Pay Transparency Laws: What Small Businesses Need to Know

Eight states have adopted pay transparency laws, including California and New York, with several more considering legislation. Much of the buzz around these laws has been regarding large corporations and their employees, but how do small businesses fit into the picture? Here’s what you need to know.

WHO MUST COMPLY

In the states and several localities that have pay transparency laws, employer requirements vary based on number of employees. For example, in Washington state, businesses with 15 or more employees must disclose pay information in job postings, whereas in New York, the number is four or more. If you are a company looking to source remote talent from any state that is subject to laws, you must also include a pay range even if your company isn’t located in that state.

WHAT HAPPENS IF YOU DON’T COMPLY

Monetary penalties, assessed per violation or per job posting, can range from hundreds to several thousands of dollars and are currently only assessed against companies that have been reported by a candidate. Penalties may be assessed right away or 30 days after a complaint is filed, if the company hasn’t rectified the issue during that time, according to Lulu Seikaly, senior corporate attorney at Payscale, a company that helps businesses with compensation management.

Small-business owners may also consider other costs of not complying, such as damage to reputation, employee retention or recruiting, especially for businesses in industries that target younger candidates. For example, according to a recent study from Adobe, 85% of recent and upcoming graduates say they are more likely to pass on a job application if the posting doesn’t include salary information.

HOW SMALL BUSINESSES CAN COMPLY

As it currently stands, companies subject to pay transparency laws must post a “good faith” salary range, meaning a range that they reasonably expect they will pay for the role — but that can still be negotiated in either direction based on the candidate. If you don’t typically post job openings, your obligation to provide transparent pay information is upon request by a candidate or current employee, according to Marina Vitek, a mentor at the Coachella Valley, California, chapter of SCORE, a nonprofit that offers free resources to small-business owners.

Whether you are a local cafe with a five-person staff or a consulting firm with 80 employees, it’s prudent to take inventory of your internal pay structure before posting any salary information to avoid conflict with current employees. However, this process doesn’t have to be complicated, says Jim Emanuel, a human resources knowledge advisor at the Society for Human Resource Management.

Keep up-to-date information like hire date, previous performance review ratings and pay increases in a spreadsheet to reference when making hiring decisions. If you use payroll or HR software, this data can be even easier to gather. “I think for smaller businesses it’s just about pulling data,” Emanuel says. “It doesn’t have to be fancy.”

BENEFITS AND COMPLICATIONS OF PAY TRANSPARENCY FOR SMALL BUSINESSES

While pay transparency can help businesses move toward pay equity, it also raises concerns for some small businesses — which often pay less than larger corporations — that they won’t be able to attract good employees.

One workaround that could have unintended negative consequences is to avoid posting openings altogether. Businesses may be tempted to instead opt to leverage referrals or reach out to candidates directly, resulting in less diverse candidate pools, said Jen L’Estrange, founder and managing director of Red Clover, a human resources management consulting firm, in an email.

However, L’Estrange also noted that oftentimes job candidates are more responsive to how companies talk about money rather than the money itself. And when it comes to employee retention at smaller companies, it’s more often a result of recognition and the ability to learn and grow, she said. Similarly, Emanuel recommends leveraging intangibles, such as engagement and connection, that often get lost at large corporations.

Complications aside, it’s not always a matter of business owner versus employee, but rather how daunting the task of compliance can appear, especially for owners who fill multiple roles for their business. From his own experience, Emanuel believes that much of the remedy will come from “demystifying” the laws. “It’s just about getting your arms around it,” he says. “People want to do what’s right.”

RELATED LINKS:

NerdWallet: What is Pay Transparency and Which States Require it?

NerdWallet: Strategies Small Businesses Can Use to Retain Employees

NerdWallet: How a Business Can Move Toward Pay Equity

NerdWallet: Still Can’t Find Good Employees to Hire? Try These Perks

Olivia Chen is a writer at NerdWallet. Email: ochen@nerdwallet.com