Is your business ready for new pay transparency laws? Most notably, California’s pay transparency law goes into effect on January 1st, 2023, following in the footsteps of the 2021 Colorado law. Unfortunately, this presents a new compliance hurdle for small businesses, particularly to clear. So how do you adjust?
The spirit of these pay transparency laws is noble; over time, they will likely benefit job seekers and businesses. For example, research from Willis Tower Watson showed a 16% increase in job applicants when companies post salary data. That finding aligns with a survey from Adzuna, which found that 32% of job seekers don’t trust companies that post jobs without salary information.
Unfortunately, bigger companies with robust compensation infrastructure have a leg up on leaner small businesses in the race to comply. This is because their HR and compensation teams run swift, practical analyses, allowing them to post accurate, competitive salary ranges.
Small businesses are not very likely to have such a luxury. However, in a tight talent market, time is of the essence. Can your business afford to miss out on candidates while lagging on compliance?
In this blog, we’ll outline a few steps you can take if your business is affected by pay transparency laws. We know shuffling priorities can feel like a setback, but getting this work done now saves many a headache down the line.
How does SB 1162 work?
Before the California pay transparency law (SB 1162) goes into effect, SMBs have some adjustments to make. The law applies to any company employing 15 or more workers in California. So if you base your business outside of California but employ workers in the state, you’re also affected here. Essentially, you’ll need to disclose base pay, but benefits, bonuses, and equity are not mandatory disclosures under this law.
Some gray areas exist around remote work, which is especially troubling to navigate without an HR team. That may not be a problem yet, but preparing as if it were wouldn’t hurt. Any sort of remote employee loophole is likely to close under this law.
Now, how many 15-person startups count a compensation expert among their staff, let alone an HR team? We’d wager that number is low. So what do they do?
Establish pay bands
Before pay transparency laws in their state, most startups wouldn’t expect to iron out concrete pay bands until they hit around 40 headcount. Now, their priorities require a slight shift. If your small business is in that position right now, do not stress. Establishing compensation bands might take some work, but it’s well worth it (and, of course, now mandatory).
Pay bands, also known as salary ranges, salary bands, or compensation bands, are the target pay ranges for each job level at your organization. For example, in Chicago, salary ranges for an HR generalist are $59k-79k, but a senior HR generalist gets around $77k-120k.
Compensation studies help tremendously here. Establishing competitive salary ranges is easier when you understand the market rates. If your team isn’t sure how to approach this research, consider consulting options. Sometimes it’s best to pull an outside expert in for a quick and effective turnaround on your compensation study.
Communicate with employees
While pay transparency laws mandate outward openness about salary ranges, they should also inspire greater transparency internally. As you make changes to your compensation strategy or even codify the standards you’re using currently, you must keep your employees in the loop. For example, the California law mandates the disclosure of pay ranges to any employee who asks regarding their current role.
Additionally, you’ll want to ensure that managers understand the pay bands across roles in their departments. Can they effectively explain how employees progress through upper ranges? By standardizing pay, employees receive greater clarity on their career paths.
Of course, pay bands becoming public information means your current employees can see them too. If their current salaries don’t match the newly published ones, be prepared to explain any disparities and make quick adjustments where necessary.
Maintain a consistent salary structure
Establishing your pay bands in response to the pay transparency laws accomplishes many things, but one, in particular, is an easier path to pay equity in your company. Often, an upward shift in salaries is not uncommon when creating standardized salary ranges. Indeed, that can be costly for small businesses, but it pays off with a re-energized workforce.
Disparities in pay across a company happen for a variety of reasons. Sometimes there are severe and legitimate issues of discrimination at play, whether conscious or not. Other times, however, it’s much less malicious. For example, many smaller companies aggressively stretch their salary ranges when they really want to hire a particular candidate. That’s great for that employee, but it raises issues as the team expands.
Your hiring becomes even more scalable with a consistent, competitive salary structure. It’s easy to feel like you’re only doing this to follow the rules. However, adjustments to pay transparency laws make your company more attractive and equitable which pays off along the way.
ADDA strengthens compensation strategies
Waiting to make these adjustments creates compounding risks over time if you operate in California, Colorado, and other areas with pay transparency laws. So instead of cleaning up a big mess tomorrow, why not tidy up your compensation strategy today? Schedule a call with ADDA to prepare your payroll for 2023.