Understanding the Pros and Cons of Pay Transparency

Employment Law

Understanding the Pros and Cons of Pay Transparency

Jan 3, 2023 | Employment Law

Pay transparency – the degree to which employers are open about pay information or are permissive of employees talking with each other about pay — is becoming increasingly popular among employers. By sharing and facilitating the discussion of salary information, employers may be able to promote fairness and equity while building trust between employees and employers. While there are advantages and disadvantages to pay transparency, the pros seem to outweigh the cons when it is implemented correctly. In this blog, we’ll explore the pros and cons of pay transparency, as well as how Virginia’s Pay Transparency law might impact your workplace.By openly discussing salaries and pay expectations, employers can create an environment of trust and transparency that benefits everyone involved.

Employers are being nudged toward greater pay transparency by laws at the federal, state, and local, level. The National Labor Relations Act gives employees the right in many circumstances to discuss pay and benefits as a protected, concerted activity, while the OFCCP prohibits federal contractors from adopting policies that burden pay transparency.

At the state level, the Virginia Pay Transparency Law (“VPTL”), Va. Code § 40.1-28.7:9, prohibits employers from discharging or taking other retaliatory action against employees for discussing their own pay or the pay of another employee. However, the VPTL’s protections do not apply to employees who have access to the salaries of colleagues as part of their essential job functions, e.g., HR employees with access to pay information, and then subsequently disclose those salaries to others.

Both Maryland and the District of Columbia have pay transparency laws with employee protections like those in the VPTL. Maryland law goes even further, requiring employers, if asked, to provide job applicants with a wage range for the position.

Pay transparency laws are intended, in part, to reduce racial and gender pay inequality by facilitating the exchange of more information about pay so that employees are better informed and those looking for employment are better informed when they are applying for jobs. With companies required to allow employees to disclose compensation information, it’s much harder to ignore potential disparities in wages among employees who perform similar jobs. Additionally, when salary information is shared openly and honestly, employees may feel more motivated as they can easily see what their peers are earning and determine if there is a discrepancy.

Another advantage of pay transparency is that it can build trust between employers and employees. When salary information is shared openly and honestly, it creates a work environment of increased transparency, which helps to promote fairness and equity. Additionally, transparent communication about compensation demonstrates respect for employees, builds employee trust in the employer, and strengthens the employer-employee relationship.

Although these advantages are convincing and supported by recent workforce surveys, there can be potential risks to employers associated with pay transparency as well. For instance, increased transparency in employee salary information can potentially create resentfulness and hostility in the workplace, if some employees conclude that they are not being fairly compensated relative to their peers. Additionally, an increased disclosure of and discussion about pay could lead to uncomfortable questions being asked and put pressure on employees to discuss their salaries, which may lead to feelings of unease or resentment.

With that being said, pay transparency can have a positive impact for many employers if it is implemented correctly. By taking steps to avoid unnecessary disclosures of employees’ private information and reviewing compensation policies regularly, employers can create a work environment of trust and transparency, one that helps close racial and gender wage gaps, builds leadership trust, and ensures fairness and equity. With the right approach, pay transparency can be beneficial for everyone involved.

If you have questions or need any assistance concerning guidance around pay transparency in your workplace, please contact Doug Taylor at (703) 525-4000 or rdougtaylor@beankinney.com.

This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.

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