Companies are navigating the growing patchwork of pay equity and transparency laws throughout the United States. State lawmakers are increasingly passing laws aimed at closing the pay gap for women and minorities, including amending anti-discrimination laws to make it easier to pursue and prove pay discrimination claims, prohibiting employers from barring employees from discussing their pay, and banning employers from using prior salary history to make pay decisions.

They also are passing pay transparency and reporting laws requiring employers to provide pay information to applicants, employees, and government regulators. Companies also are seeing increased litigation risk as government regulators make pay discrimination enforcement a priority and as single and class pay discrimination claims rise.

Considering these trends, employers should assess their compliance strategies to mitigate the risk of pay discrimination claims and compliance violations.

Pay Transparency and Reporting - The Newest Trend

At least fourteen state or local laws require employers to disclose pay information, either "upon reasonable request," at some point in the hiring process or affirmatively on a job posting. The trend is gaining traction, with similar legislation proposed in at least 19 other states and localities.

These laws have key differences, including:

  • Which companies are covered;
  • What must be disclosed (e.g., benefits and other compensation in addition to base pay);
  • To whom the law applies (applicants, employees, or both);
  • When disclosures must be provided (e.g., in the job posting, upon reasonable request, and/or after certain triggering events); and
  • Potential penalties for employers (administrative fines, private rights of actions, or both).

Some of these laws, such as those in California and New York City, extend well beyond their borders and require compliance for remote roles that could be based in their jurisdiction.

At least two states, California and Illinois, have passed laws requiring certain employers to submit pay data to government regulators. California's version requires employers to annually report aggregated pay data and hours worked by the establishment, job category, sex, race, and ethnicity for their own employees and for employees of "labor contractors."

Many companies are struggling to understand the "labor contractor" requirements, including which entities qualify and how to obtain the required pay information from those vendors. Illinois law requires that employers report individualized pay data, demographic information, and an Equal Pay Compliance Statement certifying their equal pay practices to regulators. Although there are currently no federal pay data reporting requirements, the EEOC recently indicated that the agency plans to reinstitute the Component 2 EEO-1 pay data reporting requirements.

Increased Litigation and Enforcement Risk

Class and single plaintiff pay discrimination claims are increasing in light of these new laws and the broader public attention to pay equity. Class pay discrimination claims can result in significant damages and settlements, as the plaintiffs in these cases frequently involve highly paid professionals, like engineers, lawyers, and managers.

Government regulators are also continuing to focus on pay equity. The EEOC indicated in its proposed Strategic Enforcement Plan for 2023-2027 that it will continue to make pay discrimination a top enforcement priority. With the EEOC Commissioners poised to have a Democrat majority soon, employers likely will see an uptick in EEOC litigation in this area. OFCCP continues to double down on pursuing pay discrimination claims.

In Directive 2022-01, OFCCP has indicated its intent to audit contractors' pay practices in a more aggregated manner, looking for patterns of segregation across titles, functions, and departments. OFCCP also is seeking to overhaul its audit scheduling letter, including requiring contractors to provide additional pay data at the outset of audits. Companies should be mindful that enforcement activity and private claims related to pay transparency may increase as these laws take shape.

Practical Compliance Tips

Considering the growing patchwork of laws and increased litigation risks, employers should consider the following practical tips and strategies to navigate these trends:

  • Audit Pay Data and Practices: It is difficult for companies to know if they have potential pay disparities lurking in their pay data if they are not proactively reviewing their pay data through privileged pay equity studies. Because pay equity is often a moving target as the workforce evolves, employers should consider doing these studies annually. These reviews will help to identify and remediate potential pay disparities before a claim arises. They also will allow employers to identify root causes for those disparities and to amend their pay policies and practices to decrease the risks of recurrence. In addition to reviewing pay data and tracking factors driving pay decisions, employers should evaluate their pay policies and procedures, including evaluating pay ranges, processes for setting pay (starting, merit, and promotion), and updating their job titling, architecture, and description with an eye towards distinguishing jobs that are not similarly situated.
  • Pay Transparency: Employers with multistate operations or with remote roles should consider their overall strategy for complying with disparate pay transparency laws. This might include balancing a company-wide approach with a more surgical approach for compliance with the most onerous laws. Regardless of whether the approach is company-wide or targeted, employers should create and document pay ranges for job postings, create processes and procedures for updating job posting templates, and monitor job postings and laws for ongoing compliance. Besides having a reasonable or good-faith basis to support posted pay ranges, employers also might consider how job seekers or current employees might view those ranges. If a company's pay is below market, nothing prevents it from providing more information about its pay package than what is legally required to be more attractive to job seekers. Employers also should consider proactively communicating pay ranges to current employees who may be at or below the current salary ranges due to salary compression issues that may have been magnified during the Great Resignation. Training HR, recruiters, and hiring managers on compliance also is key.
  • Pay Data Reporting Compliance: Employers should consider their strategies for complying with the pay data reporting requirements. Practical and legal considerations include determining which labor contractors to include and how to obtain the required data. Although not legally required, it is a good practice to conduct-in consultation with legal counsel-a pay equity study of pay data reported to regulators. That allows employers to anticipate, evaluate, and address potential issues. This is particularly important in Illinois, which requires that employers provide individualized pay data to regulators and certify their equal pay practices.
  • Pay Equity Is Important to Employees and Investors: Beyond the legal requirements, studies increasingly show that employees and investors want greater pay transparency and equity. Good pay equity and transparency compliance not only reduces the risk of claims, but may help the company's bottom line by attracting and retaining employees and investors.

Originally published by HR.com.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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