Salary Transparency Laws – How They Affect Your Hiring Process

Once shrouded behind the mysterious guise of lack of information, and the lack of information speed, job postings were once an enigma hidden on the back pages of newspapers and local guides. A cold call away, knowing what companies were hiring was difficult enough to find, let alone more information about the specific open roles. Just a few years ago (well, over 30), being able to find millions of jobs on websites like Indeed was physically impossible. A laughable concept tossed into the fiction pile with lightsabers and jetpacks. Therefore, salary transparency wasn’t even in the realm of fantasy. Job searchers didn’t even think of it as a possibility or a dream.

As of the beginning of 2023, salary transparency has become a mainstay of the American job market. Depending on your state, you may be required to provide specific information about the job and its pay. No longer are the days of miscommunication, lack of speed, and deceivable hiring tactics. Now, companies are forced to be forthright with all of the crucial information about their open roles (and company culture).

Regardless of your opinions on the topic, you can’t argue against the law. But, if you are not tapped directly into employment news like we are at Tier2Tek Staffing, you may feel out of the loop, weary of how to adjust and fix your hiring tactics going forward. How will these new transparency laws affect your staffing? Will you need to change your entire recruitment process to adhere to the new standards?

Have no fear. We will break down the entirety of it here.

Spoiler alert: it may be positive for both you and the employees!

History of Salary Transparency Laws

For the entire history of capitalist employment in the United States, we have shied away from sharing information about wages. It has always been seen as a taboo topic, met with raised eyebrows and nervous laughs. Simply put, you do not ask another person what they make.

Just like the sexist concept of not asking a woman their age, the salary taboo is both outdated and unnecessary, banking off some antiquated moral code we decided at the beginning of our country’s formulation. Ultimately, it makes no sense to avoid, especially when the entire basis of our economy is competition and desire for riches.

If we are so focused on how much we make and how much money affects our day-to-day lives (we are), then why wouldn’t it be a topic of discussion? If not between normal people, definitely between a worker and their potential employer. Why allow companies to hide their equality (or lack thereof) because it’s something that ‘shouldn’t be discussed’?

It’s weird in theory. It’s weird in practice.

The Great Resignation and the Great Difference

There was a mass societal shift bubbling beneath millions of Zoom calls and at-home workplaces. As a pandemic charged across the world, so did a train of thought, pushing through years of static and comfortable stigmas. The Great Resignation: a chance for people to reevaluate their values of both life and work.

Sandwiched between pandemic-forced isolation and at-home working policies, people had more time for introspection. After a year-long bout of battling against boredom and seclusion, a mass thought process swept the nation like a refreshing broom. According to The Bureau of Labor Statistics, 50.5 million U.S. workers quit their jobs in 2022.

Ultimately, people decided that they were no longer happy with getting by. Workers realized with rightful thought that they are worth more than paid. Why work a job you don’t enjoy when life is so short and crucial? Why waste precious life doing something you don’t like just to get by?

Consider it a renaissance, if you will. A great awakening in the minds of the common employee. Workers have taken over the power, holding higher and more reasonable expectations for future employers. Regardless of your opinion on the matter, it’s impossible to overlook the numbers. A sizable shift in the job market did happen. The Great Resignation truly lived up to its title.

With this came the change in how we saw salary discussions. If our lives were so based on how much we get paid, why hide what we are applying toward? If humans want to rightfully balance their work and lives, they need to know what they are and should be getting paid.

The Country Listened

Colorado (our home state at Tier2Tek) was the first to make a significant change, implementing laws requiring businesses to list salary ranges on job ads in 2021. New York City followed suit a year later, requiring the same information to be upfront in November of 2022.

In Colorado, the law was intended to address salary disparities, with the bill’s text citing research from 2018 showing women in Colorado earned 86 cents for every dollar men earned, while Latinas earned 53.5 cents and Black women earned 63.1 cents for every dollar White men earned.

As of 2023, a few other states have jumped on board, creating laws that are similar to the ones Colorado initiated.

The Difference Between States

  • California: according to California’s amended labor code, employers with 15 or more workers will be required to list salary ranges on job postings. Furthermore, if a current employee requests payscale information, the employer must provide it.
  • Washington: Washington’s labor code has the same circumstances as the 15-or-more worker one in California. Furthermore, this law will apply to companies that have at least one employee resident in Washington state, recruit in the state, or plan on hiring from the state.
  • Rhode Island: Rhode Island’s amended Pay Equity Act doesn’t require employers to provide pay ranges on job posts, but it does say businesses must provide the range to job applicants upon request.
  • New York: the legislature has been approved and goes into effect at the end of 2023. Like New York City, employers with four or more workers have to list salary ranges for all job openings.
  • Legislation is pending in Massachusetts and South Carolina.

According to CNBC, experts say it’s only a matter of time before salary transparency on job ads becomes the norm.

Is It a Positive?

Every move, especially one so drastic against the norm, will cause an array of positives and negatives. While we won’t begin to express our political opinion on the subject, it’s important to note the positive outcomes of salary transparency that are outright objective.

As per the mission of the salary transparency laws in Colorado, we live in a country of significant wage gaps.

According to the Department of Labor blog, Black and Latina women with only a bachelor’s degree have the largest gap at 65%, and Black women with advanced degrees earn 70% of what white men with advanced degrees earn. Educational attainment is not enough to close gender earnings gaps. In fact, most women with advanced degrees earn less than white men, on average, with only a bachelor’s degree. 

Forcing companies to be upfront and honest about salaries helps squash these disheartening statistics. Overall, it’s time to close the gaps we’ve let build for so long. It’s time to facilitate a drastic change, and that comes at the expense of secrecy and discretion. If companies are not willing to adhere to the needs and want of the general public, then they are going to have to be forced.

If big business isn’t willing to close the gap, we will have to do it for them through the elimination of veiled wages.

More Than the Gap

Furthermore, salary transparency helps bolster employee satisfaction, something necessary in a post-pandemic world. As we have stated, employees hold more power and value than ever before. They are willing to sacrifice their careers in order to maintain a more sufficient work/life balance.

Though we believe that the power dynamic should be an even split (which it has become), it’s important to have to sell your job to a potential employee. Not only does this create competition in the labor market, which creates better workplaces for all workers, but it also creates a better long-term life for every worker, regardless of their position on the corporate ladder.

Simply put, having to meet employees halfway is important in creating a working world that’s generous and positive for all (something that has seemingly been ignored for so long).

Think about it this way: is workers demanding better pay a detriment to our society or just a detriment to your business finances?

Which one is truly more important?

Will It Increase Job Applications?

At the end of the day, we are speaking of the staffing and recruiting implications around salary transparency. The biggest question regarding labor is how it will affect the hiring process, but the second becomes the hiring itself.

Will the increase in salary directly affect how many people apply to your job postings? Not really.

Though it’s impossible to answer the question due to the greenness of the law at play, we can think about it with a theoretical brain. Consequently, why would it reduce the number of applicants?

In theory, it may turn some workers away from certain industries once they find out the average wages, but it’s not as if that information isn’t already available via sites like Glassdoor.

An analysis by research hub Recruitonomics found that Colorado’s law resulted in a 1.5% boost in the labor force participation rate compared to Utah. On the other hand, during the same period, Colorado job postings on Indeed fell comparatively more than in Utah by a margin of 8.2%.

“Salary transparency laws add another step in the process to post a job; as well as repel recruiters unwilling to divulge pay ranges.”

— Recruitonomics (in their analysis)

Therefore, salary transparency didn’t affect the rate of labor looking for work, but did affect the rate of postings. Yet, it’s impossible to tell if companies pulled posts to change and adhere to the laws, or if they pulled posts because they no longer wanted to hire within Colorado. Though the latter seems more likely.

How Will They Affect the Hiring Process?

Time for brass tacks.

How will salary transparency laws affect your hiring process? Should you make significant changes to how you handle the recruitment process?

As a staffing agency, we have to be at the forefront of the hiring concept. Therefore, we are going to share all the tea regarding the future of recruitment in the new age.

Building Trust Outright

According to the Society for Human Resource Management (SHRM), 91% of employees who believe their organizations are transparent about how pay decisions are made also said they trust that their employers pay people equitably, regardless of gender, race, or ethnicity.

The biggest gain regarding improved transparency is the relationship between applicants and employers. Ultimately, employees and potential employees will now see the cards on the table, allowing them to quickly and efficiently decide if they trust or stand with the company. This, in return, will help create a stronger workplace culture.

The employees and applicants that stand with you will stick around, creating a workplace of like-minded and positive employees. This is culture, a crucial aspect of great hires.

In 2022, Teamstage found that 86% of job seekers avoid companies with a bad reputation. Now, with transparency involved, great companies will improve their reputation, making attracting talent easier.

Furthermore, a 2019 study by GlassDoor found that 77% of workers consider a company’s culture before applying. A 2018 study by Jobvite found that 46% of candidates believe culture is very important when applying for a new job. 88% of those polled believed that culture was at least of relative importance.

The relationship-building that comes from honesty will only help improve your company’s culture through positive and unshaded hiring.

Faster Times

According to our findings, the hiring process can take an average of three to six weeks (unless an immediate hiring need). Therefore, a plethora of time and company resources are used during this vetting process. Time is money, after all.

Obviously, the recruitment and hiring process can be so resource-demanding that companies reach out to staffing agencies for help. That’s the whole point of our business and sector (duh).

Consequently, when a potential hire drops out midway through the process, a company takes a significant hit, pushing them backward on their timetable and costing them a significant amount of pocket change. In smaller companies, an HR department can find itself reeling after a last-second recruit change.

Let’s circle back to the confusion behind keeping salaries a secret for so long: in the past, companies believed that salary negotiations shouldn’t happen toward the end of the hiring process. But how often is low pay a reason that the candidate drops out of the job?

If losing a candidate hurts a company, and the main reason they drop out is pay, why keep the payment talks to the end? It seems to hinder both the employee and employer significantly.

Salary transparency makes the entire hiring process more efficient. Candidates see the pay upfront, applying to the job with the salary already out of the way. Sure, negotiations may still be in play, but you know that the employee is speaking the same figures as you. No more dropping out at the last minute.

Negotiations Change

If the employee understands the salary range upfront, negotiations are easier and more efficient. Much like our last point, the employee isn’t coming to the table without the necessary information. They already accepted the range of pay when they applied for the salary-transparent job. The negotiation then involves small number differences, not entire salaries.

Lexi Clarke, vice president of people at Payscale, told CBS News, “Pay transparency won’t eliminate salary negotiation.”

She noted that salary transparency will help candidates “understand what their expectations should be, and where (salary) boundaries are and where there might be flexibility. It levels the playing field between employers and candidates to have a more open and transparent conversation.”

Though salary transparency may cause companies to increase salaries, it will make the negotiation process and vetting period more efficient. Ultimately, this improvement will save HR departments significant resources and time. It’s a win for both parties in the long-run.

Retention Should Boost

If an employee is knowledgeable about your payscales from the get-go, there is no chance of a whiplash-like surprise later in their career. They are entirely aware of pay and salaries throughout the company and, therefore, cannot be taken aback if they find out hidden information.

Consequently, this should greatly improve employee retention, eliminating the employees that eventually quit due to finding out about salary differences. Everyone is aware upfront and makes their employment decisions with the factual numbers in hand.

In fact, studies reported by TinyPulse have found that the tactic of upfront honesty about wages increases retention rates even when employees are being paid below market. Honesty and trust go that far, especially in regard to employment and the life-altering balance of payment.

Henceforth, when a company trusts you and knows you are not undermining your workers, they are more likely to want to work for you (even if you pay below other unsavory jobs). Being honest and forthright pays off.

Bonus: the aforementioned TinyPulse studies found that Millennials are 22x more likely to work for a company with a high-trust culture.

”Honesty is the cornerstone of all success. Without honesty, confidence and ability to perform shall cease to exist.”

— Mary Kay Ash, American Businesswoman

New Talent Is Interested

Workers want to make more money. Employees want great workers. Great workers know their worth.

Creating quicker trust, better company culture, and a reliable reputation draws great, new talent to your job postings. It’s as simple as that.

Ultimately, we won’t spend too much time discussing this. It’s fairly simple to get from cause to effect here. Being honest draws better workers, especially in regard to the reason we work as a culture, payment. In fact, a LinkedIn study found that including salary ranges in job postings drives more qualified candidates to apply.

Interviewers Need to Be Prepared

This is neither positive nor negative, but it needs to be noted.

Oftentimes, a company will wait until the second interview to discuss pay. The second interview may involve a higher-up, not just the normal hiring manager, allowing for a more open and conclusive salary negotiation.

Now that salaries are upfront, the initial interviewer needs to be able to answer questions regarding pay. Now that it’s a transparent topic, interviewees are more likely to ask those taboo questions. HR departments and hiring managers need to be ready for the new questions regarding pay. They need to have the corresponding information on hand.

The Negatives…

With every drastic change comes a plethora of negatives, even if the overall intentions are objectively good.

We won’t drag on too long about the negatives around salary transparency. Simply put, there aren’t many. The only glaring negatives would only be true if the company is pulling shady or wage-gapping tactics. Therefore, the objective negatives are more so regarding the culture of work itself.

A Weird Shift in Morale

While creating a taboo around salary discussions has always been confusing when regarding employees and employers, an air of taboo in conversations between multiple employees makes a little more sense.

It’s important for employees to be able to discuss pay to battle against wage prejudice. If workers can’t discuss pay, they may never find out they are being mistreated, sure. On the other hand, raises and bonuses in pay are built upon a reward system. Salaries directly correlate with stature and job significance. Discussing it openly can create competition among workers.

Some workers simply aren’t professional enough to understand the difference in pay. If salary transparency goes to workers, some may see a peer getting paid more and become jealous, creating a toxic workplace. Even if the higher-paid employee deserved the raise over the jealous employee, the jealous employee will only see the salary difference as black and white. You are paying someone in the same role more than the other.

Ultimately, this leads to the possibility of workplace toxicity. But, in theory, a good workplace with high culture and great employers should be able to overcome these issues. If you are paying fairly and without discrimination, these strange auras shouldn’t last long.

Small Companies May Become Obsolete

The biggest concern regarding salary transparency is that of smaller companies.

If an employee can see salaries upfront, are they more likely to just gun for the higher-paying jobs, leaving the smaller companies without a chance of vetting the worker?

Smaller companies that can not afford the high-level pay of corresponding juggernauts often rely on other positives to sway workers. They often provide better working conditions, more benefits, or higher roles to combat the pay of bigger companies. Unfortunately, this may be overlooked if the employee is only looking at pay rates. The smaller company may never get the chance to get the attention of the worker, never getting the opportunity to sell them on their open role.

Ultimately, there has not been enough time or statistics to see for sure, but it’s something to look out for.
Smaller companies may need to tweak their vetting tactics over time.

In our Gen Z Hiring Tips, we noted that salary isn’t at the top of younger workers’ priority list. Maybe small companies will still have a chance due to a shift in employee values. Salary will always be crucial, though. It is the purpose of employment, after all.