Frequently asked questions during the recruiting and interviewing processes include, “What is your current salary?” and, “How much did you make in your previous job?” Questions like these aimed at determining an applicant’s past or current compensation may be on their way out, as a number of jurisdictions have passed laws banning employers from asking about salary history.
The reasoning behind preventing employers from requesting information on pay history is that often, an offer is partially based upon an applicant’s current or past pay. If a job candidate discloses below-market compensation at their previous job, they may receive a below-market offer from a prospective employer, and this becomes a cycle that is difficult to escape. It is likely that the cycle of lower pay affects women and minorities more than other groups, so the thought is that eliminating questions on past compensation may help reduce the pay gap. Women are more likely to leave and reenter the workforce than men, leading to career breaks and lower long-term career earnings. According to the most recent available Census data, women earned 80.5¢ for every $1 earned by men during 2016, so the pay gap is a significant ongoing issue.
In addition to a few large cities that have already passed local ordinances and states that are considering enacting rules, the following states have already created laws addressing pay history:
A couple of other states have gone the opposite way and passed laws during 2018 that prevent salary history bans. A Michigan law that went into effect in June 2018 reads: “A local governmental body shall not adopt, enforce, or administer an ordinance, local policy, or local resolution regulating information an employer or potential employer must request, require, or exclude on an application for employment or during the interview process from an employee or a potential employee.” While this law is very broad, it certainly prevents local governments from creating salary history bans. Wisconsin passed a rule similar to the one in Michigan; however, the law in Wisconsin is more narrowly defined and targets salary history specifically, stating that “no city, village, town, or county may enact or enforce an ordinance prohibiting an employer from soliciting information regarding the salary history of prospective employees.” It would seem that Michigan and Wisconsin are trying to avoid the patchwork of local laws that have popped up in places like New York, where laws regarding questions related to salary history may vary by county or even city. It is possible that these two states may eventually pass statewide legislation that would prevent employers from asking about pay.
One of the reasons that companies like to ask applicants about their salary history is that they want to understand what a person is expecting to be paid. This allows them to prevent wasting time on the interview process if salary expectations do not align with the range for the position. However, companies can share the salary range for the open position and determine if the candidate is still interested in moving forward without asking about salary history.
A well-designed base pay system links new hire pay to factors such as the external market, candidate experience and qualifications, and internal pay equity. Setting new hire pay on these factors rather than pay history can lead to greater satisfaction with the pay system and mitigate future internal pay equity concerns.
Strategies and Considerations for Companies Going Forward
1. Companies could consider changing their policies to prohibit inquiring about pay history, even if no laws have yet been passed in their jurisdiction.
2. If salary offers are based upon experience, market-based rates of pay, or other permissible factors rather than an individual’s past earnings, the pay gap may be reduced.
3. Using competitive pay data to determine an appropriate range of pay, rather than relying on a candidate’s pay history, may also assist in creating internal equity.
4. Not using pay history as a factor in making offers may reduce the chances of litigation related to pay practices that may discriminate against protected employee classes.
Dan Steele and Joe Kager of the POE Group
info@poegroup.com