Compensation laws are changing – and one about pay transparency is coming directly for employers in the state of California. Trendsetting as usual, California will become the second state – Colorado was the first – to require that employers post the range for open positions in job ads. (Washinton state will also mandate pay range posting starting January 1.) California will also require that employers provide current employees with their own pay range, if they ask. The pay transparency law will likely cause an uptick in workplace wage discussions, and as a result, could draw significant attention to pay equity issues.
To help small and medium-sized businesses in California, we’ve put together this information to help you stay on top of the latest legislative change.
Beginning January 1, 2023, California employers will be subject to several new requirements to promote pay equity. These initiatives are aimed at improving equality and promoting transparency. Here are the upcoming changes:
This new requirement intends to promote pay equity and help close the wage gap for those disadvantaged in the job market through no fault of their own. While the approach may feel drastic to private employers, it has been used successfully in the public sector for many years.
In fact, after the initial rough patch (which may require a fair bit of work from employers who lack documentation around their pay structure), these pay transparency requirements are likely to streamline hiring, compensation, and talent development processes and make businesses run more efficiently.
Employers should expect that their employees will start asking about their pay ranges and will react to the pay ranges provided by their employer in job ads. If the ranges posted in ads, or provided to current employees when asked, seem too broad, employees may think they’re getting bogus information from management. This will breed distrust and potentially lead to employees reporting the company for violating the law. Employees may also wonder who among them makes that little or that much and why.
If the ranges are reasonable, but there are current employees outside of those ranges, that will likely lead to some immediate feedback that employers should be ready to receive.
When employees begin discussing this new information with their coworkers, employers need to remember that wage discussions are protected by federal and California law, so they should not attempt to stop or prevent these conversations or punish employees for having them. This information sharing may result in employees discovering one-off or systematic pay inequality, in which case employers may have issues with morale, turnover, union organizing, or lawsuits.
Even if an employer’s pay choices are perfectly logical across the board, employees will not necessarily know or understand why they are paid less than a coworker they consider their equal. Although employers are not required to give explanations for pay ranges or pay rates – only provide the numbers as required by the law – being able to provide a coherent explanation of the company pay structure will go a long way toward maintaining employee morale and trust.
If you’re an employer and you don’t already have documented pay ranges, start working on them—you have two months to get your systems in order. You may want to consider hiring outside help if you don’t already have a basic, defensible pay structure and fairly comprehensive job descriptions.
If you are preparing for this on your own, here are some tips:
While many of the suggestions above may seem obvious, if your systems aren’t written down anywhere (and shared with those who will be asked the questions), you will likely run into issues answering questions about your pay structure in a cohesive and consistent way. And having multiple managers answering these tough questions differently will only add to the potential drama and liability.
Additionally, having clear documentation of the legitimate reasons for each employee’s wage rate will be helpful if you do find yourself in any pay equity litigation. To that end, I recommend using the rest of the year to document your pay structures, plan your responses, and prepare for new challenges in 2023.
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