California’s New Pay Transparency Bill: Will the State Go the Way of Colorado?

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Sep 26, 2022

It started in Colorado, moved to Washington, Rhode Island, and  New York City, and now it appears to be coming into play in California.

It’s not the latest disease of the apocalypse; it’s salary transparency in job postings.

While the state legislature recently passed a bill (SB-1162) that would require employers with at least 15 employees to include pay ranges in their job posts (as well as report how much certain groups of workers get paid), it continues to sit on Governor Newsom’s desk. He has until September 30 to make up his mind. 

Whether you’re hiring in or out of California, the law can affect your business. Additionally, while candidates favor such openness, companies tend to be less overjoyed. Here’s what you need to know.

Before California, There Was Colorado

Colorado was the first to jump into the salary-openness requirement — and of course, it did so before companies were ready share required information (regardless of they wanted to). Writing at Recruitonomics, Sam Kuhn looked at the impact of the state’s Equal Pay for Equal Work Act impact and discovered these critical results:

  • Labor force participation increased by 1.5% compared to neighboring Utah, which has no such law.
  • Indeed’s daily job postings in Colorado decreased by 8.2% compared to Utah.
  • Some companies excluded Colorado from remote job posts.

But Kuhn also discusses another result of Colorado’s law: increased friction, due to the “extra step” of posting a salary with the job description.

This is a tenuous problem. Recruiters already have the range when they post the job. It’s not a mystery to them, and job boards already ask for this information. So the pay range itself doesn’t seem to be the problem. Moreover, a policy that decreases postings while simultaneously increasing participation appears to be a good thing. 

All of which raises the question: Which job posts went missing? Perhaps the ones for positions that were underpaying.

California Is Different Than Colorado

Will California experience the same impact as Colorado? Considering the answer lies in first considering differences between the states.

Colorado has a population of 5.7 million, while California has 39.4 million people as of 2020. Colorado also has a union membership of 6.5%, while union membership in California is at 15.9%.

What’s more, California’s largest ethnic population is Latinos, at 39% of the population, while Colorado’s largest group is Whites, at 61.6%. Also, Colorado is pretty evenly split between Democrats and Republicans (42 to 41%), while 46.8% of Californians declare themselves as Democrats, with only 23.9% as Republicans.

Will any of this make a difference in the law’s consequences? We’ll have to wait and see. But it’s worth pointing out that a union population is used to clear salary information since pay for each job is a hallmark of a union contract. 

Meanwhile, Hispanic women, for instance, earn 57% of what white men earn. Might a place with a significantly higher percentage of Hispanics be focused on ending the discrepancy and push harder for more pay transparency?

Similarly, Democrats tend to support pay equality acts, while Republicans tend to oppose them. The Pew Center found that salary transparency tends to raise women’s salaries and lower men’s, bringing them closer together, which is a goal of pay equality acts.

In other words, there are enough differences in California and Colorado to not be sure that the impacts will be the same. Even as is, without the bill becoming law yet, businesses are already leaving California at a fast clip, and a recent study found that 31% of businesses don’t want to post salaries on job postings. Will this hasten their departure?

The California Chamber of Commerce labeled this bill as a “job-killer,” something California can’t afford. And the Society for Human Resource Management (SHRM) cautions that such laws can cause “wage compression.” 

Pay Based on Location?

In today’s environment of remote work, listing salaries for positions that can be done anywhere can be problematic. California recruiter Troy Harner points out that while he’s a huge advocate of salary transparency and would like to see it go national, there are some concerns. Harner explains: 

“I recognize that there are times when it may be challenging to share a salary range without proper context. For example, remote opportunities where the cost of living differences exist from state to state. Or roles posted at one level, but hiring team/s open to candidates with more/less experience. But even a ballpark range helps a person understand whether or not they are targeting the right opportunity and/or company, and it creates a more level playing ground.”

Whether companies should pay people based on location is hotly debated. Compensation expert David Buckmaster argues that location-based pay is necessary when some employees must come to the office. Having one pay system across the nation only works when everyone can choose.

Meantime, California has many high-wage cities, and people who work for the same companies in different states may object to their current compensation when they see that people doing the same job in the Silicon Valley office earn more than they do. 

The larger point is that displaying wages for everyone to see definitely results in more scrutiny from current employees and candidates. Any current employee can do a quick look at open positions to see how their salary stacks up against what the company wants to pay newcomers.

Will Gov. Newsom Sign the Bill?

SB-1162 has been on Newsom’s desk since Sept. 6, 2022, with no word from the Governor’s office. Given business concerns, it’s possible that Newsom won’t sign it, even though people like salary transparency.

Of course, salary ranges on job posts are not the only thing affected by this bill. It requires, among other things, companies to report on third-party contractors, provide pay scales to current employees, and provide reports on hourly employees. It also defines pay scale as “the salary or hourly wage range that the employer reasonably expects to pay for the position.” This could mean that a job posting with a vague “$40,000–$120,000”  listed pay scale could run foul of the law. 

If the bill were strictly around pay scales listed on every job posting, Newsom would likely have difficulty ignoring it. But with the other requirements, there are enough excuses to fall back should he reject something that job candidates want.

Regardless of whether this bill becomes law, Colorado opened Pandora’s box. As is, Indeed estimates salaries for all jobs if you don’t list one, and people are much more open about wages. The move toward salary transparency nationwide will not stop.

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