How Effective Are Wage Transparency Laws?

It’s been months since Washington enacted its pay transparency law, RCW 49.58.110, which amended the Equal Pay and Opportunities Act. The law requires employers with 15 or more employees to disclose the salary range or wage scale, along with a general description of benefits and other compensation, in each job posting. Penalties for violation of the law are steep. Not only does the law create a civil right of action, meaning job applicants and employees can sue their employer in state court for violations, but it also creates administrative remedies. The Department of Labor & Industries (L&I) can order the employer to pay the complainant actual or statutory damages or $5,000 (whichever is greater), plus interest, costs of the investigation, and “other appropriate relief.” 

Eight states require some form of pay transparency during the hiring process, whether in the initial job posting or upon request by the applicant, including Washington, California, Colorado, Connecticut, Maryland, New York, Nevada, and Rhode Island. Pay transparency legislation is proposed in 16 other states and Washington D.C. According to the National Women’s Law Center, over one-fourth of the U.S. labor force lives in a state or locality with a pay transparency requirement. These laws aim to close the pay gap, primarily impacting women and people of color. 

Although more time is needed to analyze the effectiveness of these laws thoroughly, initial results are mixed in terms of the laws' effectiveness and impact on the workforce. For example, a Harvard Business Review article noted that while pay transparency removed inequities in pay, it lowered overall wages in the employee population. Another result is that wages become flatter, with smaller ranges, and less performance-based. The article found that less performance-based pay can lead to lower productivity and cause top performers to leave for a company they believe will reward their talent. 

Another criticism of pay transparency laws is that they provide little guidance to employers on an acceptable wage range differential, causing some employers to comply with the letter of the law but not the spirit. Some job postings included salary ranges spanning over $100,000; for example, a job posting with a salary range of $80,000-$180,000. A pay scale such as this offers little insight to job applicants regarding the position's actual salary. It also makes it difficult for employees in the position to know if they are being paid equitably compared to colleagues. In Washington, L&I guidance states that employers must provide the “most reasonable and genuinely expected range of compensation for the job.” Over time, hopefully, state legislatures and the courts will develop more definitive guidelines as to what is and is not an acceptable salary range or wage scale.

Still, as research shows that women typically ask for and receive less pay, these laws are narrowing the pay gap. Job seekers are increasingly less likely to apply for a job if the posting lacks information about the wage or salary. Employees are coming to expect that employers will provide increased transparency in wages. Additionally, one study of Colorado's pay transparency law found that it increased the labor force participation rate compared to neighboring Utah. 

As pay transparency laws increase in popularity, it is becoming evident that while they represent one tool in narrowing the pay gap, they are not the panacea. Archbright continues to monitor pay transparency laws and offers resources to help members comply with evolving legislation. We also provide eligible members with a salary survey tool   to view on-demand compensation data with different filters like region, company size, and industry to help provide competitive pay. For more information about membership, please contact info@archbright.com.

Has Washington’s new pay transparency law impacted your business in terms of the number of job applicants, employee productivity, or in some other unexpected way? If so, leave a comment to let us know.