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Employers in New York City will no longer be allowed to ask job applicants about their salary history. This means that many HR professionals may need to make critical changes to their hiring procedures and related employment documents.
The new legislation follows a trend at the city and state level that is meant to remedy pay disparities for women and minorities, said Jason Habinsky, an attorney with Haynes and Boone in New York City.
The reasoning behind the law is that females are sometimes paid less than males and that using salary history as a factor in setting compensation with a new employer only perpetuates or institutionalizes such wage disparities, explained Howard Lavin, an attorney with Stroock & Stroock & Lavan in New York City.
Massachusetts, Philadelphia and Puerto Rico recently passed similar measures, and other cities and states are considering doing the same. Legislation has also been introduced at the federal level.
Although Philadelphia's ordinance is on hold pending a legal challenge, the Massachusetts law is scheduled to take effect in July 2018.
"All employers who use prior salary as a touchpoint in setting initial compensation, not just those with operations in New York City, are wise to carefully consider the full legal landscape as they wade into this new approach to pay," said Christine Hendrickson, an attorney with Seyfarth Shaw in Chicago.
Mayor Bill de Blasio signed the New York City bill on May 4 and it will take effect 180 days thereafter.
The law will go into effect on Halloween—Oct. 31, 2017, Hendrickson said. "That is already a very busy time for companies that are gearing up for end-of-year compensation cycles, so it makes sense to begin budgeting time now to make the needed changes."
This is a game changer for employers that are used to relying on salary history inquiries during the hiring process, and their policies and practices will need to be thoroughly audited, Habinsky noted.
[SHRM members-only how-to guide: How to Establish Salary Ranges]
A New York City law that was signed in November 2016 already bans salary history inquiries for government employees. The new measure will also prohibit private employers from inquiring about a job applicant's salary history at any stage of the selection process.
"Salary history" means current and prior salary, benefits, and all other forms of compensation, explained Marc Zimmerman, an attorney with Phillips Nizer in New York City.
Employers in the city will be prohibited from asking for this information from the applicant, from the applicant's current or former employer, or from an employee or agent of that employer. They will even be prohibited from searching publicly available records or reports to obtain salary history information, Zimmerman said.
According to the text of the new law, employers can't "rely on the salary history of an applicant in determining the salary, benefits or other compensation for such applicant during the hiring process, including the negotiation of a contract."
"Objective measures of the applicant's productivity such as revenue, sales or other production reports," however, are outside the ban's scope.
Although the law broadly defines "salary history," there are a few key exceptions to the ban.
Significantly, if an applicant "voluntarily and without prompting" discloses salary history, then this information may be used to determine that applicant's salary, benefits and other compensation—and the employer may verify that applicant's salary history, Lavin explained.
Therefore, "employers should implement a procedure to document any instance where an applicant voluntarily discloses salary history," he said.
Employers should also note that they can still ask about a job applicant's compensation expectations and may discuss any unvested equity or deferred compensation that the applicant would forfeit by resigning from his or her current job. They will also be allowed to inform job applicants about the position's targeted salary range.
As a best practice, employers should consider shifting their focus from inquiring about salary history to discussions about an applicant's expectations—or an employer's anticipated salary range—which keeps the focus on qualifications and other nondiscriminatory factors, Zimmerman suggested.
The law outlines the following additional exceptions to the salary inquiry ban:
"Today, it is common for employers to inquire about salary history, including in employment applications," Lavin said. "Plainly, these inquiries will be prohibited, and therefore, interviewers must be trained to stop asking questions about salary history and employment applications must be revised to delete these questions."
In addition to updating job applications, employers will need to review their background check forms and phone screen and interview materials, Hendrickson said.
HR professionals should also reach out to any third parties that may be supplying this information—such as recruiters from staffing firms—to make sure that they know not to send the prohibited data, Habinsky noted.
"Companies will also need to think hard about how they will approach setting new hire compensation," Hendrickson noted.
Habinsky recommended that instead of focusing on what someone was earning, hiring managers should look at education, productivity and experience, including where an applicant previously worked and what skills were needed in those jobs.
Multistate employers should keep an ear to the ground on this issue, as similar bans are gaining momentum in other jurisdictions, Zimmerman noted.
"Sometimes it makes sense for employers to consider picking the most restrictive laws and applying them universally," Habinsky said. "In this case, that's not only going to help remedy these pay issues, but it will also make your HR department's job easier by applying a uniform policy."
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