How Will States with Pay Transparency Laws Affect You?

California, New York, Washington, and Rhode Island have joined the growing list of states that require employers to communicate salary ranges for job openings.

This is a big change from the past when companies kept salaries private to:

• Attract talent at lower salaries than their competitors who disclose pay ranges.
• Avoid internal pay-disparity resentments and conflict among employees earning different salaries for similar roles.
• Give companies more flexibility in adjusting individual salaries or compensation structures based on business needs or economic conditions.
• Offer different compensation packages to different candidates based on their individual circumstances or negotiation skills.

Learn how these statutes might directly affect your business and insurance coverage to stay prepared.

What are pay range disclosure statutes?

Pay range statutes require employers to make public the salary ranges when hiring for open positions.

Key Features:

• Mandatory disclosure: Employers must legally disclose salary ranges for open positions.
• Range specification: The transparent salary range aims to encompass the minimum and maximum salaries for the position.
• Timing of disclosure: Typically, employers have to share salary details in job postings or during the application process.
• Applicability: Wondering whether your business is affected? Read the fine print on your states’ statute. Some apply to all employers while others are exempt.

Objectives:

• Increased transparency: This aims to make salary information more accessible to job seekers, allowing them to make informed decisions about their career paths.
• Reduced pay disparities: By making salary information more transparent, it can help identify and address pay disparities based on factors like gender, race, or ethnicity.
• Improved employee satisfaction: Increased transparency in compensation practices can lead to greater employee satisfaction and trust in employers.

Increased risk of lawsuits

Pay transparency statutes may increase the risk of lawsuits. Scenarios could include:

• Identifiable pay disparities: If employees discover their employer is paying them less than a colleague with similar qualifications and experience, they may be more likely to sue their employer for discrimination.
• Heightened public awareness: Pay transparency could lead to increased scrutiny of corporate compensation practices, making it more likely for employees and regulators to hold organizations accountable for unfair pay practices.
• A new private right of action: Employees now have the right to sue their employers directly if they violate the new pay disclosure laws. Before this, employees had to file a complaint with the Equal Employment Opportunity Commission (EEOC), the federal agency responsible for enforcing employment discrimination laws.

Impact on insurance

The increased risk of lawsuits against organizations could significantly impact management liability insurance. Insurers may respond to this by raising premiums or making it more difficult for employers to obtain coverage.

A pay disclosure violation could also damage a business’s reputation. This could make it harder to attract and retain top talent and lower investor confidence.

Many employers are wondering: how will these statutes affect Employment Practices Liability Insurance (EPLI)? It remains to be seen, as these new laws don't directly address employment practices like hiring, firing, discrimination, or harassment. But, beware — if changes to these statutes cause employees to discover their employer pays them unfairly, they might be more likely to sue their employer for discrimination.

The best protection is compliance

To maintain best practices and drive employee satisfaction, take steps to comply with pay disclosure statutes:

• Review job descriptions and salary ranges to ensure they’re accurate and up to date. Be prepared to provide additional information about your compensation practices if requested by employees or potential applicants.
• Review your Directors & Officers Insurance (D&O) and EPLI policies to address adequate coverage for potential pay disclosure-related lawsuits. You may need to increase your coverage limits or negotiate enhanced policy terms.
• Work with your insurance brokers to understand the specific impact of these statutes on your insurance coverage. Brokers can help you assess your risks and develop a mitigation plan.

States making pay information more open could potentially benefit both workers and companies. Still, continue to be aware of possible challenges ahead and take steps to mitigate them.