Friday, September 22, 2023

Could Major Changes To The NYC Salary Transparency Law BeGood?

New York City is on the cusp of becoming the first major city to enact a law requiring employers to post certain types of salary information with job postings. The goal of this law is to address the problem of unequal pay in todays workplace. In many cases, this lack of equal pay manifests itself in the gender pay gap[1].

New York Citys law was intended to go into effect in May. However, theres some criticism of the law which could delay its enactment until November. And there are proposed changes that would create exceptions to its applicability.

Could changes to the pay transparency law be a good thing? The answer to that question probably depends on which side youre on the employers or employees. But lets first take a step back and look at why New York City passed this law in the first place.

The Gender Pay Gap in the United States

According to the Pew Research Center[2], women in the United States made 84% of what men earned in 2020. Some of this pay difference can be explained by variables other than sex or gender. Yet this pay discrepancy is likely at least partially the result of the gender discrimination.

At the federal level, there are already several laws in place to address discriminatory pay, such as the Equal Pay Act of 1963[3] (EPA) and Title VII of the Civil Rights Act of 1964[4] (Title VII). And most states[5] have laws on the books that outlaw most forms of wage discrimination. But these federal and state laws arent enough to eliminate unequal pay due to gender.

So states and localities have taken additional action. Some of them have passed laws that address potential contributing factors that perpetuate the gender pay gap.

For example, many states have passed laws that restrict an employers use of an individuals salary history during the hiring process. The reasoning is that if someone was unfairly paid in their prior job, then a new employer relying on that salary information will perpetuate the discriminatory pay.

Another approach has been to prohibit employers from stopping their employees from discussing their pay amongst themselves. For most employees, talking about pay was already a protected activity[6] under the National Labor Relations Act of 1935[7] (NLRA). However, some states like Illinois[8] and Virginia[9], have laws that stop employers from discriminating against employees for talking about their pay with coworkers.

The next step has been to create pay transparency laws. These are laws that require employers to provide pay scale information to a potential new hire, but there are variations in how these laws work.

For instance, the salary information disclosure was only required at the request of the job applicant. Or the law required employers to automatically give this information during the hiring process even if the applicant didnt ask for it. Then there are nuances based on whether the job applicant is an internal or external hire. Some of the states with a salary transparency law in effect include:

Not to be left out, localities have passed their own pay transparency laws, with the most prominent being the City of New York.

New York Citys Pay Transparency Law

Set to go into effect on May 15, 2022, New York Citys new law[10] would require covered employers to list the minimum and maximum salary for an open position they want to fill. This requirement applies if the employer wishes to hire a new worker or fill the position with an internal candidate through a promotion or transfer.

The law would apply to employers with four or more employees and jobs that are to be performed in New York City by a salaried or hourly-paid employee. But this law would not apply to temporary help firms listing a temporary job.

As expected, this law has received a lot of criticism. Much of it has revolved around three potential problems with the new law.

First, theres a bit of ambiguity about its requirements. A good example of this is figuring out what constitutes salary? Should discretionary bonuses count? And if so, how is an employer to calculate a hypothetical bonus that could be based on something only under the control of the employee? And on a related note, how reasonable do the maximum and minimum salary estimates need to be? The statute only says the employer must identify these numbers in good faith.

Second, theres the fear that publishing these salary values will make it easier for competitors to hire away potential talent. This could be the result of competitors seeing an employers maximum pay range, then creating a bidding war for a prospective hire. Or, the employer cant adjust its compensation later on in the hiring process to more accurately reflect the credentials of a prospective job applicant.

Third, this new law could undermine an employers ability to tailor its compensation to meet certain hiring goals due to potential dissatisfaction from current employees. This might occur when an employer needs to pay more to attract certain hires to diversify its workforce. Or, the employer has no choice but to increase the pay for its much-needed positions that have been difficult to fill given the coronavirus pandemic and other changes in the job market, such as Great Resignation[11].

In either scenario, an employer could create an unhappy (and more expensive) workforce when they discover how the new hires are making more money than the current employees are.

The Merits of These Criticisms

From the employers perspective, these issues with New York Citys new salary transparency law are understandable. Yet much of the criticism revolves around the idea of employers wanting to keep compensation information secret to help them achieve their hiring objectives.

These objectives could be altruistic in that the employer wants to diversify its workforce. Or the objectives could be selfish in that the employer wants to spend as little money as possible on its employees. Either way, theres nothing inherently illegal about employers having either of these motivations when they make their hiring and compensation decisions.

The problem comes in because this secrecy is what helps make the gender pay gap so insidious and difficult to eradicate. Letting employers keep their compensation calculation process secret makes it easier for them to get away with using discriminatory pay practices. Simply put, an individual wont know theyre underpaid unless they know what comparable workers earn.

Another problem is that giving employers the flexibility to adjust an employees pay helps inject biases into the pay structure. These biases can be unconscious just as much as easily as they can be intentional.

With the use of pay transparency laws, employers are further motivated to examine their pay structure and use objective reasons to justify their pay policies. And one thing for employers to keep in mind is that the salary transparency law for New York City doesnt make it illegal for employers to make changes to how much they want to pay a new hire. If the employer learns that it under or overestimated the pay or interest in a particular position, theyre free to adjust the pay for that job at a later time during the job search process.

But one of the biggest potential issues with this new law is its ambiguity. If too many employers dont understand how to comply with the law, it might lead to a law that has no real effect.

For example, if employers dont know how to properly calculate a maximum or minimum salary value, they might try to protect themselves by posting jobs with much wider salary ranges. If these ranges are too far apart, the benefit to employees and job applicants is reduced.

Then there are situations where the ambiguity could hurt employees. For instance, if salary isnt properly defined, employers could find compensation methods to continue unequal pay, yet still comply with the law. They might do this by using special bonuses as a way to ensure their preferred employees get paid more than other workers.

And employers shouldnt ignore some side benefits. By posting the salary range maximum and minimum, it can help eliminate applicants with unrealistic pay expectations. It can also clear up incorrect information that may exist online about the employers compensation policies.

In some cases, this law might even save employers money. This is because its easier to know someone is bluffing about more lucrative pay at a rival company (and not be tricked into paying them more to retain or hire them) when the rival company has publicly disclosed its pay range for that position.

Bottom Line

Some of the criticisms of New York Citys new salary transparency law are fair. And some tweaking of the proposed NYC law is probably a good thing, especially in regards to clarifying its requirements. But this law should help current and prospective employees determine the fairness of their compensation.

This additional information will make it harder for employers to get away with discriminatory pay practices. It could also lead to higher overall pay for similar positions in the industry, as the enhanced salary disclosure will make it easier for rival employers to meet or exceed the compensation packages offered by their competitors.


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