Contingent workforce programs should be highly cautious when addressing emerging salary history ban statutes and associated risk by keeping a close eye on legal developments to avoid the risk of running afoul of the law.
Salary history bans — policies that prohibit employers from asking job candidates about their previous salaries — are becoming more prevalent throughout the US. Currently, 27 states, the District of Columbia, Puerto Rico and many localities have enacted these bans, and similar legislation is pending elsewhere within the US.
We take a look at these policies and their impact.
Behind the ban. There are a couple driving forces behind these policies. First, pay based on past compensation or expectations, not based on the job requirements themselves, can create and sustain a comparable pay gap between groups of workers in an organization who execute the same work. A perfect example is the pay discrepancy between male and female workers, which sustains an embedded gap in an organization’s comparable pay levels.
The second purpose is because salary history puts an artificial ceiling on a worker’s ability to seek market-driven pay levels. Salary history creates a restrictive compensation level during a hiring event that has limited, if any, relation to the work being done. And often, those most affected are from diverse communities or whose backgrounds lack the privilege of others.
Bans in action. Typically, these laws focus on full-time hiring transactions. While they can vary in their specific provisions, they generally prohibit employers from asking applicants for prior salary or wage information during a full-time hiring event. Some statutes additionally require employers to provide the pay scale for the positions for which they are hiring, and others require reporting and supporting the visibility and free flow of compensation levels among employees.
Impact on contingents. Hence, do these statutes matter during a contingent work conversion event? Certainly, they would apply to temp-to-hire conversions, which are full-time hiring events, but not necessarily when establishing contingent worker pay rates. Of course, the staffing partner should be concerned with salary history bans because in most cases, they are the employer of record for the individuals being deployed to client organization.
So what does this mean for the buyer organization engaging the contingent workforce service? One might conclude that since this is not a full-time hire event, a salary history ban is not applicable. But a staffing partner that uses salary history to set compensation rates for its contingent workforce could find itself on the wrong side of the law. If you know that your staffing partner uses this practice but don’t seek corrective action, you might be inviting trouble and adverse risks.
Pay comparators. The key to all of this is not just simply understanding or being aware of the pay element of a bill rate, which is critical in running a highly mature contingent workforce program, but understanding the pay comparators of contingent workers for purposes of pay comparisons. Also key is understanding and inventorying any factors that can and cannot justify pay differences between talent groups when pay gaps are apparent.
Bottom line, the landscape of salary history ban statutes will continue to evolve, but there are ways to address this growing risk. First, ensure pay decisions are made based on permissible factors and are equitable — rendering yourself blind to the interior knowledge of a bill rate does not shield you from salary history ban risks, and worse, just goes against established best practices in a successfully managed CW program. Second, ensure compliance with fair pay requirements by reviewing/auditing compensation rates, compensation-related policies and guidelines, job applications, job descriptions and the like — and if you find a problem, address it. Third, upgrade that indemnification clause to specifically reference wage-and-hour responsibilities, which are an inventory of growing risk and compliance requirements such as wage transparency and other emerging legal minefields. Finally, continue to promptly resolve complaints from anyone, whether full-time or contingent workers. Being unresponsive just increases levels of avoidable risk.
The quickly changing rules and regulations around pay transparency, reporting and salary history inquiry bans in the workplace may seem intimidating, but by being proactive and working with legal counsel, you can set your business up for a balanced approach and well-managed risk plan.
This CWS 3.0 article does not constitute legal advice. It is recommended that you consult your internal company counsel prior to entering into any agreement or change to your organization’s policies or management of risks.