Salary History Bans Pose Challenges to Employers, Employees

January, 2018

As some states outlaw inquiries into salary histories of job candidates, Talent Economy explores reasons why and what employers should do.

At the beginning of 2018, California enacted a “salary privacy bill,” requiring that employers no longer ask potential job candidates about their salary history. Employers must also provide a salary range for a job when an applicant requests it.

Other cities and states already have versions of this law; asking for salary histories is illegal in New York City, New Orleans, Oregon and Puerto Rico. By July of 2018, it will also be the case in Massachusetts and San Francisco. Philadelphia has similar laws, but its Chamber of Commerce brought up legal challenges based on alleged violations of First Amendment rights.

The aim of these laws is to reduce the gender pay gap that is prevalent between men and women. According to the United States Census Bureau, women made 80.5 cents for every $1 men made in the U.S. in 2016, the most recent year for which data is available, when controlling for those who worked full time annually. This is improving for young workers ages 25 to 34, according to Pew Research Center. In 1980, the wage gap among this group was .67:1, improving to .9:1 in 2015. Still, there is work to be done.

“If you ask a candidate about their past history, you could potentially base their current or future pay on what they were paid in the past,” said Angela Preston, senior vice president and counsel for corporate ethics and compliance at New York City-based Sterling Talent Solutions, a background screening company. “If they had a wage gap or a pay gap, it could perpetuate that wage gap and lead to wage discrimination.”

With bans on asking job candidates for salary history, what will be the results and challenges for employers and employees?

Winners and Losers in the Law

Many forces are at play here, but experts agree that employees stand to benefit most from these laws.

“I certainly think it benefits candidates coming in and starting with a level playing field,” Preston said. Job searchers will feel empowered to not have to answer certain questions that could put them at a disadvantage in terms of pay. Also, candidates will see a focus away from salary and more on their qualifications, Preston said. Requirements of the job and the market for those skills will be the basis for salaries.

Employers, however, will face greater challenges in negotiating wages and pleasing their future staffers.

“While the spirit of the law is noble, and I understand the intention, I think the danger here is if you use salary as an equality number, what’s going to happen is it’s not going to transfer very well,” said Russ Riendeau, partner at Jobplex Inc., an executive search firm based in Chicago. Without a number in mind, it’s hard for a company to determine the value of a person in a job. “It seems fair that I would want to know what your history of success is. If I’m going to invest in you, I’m getting good value for my investment.”

Additionally, it’s hard for employers to negotiate with potential hires. “If I don’t know what you made, how do I know where to begin?” Riendeau asked. Without being able to verify salaries via references, as outlawed in New York City, job candidates could lie about their salary and exploit the business, Riendeau said. Furthermore, companies don’t want to insult candidates by starting with too low of a salary.

Employers like to use applicants’ current salary to eliminate their candidate pool at both ends of the spectrum, both at the highest and lowest salaries, said Hassan Enayati, research associate at the Institute for Compensation Studies, Industrial Labor Relations School at Cornell University. Candidates with very low salaries might be perceived as less qualified, while individuals with very high salaries could be viewed as unattainable. “Then, the employer can use the knowledge of a candidate’s salary history to offer a wage high enough to attract the candidate but less than the maximum wage the employer is willing to pay for that position,” he said. Without a salary history, this process becomes more difficult.

Responsibilities of Employers, Employees

One of the main concerns facing employers is how to remain compliant, especially when a company operates in multiple states or jurisdictions, Sterling’s Preston said. For example, in New York, it’s acceptable to ask about salary expectations, but this is not lawful in California. If a person volunteers their salary information, it’s OK for employers to use the information in California, but not in Oregon.

“If you’re an employer, and you are doing business in both New York and California, you have some very different requirements,” Preston said. She encourages clients to look at these rules at a high level to see what universal changes to make that will be applicable across multiple jurisdictions.

To avoid legal troubles, Preston advises that business leaders do the following:

  1. Train hiring managers and staff on the laws and differences by location.
  2. Remove salary questions from the job applications.
  3. Take salary questions out of the reference-checking process. If the company has a standard question list for reference checking, remove questions of salary, commission and bonuses.
  4. Document the process. Whatever changes the company has made to policies should be noted. If the company has hired contractors doing interviewing, be sure to have the restrictions documented in agreements. And if interviews are in-house, take notes and be sure to document the nature of the questions and how applicants respond, “so that you do have proof in the event that you’re challenged,” Preston said.

While much of the onus is on employers, applicants will need to be educated as well. They should know what questions are appropriate where they’re looking for work, Preston said. Additionally, if an employer can’t ask about bonuses or commissions, the onus is going to be on the applicant to say what they need or expect out of the job.

Jobplex’s Riendeau added that job candidates can also be advocates for themselves by presenting logical reasons for their worth. If they share ways they’re improving their skills and how they would help the company increase profits, they can negotiate higher salaries.

Results of Salary History Ban

Will the intention of these laws come to fruition?

Following the salary history ban in Massachusetts, PayScale conducted a survey of 15,413 job seekers to see if they disclosed their pay history during the interview process. As written in Harvard Business Review, PayScale found that if a woman was asked about her salary and refused to answer, she received 1.8 percent less than women who did disclose salaries. Men who refused to disclose salaries saw offers 1.2 percent higher than men who shared their history. This displays that salary history disclosures impact women differently than men.

“As with any data analysis, individual circumstances may vary, so it’s entirely possible that sometimes revealing your salary does negatively influence your offer,” wrote Lydia Frank, vice president of content strategy for PayScale, in the HBR piece. “However — at a macro level — that’s not typically what’s happening. These findings seem to undercut the whole premise of banning the salary history question in order to level the playing field for women when it comes to compensation.”

Additionally, with these new laws, there is a balancing act between employers and employees. Sterling’s Preston noted that risk of litigation has companies spooked and could have a chilling effect on their ability to bring in the best talent or negotiate salaries. Still, she remains hopeful.

“I think that the hope is that this all leads to a better work environment, a fair marketplace that is based actually on market data and that hiring decisions will be made based on the actual job requirements and skill level that’s required of the applicant,” Preston said.

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