Editor’s note: The Back to Basics column serves as an accessible way to understand employment law. If you’re new to HR (or just need a little refresher), follow along as the HR Dive team speaks with legal experts, peruses federal guidance and lays out the basics of employment law. Feel free to send tips, questions and feedback to [email protected].
A recruiter for a midsize Illinois logistics company sits down with her team for a meeting on hiring strategy for 2025. Before the team can discuss how it will build out its candidate pipeline, the talent acquisition lead begins with a presentation on regulatory requirements that will kick in next year.
At the top of that list is Illinois’ new pay transparency law, which is set to take effect on Jan. 1. The law will require all employers in the state with 15 or more employees to include pay ranges and benefits information in all job postings. This includes positions that are advertised via a third party, like a job board.
Jurisdictions in more than a dozen states either currently enforce or plan to enforce some form of pay transparency law. The legislative movement to require disclosure of pay has shaped a broader corporate trend toward transparency in North America, a recent WTW survey found. Still, many are unprepared; results of an Aon study published Thursday found that 75% of U.S. employers were not ready to comply with pay transparency laws.
Because pay transparency cuts to the core of talent operations, HR professionals play a big role in shaping their employers’ approach. HR Dive attended a session at SHRM’s Nov. 20 Workplace Law Forum in Washington, D.C., during which attorneys discussed how HR can prepare for the wave of legal requirements and employee expectations in this space.
Don’t just stop at compliance — create a ‘pay philosophy’
Simply defined, pay transparency refers to the openness with which an organization shares information about its compensation practices, policies and employee salaries, said James Atkinson, VP of thought leadership at SHRM. The degree of transparency can range from disclosure of individual salaries to providing details about pay scales and specific criteria used to determine pay.
Employers subject to pay transparency laws will need to do the basic compliance work: post pay information; inform job candidates and applicants about that information; and provide employees information on promotions where applicable. But more broadly, HR teams should be thinking through what their pay philosophy is because of the rise in transparency, according to Mary Beard, VP of employment and litigation counsel at Ardent Health.
“These laws are empowering employees to be more bold and ask questions more broadly about their compensation,” Beard said. “Compensation used to be a taboo in the workplace. No one discussed their pay. But with these pay transparency laws, with ranges being posted on the job postings, it’s really a question that our HR teams have to answer.”
A pay philosophy has two parts: initial pay and pay for performance, Beard said. As part of this work, employers should determine what factors will be considered at each stage. For initial pay, this typically includes education and experience, while pay-for-performance models can include market median for pay, top-of-the-market pay for key revenue-generating talent, merit-based increases, or variable pay programs such as bonuses and stock options.
“Just make sure that whatever incentives you provide really are tuned to engaging and increasing the performance of your employees,” Beard said.
Such strategies have the benefit of establishing clear guidelines that reassure employees that pay is not based on illegitimate factors such as favoritism or nepotism, said Stephen Malone, head of global employment law at Peloton. HR can bolster those guidelines, he added, by benchmarking against industry peers and using market data to add “rigor” to pay bands.
Be proactive in pursuing equal pay
Pay transparency laws have the goal of creating equal pay for equal work, but some states have broadened the definition of equal pay to mean equal pay for substantially similar or comparable work, which can be a key distinction, according to Annette Tyman, partner at Seyfarth Shaw. That puts the onus on employers to identify which jobs may perform similar duties and be used as comparators when determining pay, she added.
Another element of equal pay analysis is determining what may constitute a wage disparity, per Tyman. Employers may have the mindset that only statistically significant differences in pay between employees qualify as disparities, but in a pay discrimination lawsuit, a court may not find that distinction persuasive.
“That might be what we’re starting with, from a [place] of ‘how bad is it?’ But really, the law says ‘equal’ pay,” Tyman said. “Equal is not within a difference of statistical significance.”
A proactive approach can help employers ensure practices are equitable, the panelists said. Beard told attendees that a good first step is to confirm that pay policies contain nondiscrimination and nonretaliation language as well as language confirming to employees that the employer takes all applicable pay transparency laws into consideration.
Beard said employers can also provide training to managers and HR staff to ensure they understand compensation policies. HR also may need to make note of any applicable salary history question ban laws that could affect recruiting.
Be careful when deciding whether to do a pay equity audit
Performing a pay equity audit can help employers measure their progress if used carefully and appropriately, Malone said, adding that audits also can help employers defend from pay equity claims and litigation or demonstrate a public commitment to equity should they decide to publish the results.
“When you’re doing a pay equity audit, you’re peeling back the layers of that onion and trying to understand [if] there is an inappropriate disparity,” he said.
To that end, audits should probably be conducted in conjunction with legal counsel under attorney-client privilege — or, potentially, work-product privilege — to ensure that any negative or embarrassing findings are protected from disclosure, Malone said. He noted that employers should decide the audit’s scope in advance, including whether it will take into account factors such as geography, gender and race.
The potential downside of an audit, however, is that the results may not always be actionable, especially if an employer cannot afford to close any revealed discrepancies. “If you do not have a budget to actually pay for the discrepancies that you’re going to find — because you will find discrepancies — I would advise you not to do the audit itself,” Beard said.
Separately, employers also may want to consider performing job description audits, which are meant to ensure that those descriptions accurately reflect employees’ essential job duties, as well as Fair Labor Standards Act classification audits to determine whether employees are properly classified as exempt or nonexempt from earning overtime pay, Beard said.
