access. Likewise, an external strategy allows external parties access to the data without giving it to employees. For instance, job candidates would be able to see compensation information before applying.

A full transparency strategy grants data access to both internal and external parties. All information is accessible to anyone who wants it.

Data Systems Must Be Up to the Task

Whether a state requires pay transparency or not, any company planning to embark on a transparency strategy must have a data system that is up to the task. This suggests updating older HRIS systems to make them compatible with modern technologies. We recommend our cloud-based system that integrates payroll, benefits administration, and HR under a single platform.

A fully integrated HRIS system aggregates data in a single cloud location. The data is accessible in real time and can be used for any number of appropriate purposes. At the same time, permissions and other security strategies prevent unauthorized individuals from gaining access.

If you do business in a state that already mandates pay transparency, be sure you understand the law so that your company maintains compliance. Otherwise, you still have time to get ready. Assume that pay transparency is coming to your state eventually.