This Salary Mistake Could Cost Your Business $250,000

In the U.S., salary discussions have long remained a taboo subject. Now, not talking about it could cost you hundreds of thousands of dollars in fines. 

On Nov. 1, 2022, New York City’s salary transparency law took effect. Other states, including California, are following suit with similar regulations. And while these laws might not yet affect you, it pays to prepare for changes as the pay transparency trend gathers steam across the country.  

Here we’ll address two critical issues: how to make sure you don’t run afoul of these new laws and how you can address potential employee conflicts before they arise. 

What is pay transparency?

The key provision of the NYC and California laws is that job advertisements must include both the minimum and maximum amount that employers are willing to pay for the position. According to the guidance document for the NYC law, employers must provide a “good faith salary range for every job, promotion, and transfer opportunity” that they publicly advertise. The California law goes further by requiring companies to disclose pay ranges to current employees upon request. 

Pay ranges cannot be open-ended. A listing with language such as “$15/hr. and above” or “$50,000+ annually” is forbidden, while “$17.00 – $21.00” could be acceptable. If the salary is fixed with no flexibility, simply saying “$15 per hour” would be OK.

The new law applies to all mediums. The NYC guidance covers “postings on internal bulletin boards, internet advertisements, printed flyers distributed at job fairs, and newspaper advertisements.” Keep in mind that having just one employee living or working in NYC can subject you to these provisions. 

How to stay compliant (and competitive)

You may be wondering what the penalty is for noncompliance. In NYC, you could get fined up to $250,000 – and that’s not including the costs and endless headache of a potential discrimination lawsuit. 

Here are a few strategies that you can use to both stay compliant and maintain your business’s competitive edge. 

1. Construct a reasonable range. 

Many jobs that involve similar work can vary wildly in pay. According to Glassdoor, an entry-level software engineer in NYC could be paid anywhere from $71,000 to $169,000. As an employer, how do you handle this huge gap? 

It all comes back to that ambiguous phrase about a “good faith” range. Evan Alberhasky, an attorney and employment expert at Stanton Law, believes that courts may provide additional guidance in the future. For now, though, it’s up to you to define what is reasonable. 

“The burden will be on the employer,” Alberhasky told us. 

Constructing a salary range based on regional or national surveys could be an excellent first step. Other factors, such as the type of company and a candidate’s years of experience, skills and education, can also determine how much a position pays. 

2. Leverage your network.

The law states that all public job advertisements, including those circulated internally on company message boards, must include a salary range. For some companies, the workaround is simple: Don’t post the job. 

Though many private companies require managers to conduct a public search for job candidates, there is no law forcing them to post every open position. When thinking about how to recruit employees, businesses may want to consider methods other than job boards. Many employers utilize informal, word-of-mouth channels to seek out candidates, and there’s a good chance that someone in your network may know the perfect fit. Many companies also turn to recruiters and staffing agencies to seek out suitable candidates. 

3. Remember veteran employees.

Some experienced employees may be in for a rude shock when they discover how much newbies are making. Company morale could be hurt, especially if baby-faced kids fresh out of school are being compensated more than people who have been loyal for years. 

“It’s inevitable that there will be tension,” Alberhasky warns. 

On the one hand, entry-level requirements for your industry may have shot up in recent years. Many positions that once required merely a bachelor’s degree now require advanced academic credentials or several years of experience. In that case, Alberhasky advises being transparent with employees about your reasoning. Current employees might also appreciate learning more about what steps they can take to earn higher compensation. 

At the end of the day, it may be prudent to proactively raise compensation for current employees. A recent survey from Willis Towers Watson found that two-thirds of U.S. employers are budgeting for higher raises in 2023 than they did last year. 

Numbers don’t lie. Make sure you know how to calculate your employee turnover rate, which is an important figure to know if you want to prevent quiet quitting. 

Preparation is key

Ultimately, the goal of pay transparency is to shrink unfair pay gaps. Studies consistently show that women and people of color are paid less than colleagues for doing the same work. These groups often don’t negotiate for raises and are less likely to receive them when they do. The new laws are designed to level the playing field by expanding access to crucial salary information. 

Even if these new laws don’t apply in your state, it might pay to be proactive. Alberhasky thinks businesses should start preparing sooner rather than later, as it can often take a year or more for a large company to rethink payroll. 

“Employers need to understand that this is something they’ll need to deal with at one point or another,” he said. 

In an age of tight labor markets and higher turnover, job seekers are paying more and more attention to which companies offer the best employee benefits. If you haven’t already, now might be a good time to brush up on your knowledge of total compensation packages.