Pay Transparency Laws: the Legal and Business Impacts

Navigating the Legal and Business Consequences of this Trend

In a growing number of jurisdictions across the country, pay transparency has become the law. In these places, companies are required to post salary ranges for advertised positions. These laws have wide-ranging consequences for all businesses, but none are more impacted than those in the staffing sector. These laws change the rules for working with clients and candidates, and also for internal staff.

To help make sense of this rapidly changing regulatory landscape, and the ways in which it is changing business for staffing firms, TechServe Alliance recently presented a webinar on the topic. Martin Borosko, Staffing Practice Leader with Becker, LLC moderated the panel. He was joined by Matthew Ripaldi, CEO of Talent Group, and Nick Nordin, VP, Recruiting with BridgeView IT.

The regulatory landscape

Borosko stressed that the focus of the panel was not to dive into the minutiae of the law, and he began with a broad overview to illustrate how complex the environment is becoming. Many states and some localities have pay transparency laws in place. The regulations are different in every one of those states and localities. And more will follow suit in the coming months and years.

Borosko outlined four key considerations staffing companies must take into account.

• Are you in a state or locality where the law applies?
  This is a more complicated question than it may seem on the surface, due to the variation in criteria from one jurisdiction to the next. In most states, applicability is based on the number of employees in the state, ranging from a minimum of four to fifteen. In one state (Maryland), it is determined by whether you do business in the state. While some states include employees working remotely, others don’t.
• When do you have to disclose the pay range?
  In most states, companies are required to disclose pay ranges on the job posting. Some states, however, only require disclosure at the point of an offer. And in others, companies must disclose the range only if they are asked. In addition to new hires, some states require disclosure to current employees, but there’s also variation in that case. Some only require disclosure when an existing employee is taking a new position, others require it when asked.
• How do you determine what the appropriate pay range is?
  Salary ranges can vary significantly depending on numerous factors – location, level of experience, and more. Most states require a ‘reasonable’ approach to determining the true pay range.
• How are the laws enforced?
  The penalties for noncompliance are generally fines, but the parties who can initiate a claim differ from one jurisdiction to another. In some states, an employee can make a claim against the company, whereas in other states, only the Department of Labor can initiate the claim.

Given these complexities, BridgeView’s approach was to simplify. Located in Colorado, where state laws were some of the first introduced on pay transparency, BridgeView took advantage of the months they had to prepare. They examined the legislation closely to ensure they understood the law and how it applied. Then, they opted to embrace the legislative change. “The decision we made,” Nordin said, “was to take the policy for Colorado, and instead of figuring out which states it applied to, we made it apply to every candidate we talked to.”

Ripaldi agreed that this was the smart approach to take. “There’s a perception that it’s state by state, and it could be limited to a group of states. This year, roughly one in four workers will be covered by a state or local law that requires businesses to be transparent about pay ranges. It’s only a matter of time before this becomes the norm.”

Ripaldi pointed out that the law has positive effects on the employment market more generally. Transparency establishes greater trust between employers and employees. Pay transparency can also help move the needle with respect to pay equity.

Pay transparency and the impact on internal staff

In addition to candidates recruited for clients, staffing companies have to consider the impact of this legislation on internal employees. For the panelists, this has created the opportunity to put more structure into the way they classify jobs within the organization.

“We laid out salary ranges for junior, mid, and senior level employees,” Nordin said. “Each level has a maximum. And each level has a clear qualification about what it takes to get to the next level.”

For BridgeView, this has created a drive for accomplishment. “Employees will say, ‘I want to put ‘Senior’ before my ‘Technical Recruiter’ title. What does it take for me to get to the next level?’ We never had it officially documented, so this forced us to be thoughtful about the process.”

Pay transparency and the recruiting process

For staffing firms, internal compensation is only one of the challenges. Firms must also help seasoned recruiters adapt to the changing regulations when working with candidates and clients.

In the past, it was typical for a recruiter to ask the candidate what they’re looking for and ask what they’re currently making. The final offer would be somewhere in the middle. It may be a daunting prospect for recruiters to state the range first, but it doesn’t have to be. In fact, for BridgeView, it has presented the opportunity to have a different quality of conversation with the candidate.

“There is this idea that whoever puts out the number first loses the negotiation,” Nordin said, “but if you think about it differently, when you’re putting out a number, you’re actually setting the bar. We create very specific ranges. And when we talk to candidates, we talk in depth about the high end being based not just on their experience level, but how well they match the core criteria of the job.”

It’s critical, Nordin says, to be very knowledgeable about what the market will pay for various levels of experience, and various skills.

“There are some very successful recruiters that grew up not divulging the pay rate,” Ripaldi said. “They’ve been successful and they’re wondering, ‘Why do I have to change?’ And I think you have to explain to them: the why. Let them put their mind in an owner’s perspective to understand why we need to do this, and how we could get into trouble if we don’t.”

Pay transparency and client relationships

The panelists also agreed that the legislative changes have had a net positive effect on their relationships with clients.

Nordin points to the increased transparency as an opportunity to partner with clients more consultatively. “We know what the rates are, we look at a lot of data, and we talk to candidates every day. If a client has a limited budget, for example, we can show them that they should consider someone with three years experience instead of five.”

The same is true for Ripaldi’s Talent Group. “We can bring more credibility and value to the client relationship. The client doesn’t always know what the market is, and we can show them. We can get away from an outdated list of qualifications, and work with them to develop the right profile.”

Helping clients to determine appropriate ranges means having good data ready. “If you don’t have an internal rate card or a cheat sheet for your recruiters, that’s helpful,” Nordin said. “This should be based on data from deals you’ve closed over the last year or two. That way, you’re not grabbing numbers out of thin air when clients ask about ranges.”

Beyond the greater ability to play a consultative role with clients, Ripaldi said that pay transparency can also help clients – particularly lesser known employers – attract more candidates. “A study by Indeed showed that 75% of job seekers were more likely to apply to a position that had the salary range listed. In addition to that, 56% were more likely to apply to a company they’ve never heard of if that salary range is posted. By posting the range, candidates are more willing to apply, which will give you a bigger candidate pool for your clients.”

The impact on revenue and KPIs

None of the panelists reported a negative effect on revenue, gross margin, or other KPIs as a result of legislation changes. In fact, for both Talent Group and BridgeView, gross margin has been higher on average.

According to Ripaldi, the difference may be in focusing primarily on business where margins have been better. Additionally, Talent Group’s approach to pay transparency has allowed them to compete more effectively against firms that are more secretive about their pricing.

Compliance and record keeping

Speaking from a legal perspective, Boroski warns that firms must take precautions to ensure compliance. “I think you two have been really brilliant at framing this in such a positive way,” he said to the other two panelists. “I’m going to take this one opportunity to be a lawyer. Tell me what state or locality you’re in and I’ll tell you what the fine is for not doing it right.”

Laws will ultimately lead to lawsuits, and record keeping will be a key protection. It will be critical for firms to track data related to how much their employees are paid, and how people move up and down within those pay ranges.

Legal counsel is important for staffing companies navigating these new laws, but there are other supports available as well. “If you work with a payroll provider, part of the service is advice. We had the representative from our payroll company do a call with our staff to help us understand what we can ask, what questions are off-limits, and different ways to ask questions to make sure we’re complying with the law.”

Key Takeaways

The effects of pay transparency laws on the staffing industry are wide ranging, and – currently, at least – in a state of constant change. To help navigate this complex legal landscape, the panelists’ recommendations are as follows:

• Work closely with legal counsel and other partners to understand the laws and how they apply to your business
• Consider proactively adopting pay transparency generally, to simplify your process and remain compliant as more laws are introduced
• Coach recruiters at all levels of experience to ensure that your process complies with all legislation
• Ensure that compensation ranges and related qualifications for your internal staff are clearly laid out and communicated
• Capture and track as much data as possible related to pay ranges for the candidates you work with
• Take the opportunity to work more consultatively with your clients, to help them understand pay ranges for their positions, and the benefits of transparency

Did you miss the live webinar? Not to worry; the whole presentation was recorded. Check it out here.