Salary History Inquiries Are on the Way Out. What’s Your Game Plan?

The hiring process is a complex and critical business issue for most organizations. The stakes are high, particularly in our current low-unemployment climate where the challenge of finding the right talent has increased exponentially. Every organization has a pressing need to fill key positions with new team members who have the right skills and abilities to do the job and align with the company culture. Amid this pressure to get the best hire, challenges often arise in recruiting and hiring, including the recent laws passed to ban requesting and using salary history in the hiring process.

The purpose of these laws is to combat pay inequities. “The problematic practices of seeking salary history from job applicants and relying on their current or past salaries to set employees’ pay rates contribute to the gender wage gap by perpetuating wage inequalities across the occupational spectrum,” the San Francisco ordinance states.

California’s statewide ban is the most recent one to be enacted, taking effect on January 1st of 2018. New York City’s law will take effect on Oct. 31. Philadelphia’s ordinance was set to take effect in May but was postponed while a judge considers a legal challenge to the rule. Some states have also passed pay-inquiry bans. Delaware’s law is scheduled to take effect in December. Massachusetts’ law is slated for 2018, and Oregon’s will be effective in 2019. According to a recent overview, “nearly half of all states are considering similar legislation,” so similar ordinances will continue to expand in to additional cities and states.

If companies are not proactive in putting new policies in place to meet these new requirements, they risk exposure to litigation and penalties, as well as potential damage to their reputations and employer brands. Companies that violate the new rules face a civil penalty of “up to $125,000, or up to $250,000 if the employer’s conduct is willful, wanton, or malicious.” These steep penalties mean that organizations with employees in any of the affected geographies need to act now or find expert assistance with the training and specialized consultation needed to prepare for these changes.

Making great hires and staying on the right side of the law, no matter what jurisdiction your company is in, is easier to navigate when you have an understanding of the policy reasons behind these requirements and have the right tools and training for your talent acquisition and hiring teams. Here are 3 ways your company should respond to recent legislation:

1. Revise application forms removing questions related to salary history.
2. Update interviewing and negotiating policies and procedures, including:
   • Recruiters will not be allowed to ask job seekers, “what were you making at your last job?” In New York City, there is a carve-out for asking candidates about their expectations regarding compensation, but in California there is no such provision. Recruiters should be trained on these new requirements, and everyone involved in hiring must have a solid knowledge of the benchmarked market range for a position.
   • When information about past salary is spontaneously shared by job seekers, it may potentially be used to make decisions, but this also depends on the jurisdiction and the particular law or ordinance.
   • Specifically, for the new California law, if a job seeker requests information on the pay rate for an open position, employers must provide it. This highlights the importance of current salary benchmarking and specialized compensation planning, which can be challenging for companies without these resources at hand. The external data to support some compensation decisions may not even exist in every market.  That’s why experts in compliance and compensation design are critical partners in preparing for these changes.  They can help develop a compensation strategy to support a competitive, results-focused, market-driven and equitable framework.
3. Train hiring managers and interviewers on the new provisions.
   • It’s not just the recruiting teams that need to be aware of these new protocols! Treat this as a company-wide initiative and educate anyone who participates in the hiring process.

Pay equity is an important business issue that should spur employers to reevaluate their current hiring and compensation practices to ensure they are making data-supported pay decisions that reward results and take into account market factors, even if they do not currently have employees in affected States. In today’s connected world, wise competitors are ready to pay top talent what they are worth. Paying employees their market value, addressing salary compression among your current employees and transparently communicating that philosophy, has a positive impact on your culture and your employer brand. Why wait? By embracing this trend now, your organization can achieve better employee retention and improved pay equity at the same time!

If you have questions about these upcoming changes, or are interested in learning more about how to make sure your organization is ready, please connect with me at kmarinelli@consultants.hrqinc.com.

Kelly Marinelli, J.D., SHRM-SCP, SPHR is a people strategy consultant and licensed attorney, serving clients from startups to Fortune 500 companies in the U.S. With 20 years of business, legal and HR consultation experience, she specializes in people strategy solutions that find the intersection between business results and legal compliance.