New Compensation Regulations May Affect Hiring Practices: Are You Prepared?

By Jay Meschke

Organizations in hiring mode may have noticed that a New World Order in compensation is upon us. New laws and regulations are being implemented across the country that require most organizations to change their practices and protocols when it comes to understanding a candidate’s compensation history during the interview and application process.

These changes are intended to address equal pay for equal work considerations. The regulations attempt to even the playing field for applicants by ensuring that salary and compensation variables are benchmarked against the job itself and the market conditions. As such, obtaining applicants’ compensation history, an extremely common practice in the past, will be viewed as taboo. Instead, the regulatory intent is to take any bias, real or perceived, out of the equation.

Several states and municipalities have already enacted or will be implementing such regulations. They include New York, California, Delaware, Massachusetts, Oregon, Pittsburgh, New Orleans, and San Francisco. At least six other states are considering similar regulations.

The legal parameters of the new regulations and rulings tied to actual case law have not necessarily been tested yet; however, every human resources executive or organization in the hiring market better be prepared. There are penalties attached to violations, and some of these penalties can be punitive. For example, New York City cites fines of up to $125,000 and $250,000 for an unintentional violation and intentional malicious violation, respectively.

Meeting the compensation regulations

Many companies across the country have already taken action to mitigate their risk. At a minimum, these organizations have eliminated salary and wage history questions from job applications, as well as asked third-party recruiting companies they partner with to comply with the new regulations. At present, it’s unclear if an employment agency or search firm representing a hiring company could place the organization in jeopardy over practices that could be construed as a violation of the regulations.

Beyond that, organizations looking to hire should take these steps in light of the new regulations:

• Perform a comprehensive compensation analysis across different job functions and geographies. This may be achieved in-house but could require the engagement of an outside compensation consulting firm.
• Analyze your current salary structure to ensure there are not—nor appear to be—any wage differentials across your organization (e.g., internal equity) or between employees from underrepresented groups (e.g., gender or cultural diversity).
• Design systems for documenting voluntary salary disclosures made by applicants, as the lack of such systems could be detrimental under certain laws and regulations.
• Consider instituting holistic training for the entire employee population so they can stay informed of any risks and new protocols that need to be instituted.

Companies dismissing these new developments because they don’t have operations in the affected markets would be wise to reconsider their position. Some of the regulations note that it’s not the location of the hiring organization that matters, but of the applicant. Consequently, an employer in North Dakota, for example, may be subject to such regulations if the company is hiring someone from New York City.

While there are still outstanding variables, the new laws and regulations related to compensation processes and disclosure stand to impact virtually every organization, regardless of size, industry, or other factors. Heed the steps outlined above to protect your business from unwanted risk and stay ahead of the curve.

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