As new laws attempt to erase gender-based wage differences, they also are forcing employers to transform hiring practices. HireRight’s Alonzo Martinez discusses what employers can do to stay in compliance.
For generations, questions like “how much do you earn now?” have been a central part of the hiring process as employers consider the pros and cons of a particular job candidate.
But, today, in a growing number of states and communities, companies could run afoul of the law if that kind of query popped up on hiring forms or during in-person interviews. As cities, counties and states across the country pass new pay equity laws or shore up existing ones, inquiries about a job seeker’s salary history might just be illegal.
The laws have an important goal: They seek to solve a problem that’s lingered for generations despite the passage of the Equal Pay Act of 1963: Working women typically earn less than their male colleagues, and it’s difficult for them to ever catch up when new employers perpetuate compensation based on their lower earnings at their previous job. According to the U.S. Census Bureau, the median pay for a full-time working woman is $41,977; full-time working men take home $52,146 a year.
But as these new laws attempt to erase historic wage differences, they also force employers to transform hiring practices to stay in compliance, stay out of the headlines and meet the expectations of today’s job applicants. Even if employers operate in an area without pay equity laws, screening efforts and questions that seek a candidate’s past earnings should be scrubbed from the hiring process. To recruit the best talent in today’s workforce, it’s simply best practice.
Jumble of Pay Equity Laws
With more laws on the books and high-profile pay equity cases at major corporations including tech giants and large retailers, 2018 was a big year in the effort to close the gender-based salary gap. In the first three months of 2019, news of pay equity litigation and laws haven’t slowed down.
In March, the top-performing U.S. Women’s soccer team filed a federal class action lawsuit against the United States Soccer Federation, claiming “institutionalized gender discrimination.”
In late January, Democratic lawmakers reintroduced the Paycheck Fairness Act to reinforce protections that already aim to ensure women earn equal pay.
And, at the beginning of the year, new or strengthened pay equity laws went into effect in Connecticut, Oregon and Hawaii. These three joined more than a dozen other jurisdictions that already have passed pay equity laws of their own in recent years, representing a myriad of laws employers must now comply with.
While each law is different, they generally prohibit employers from asking job candidates about their compensation history and then validating that information. The timing and scope of those queries, however, depend on the jurisdiction. Most pay equity laws let employers ask about a job candidate’s past salary once a conditional offer has been extended, but in New York City, for example, the question isn’t allowed at any point during the pre-hire process.
That’s not the only difference about the laws on the books. California’s pay equity law mandates upon request employers provide job seekers a pay scale for the job they’ve been offered. In Hawaii, the new law also prohibits employers from disciplining employees who talk about their wages with each other. And in San Francisco, employers are prohibited from disclosing a current or former employee’s salary without their express consent.
Oregon may have the country’s broadest pay equity law. It prohibits questions about past wages and also adds additional protected classes beyond gender, such as religion, sexual orientation, national origin, age and veteran status.
And lawmakers in Indiana, Pennsylvania, South Carolina, Virginia, Colorado, New York and Texas now are all debating the merits of various pay equity bills.
Best Practices to Address Pay Equity Laws
The laws — and the bills currently under consideration — put employers in a tricky position as they consider how they can remain in compliance. To do it, they’ll need to update longtime hiring practices that made a job candidate’s historical earnings a central component of the process and move forward with new best practices that will protect the organization from challenges and litigation.
Here are four best practices employers should put in place now to address pay equity laws.
- Eliminate salary questions from the hiring process even if you operate in an area without pay equity laws, not only because it prolongs the gender pay gap, but also because it’s likely legislation is looming. This is especially critical for companies operating in multiple jurisdictions that may have different requirements. If hiring practices are applying the most stringent compliance practices and these are standardized across all locations, it’s easier to remain in compliance with the various laws.
- Ensure any third party that screens applicants has updated its questions and forms to leave out salary history. Companies could be held liable for the actions of a third party working on its behalf that do not comply with the new laws.
- Train — and retrain — managers to ensure questions about salary history never come up during the hiring process and that all references to it are erased from forms and other paperwork related to hiring. At the same time, employers also should create a process to document when job seekers voluntarily disclose their pay history to demonstrate they treated the information appropriately and according to the law.
- Conduct an internal wage analysis that includes salary, wages, bonuses and incentives to uncover and resolve any disparities across jobs, genders and classes. In fact, a thorough analysis could help you make your case in court if your pay practices are challenged.
Prohibiting questions about salary leaves plenty of employers wondering how they can ensure the job candidate’s salary goals are in line with their own tight budgets.
It’s important to remember that the laws bar employers from seeking a job candidate’s salary history, but it doesn’t ban all discussions about compensation during the hiring process. Let’s face it, money is on the minds of both interviewer and interviewee, and employers can still talk about it. They’ll just need to tread carefully.
Here are examples of three discussions that can take place during the hiring process:
- Employers can ask about a candidate’s salary expectations.
- Employers can share the pay range for the job offered.
- Job seekers can offer, without any prompting by the interviewer, their own salary history.
Addressing Salary and Compensation During Hiring
As employers wade into this new world of pay equity laws, they’ll need to switch their way of thinking about compensation. No longer should they base the salary on the particular candidate’s pay history, but strictly on their skills, merit and the duties and requirements of the job.
Employers can do these three things to address salary and compensation during the hiring and recruiting process.
- Study the market to ensure the compensation you’re offering is competitive. Especially in a tight labor market, job candidates and employees have choices. Do the work to make certain they won’t leave you because they can earn more at another company in your area or industry.
- Base the salary offered on the job required and the merits and skill of the candidate. Be forward thinking in your hiring instead of focusing on past wage decisions that may have been detrimental.
- Pull together pay scales for the job, such as those required by California’s pay equity law, to provide to job seekers when they ask for it. If the range doesn’t fall within their requirements, the candidate can decide for themselves whether they’ll move forward or walk away from the process.
New Role for Background Screening
Simply put, companies undervalue candidates’ worth and could ultimately lose job seekers to higher-paying employers if they make compensation history a key part of their work to find new employees.
When companies stop focusing on past wages, they free up the background screening process to dive into more relevant aspects of a candidate, such as skills and capabilities, how well the candidate will fill the role and whether they’ll fit into the culture of the organization. These are the factors that will make for a great hire, not how much the candidate may have made in his or her previous job.
And pay equity doesn’t just help women. With it, for example, experienced job seekers no longer lose out on jobs simply because he or she earned too much in the previous one. The law levels the playing field for all and rightly turns the focus to the candidate’s abilities and skills.
When companies start considering a broader swath of job candidates, they win, too. Employers begin to build a more diverse workforce, cutting away at longtime pay disparities between men and women and, with new perspectives at the table, driving more innovation and growth for their business.