California toughens up on pay transparency with new law

'Workers are beginning to understand their worth,' says HR tech firm co-founder

California toughens up on pay transparency with new law

With the stroke of California Gov. Gavin Newsom’s pen, a new pay transparency law was passed on Tuesday.

The new legislation – Senate Bill 1162 – expands upon the framework of the Equal Pay Act, which requires employers in the state to disclose the pay range for a job if an applicant asks for it after an initial interview, as well as Senate Bill 973, in which private employers with 100 or more employees are required to submit a pay data report to the California Department of Fair Employment and Housing (DFEH) that includes the number of employees by race, ethnicity and sex.

Under the new California law, all employers in the state with at least 15 workers must include the hourly rate or salary range on job listings and provide the pay scale to current employees upon request. Although California-based companies hiring outside of the state won’t be required to include salary ranges on those job listings, companies based out-of-state and hiring for jobs to be performed in California will be required to disclose pay ranges.

Read more: If you’re hiring for remote jobs, you have to follow this Colorado law

Plus, employers with 100 or more employees must report the median and mean hourly rate “within each job category, for each combination of race, ethnicity and sex.” Similarly, employers that retain 100 or more workers through labor contractors must submit a pay data report covering those workers. Finally, employers must maintain a record of each employee’s job title and wage history during employment and for three years thereafter.

“It’s crucial that employers begin to set pay scales, prepare for pay audits and determine additional processes needed to best comply with this law,” Tanya Jansen, co-founder of HR tech firm beqom, told HRD. “In the push for pay transparency, state legislators are working to create more equal workplace environments. At the same time, workers are beginning to understand their worth and value their time, making transparency even more important.”

In November, New York City-based employers will have to include the minimum and maximum starting salary for any advertised job, promotion or transfer opportunity. Similar laws went into effect last year in Connecticut, Nevada and Colorado. Starting in January, the Rhode Island Equal Pay Law will require employers to provide candidates pay range information during interviews upon request. Plus, employers must disclose the range for a role before they discuss compensation, when an employee moves into a new position and whenever a current employee asks.

The trend is sure to continue in 2023 and beyond, with similar bills under consideration in South Carolina and Massachusetts.

The push for pay transparency is a byproduct of Corporate America emphasizing the importance of diversity, equity and inclusion (DEI) following the racial protests in the summer of 2020. It’s a smart business move, considering that nearly half (46%) of Americans would consider switching to an employer with a more comprehensive DEI strategy, according to beqom’s 2022 Compensation and Culture Report.

Regarding compensation specifically, employees want to know their workplace is ethical and that they are being paid fairly. In fact, 60% of employees said they would consider switching jobs for more pay transparency than their current employer provides, according to the report.

Read more: Pay transparency will give you ‘competitive talent advantage’

Thanks to the popularity of LinkedIn and Indeed, employees and job seekers have more knowledge than ever before when it comes to pay equity. They also have the upper hand in the market, considering that there are more than 11 million job openings as of July, according to the latest data from the U.S. Bureau of Labor Statistics. That means there are about two positions available for every unemployed person.

In order to edge out the competition in the recruiting process, companies should be as transparent as possible to job candidates.

“A transparent job description should strike a balance between what employers will expect from the person in that role, and what the employer will provide to its employees (e.g., salary, PTO, flexibility, health care benefits, stipends, etc.),” Jansen says. “Job seekers should know if the job they are applying for will meet their financial goals and needs, and employers are more likely to spend time on serious candidates if the salary range for the position is clear from the start of the hiring process.”

However, Jansen says, transparency goes beyond salary ranges.

 “By painting as clear of a picture as possible, job seekers can make an informed decision about whether the role is right for them,” Jansen says. “On the employer side, this will save them from interviewing a candidate who later withdraws their application because of a salary they disagree with, job functions they don’t want or benefits they may feel are inadequate.”

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