Navigating Pay Transparency and Equity Laws

Employers must balance the demands of complying with pay transparency and equity laws with the flexibility to make salary decisions that align with the business, said James Atkinson, vice president of thought leadership at SHRM.

Atkinson moderated a panel of legal experts at the recent SHRM Workplace Law Forum 2024 in Washington, D.C., covering the latest developments around pay transparency and equity laws as well as the steps employers can take to withstand possible scrutiny of their compensation practices.

Nearly all U.S. employers are subject to the federal Equal Pay Act of 1963, which prohibits wage discrimination based on sex for similar work within the same workplace. But state and local governments have recently been pushing to address broader pay inequities through laws focusing on pay transparency, prohibition of salary history inquiries, and additional reporting requirements. While these measures aim to address inequities, they may impose undue burdens on employers or complicate traditional salary decisions based on education and experience, Atkinson said.

Annette Tyman, a partner in the Chicago office of Seyfarth, said that employers shouldn’t expect any new pay legislation at the federal level but that states would continue to take action on pay transparency and equity.

She explained that pay transparency laws typically require employers to share information relating to job compensation with applicants (and sometimes with employees).

“Provisions generally include showing the salary ranges on the job posting itself, or upon request, or sometime during the hiring process,” Tyman said. “Each state is taking its own approach to how they are addressing pay transparency, and there are wide-ranging approaches to what you have to provide.”

She added that some states are requiring employers to notify existing workers about compensation for promotional opportunities as well, instead of just notifying applicants when hiring for new roles.

There are currently 14 state laws and another seven local jurisdictional laws requiring some level of pay transparency. Five of those states—Illinois, Massachusetts, Minnesota, New Jersey, and Vermont—have pay transparency laws taking effect in 2025. Three additional states have pending legislation.

“We have seen efforts to foster pay equity through disclosure, either through being required to show salary ranges, bans on asking for salary history during job interviews, or providing pay data in certain states, broken down by race and gender and other categories,” said Stephen Malone, head of global employment law at Peloton Interactive, based in New York City.

“Transparency builds trust,” he said. “Employees want to feel like they are being recognized for their performance and things like favoritism are not driving compensation. A starting point for employers is to have some rigor around pay leveling and pay bands, and benchmarking against peer and competitive firms in the industry. Market data should be driving compensation practices.” 

These laws are empowering workers to ask bolder questions about their compensation, said Mary Beard, vice president of employment and litigation counsel at Ardent Health in Nashville. “Employers must have a deliberate, calculated response to the question, ‘What is the pay?’ Pay used to be taboo to discuss at work. But with these transparency laws, it is a question that HR must have an answer for. HR must know the organization’s pay philosophy.”

Beard said that a compensation philosophy should consider what factors will be used for initial pay and what a pay-for-performance model looks like, which could include offering merit increases, variable pay programs, bonuses, stock options, and other incentives tied to rewards.   

“One simple thing you can do is present your employees with a total rewards document every year,” she said. “It should show the employee what their salary is, what the annual increase is, the bonus target, any incentive stock. That document should explain to employees how their pay is calculated.”

She added that the compensation team is not the only group within HR responsible for being aware of pay transparency and equity laws.

“This subject crosses over into talent acquisition, HR operations, and employee relations,” Beard said. “Make sure that you are using a multifocal approach within HR that understands how their prospective areas may be impacted by these laws.”

Another area to be aware of is pay equity laws, which prohibit employers from paying employees differently based on protected characteristics such as sex or race.

Tyman said that the biggest challenge for employers is that “equal pay for equal work” is being defined differently in different states—it can refer to similar work, to substantially similar work, or to comparable work, which puts the onus on the employer to define which roles should be analyzed for compliance.

“Another issue we see in litigation is how big a difference in pay is necessary to be considered a wage disparity,” she said.

Pay Audits

The panel agreed that pay equity audits can be an excellent tool if used carefully and appropriately. 

“When you do a pay equity audit, you are peeling back the layers of the onion and trying to understand if there are real pay equity disparities in your organization,” Malone said. “It’s important to consider the scope of the audit, the geography, the roles being analyzed, and which protected categories will be included. Data privacy and security are also important considerations.”

Malone recommended building a budget and leadership team specifically for the audit and conducting audits with an attorney under an attorney-client privilege, so if negative findings are discovered, they are protected from disclosure.

“There are pros and cons to doing a pay equity audit,” he said. “It can help defend you from pay equity claims in litigation and demonstrates a public commitment to pay equity. The biggest downside is that you discover a big problem and don’t fix it—that’s a bad place to be if it comes to light.”

What HR Can Do

Beard provided several recommendations for employers:

• Assess your pay policies. Confirm that you have nondiscrimination, nonretaliation, pay transparency, and pay equity language in your policies.
• Provide training on these policies to HR and managers.
• Confirm compliance with salary history ban laws.
• Evaluate your pay structure to ensure there are no biases and no disparate impact on certain groups.
• Conduct benchmarking and market pay surveys. “They must be credible, reliable, and related to your industry and geographic location,” Beard said.
• Conduct audits of job descriptions, employee classifications, and jobs that help you explain, for example, why one role in one state might make a higher salary than a similar role in another state.