Salary History Restrictions 101: Benefits and How to Stay Compliant
It can be challenging to keep pace with ever-changing laws affecting the hiring process, but compliance is necessary to manage hiring risk and avoid the penalties of non-compliance. Salary history restrictions not only impact your application and interview processes, but they also have broader implications for employee compensation after hire.
Here are some key considerations for incorporating salary history restrictions into your hiring process.
What Are Salary History Restrictions?
Similar to “ban the box” laws, which prevent employers from asking about candidate criminal history, salary history bans are designed to protect candidates from unfair and discriminatory hiring practices. Laws restricting salary history questions are intended to reduce the wage gap, which pegs salaries for women and minorities at disproportionately lower levels than white men. According to the Economic Policy Unit, women were paid just 85 cents to every dollar earned by men in 2019. By taking a candidate’s salary history out of the equation for determining salary offers, salary history bans are expected to boost earnings for women and underrepresented minorities, and put them on par with their male and white counterparts.
Salary bans were first introduced in 2016, when Massachusetts became the first state to pass a law preventing employers from asking job candidates about pay history. Since then, other states, counties, and cities have followed. Currently, there are 19 state-wide and 21 local bans. Similar to ban-the-box laws, each law is different and has its own idiosyncrasies making it important to understand the unique requirements in your area.
Salary history restrictions assume employers will be less likely to offer a lower salary if they don’t know candidate compensation history. Instead, you can use other factors, for example, competitive market data and skill-based benchmarks, to determine salary. Given the goal of improving equity in hiring, most salary bans prohibit employers from the following actions:
- Asking about a candidate’s current compensation or their compensation history during the application and interview process
- Asking a candidate’s current or former employer about the candidate’s current or past earnings
- Using historical salary information to determine how much to offer a job candidate.
Benefits of Compliance with Salary History Bans
Even though, as their name suggests, salary history bans restrict some of the actions you can take when hiring candidates, they also deliver some benefits. Complying with the laws in states and cities where you hire can improve the quality and effectiveness of your hiring process. Your organization can benefit from following salary bans in the following ways:
Avoid regulatory penalties and lawsuits
In some locations, the penalties for noncompliance with salary history bans are sizable. In San Francisco, for example, employers who violate the city-wide ban face fines ranging from $100-$500 per employee per violation. In Delaware, employers are subject to civil penalties of $1,000-$5,000 for the first violation and a $5,000-$10,000 penalty for subsequent violations.
Violating salary laws can also invite lawsuits, which can damage your bottom line and reputation. Recently, Oracle was targeted by a class-action lawsuit for setting employee pay based on their prior salaries. The company is also fighting a $400 million penalty from the Department of Labor for pay equity violations.
Increase opportunities for equity in hiring practices
By complying with laws intended to build pay equity, you reduce your chances of engaging in discriminatory hiring practices. In fact, research points to salary bans as an effective way of increasing equity in hiring. Results of a recent Boston University study revealed the wage gap has shrunk in states with salary history bans, resulting in higher earnings for women and African-Americans.
Make better-informed hiring decisions
When you forego questions about salary and instead focus on other candidate characteristics, you can learn more about candidates during the interview and selection process. Researchers at the University of Minnesota and MIT Sloan School of Management performed a study of two groups of employers. One group received candidate pay information during the hiring process, and the other group did not. Employers who couldn’t see the pay history of candidates asked 13 percent more questions of applicants about their capabilities, considered more candidates, and were more likely to make a hire than employers in the other group.
How to Remain Compliant with Salary History Laws
Salary restrictions vary from state to state, and even between municipalities within the same state. Therefore, you’ll need to design your hiring process to help you comply with the laws in every location where you hire. You can take the following actions to keep your hiring process in compliance with salary history laws:
Align your policy to actual practice
A clear policy describes the locations, if any, you will ask candidates about their compensation history. You will need to decide whether it makes sense to have one national policy, or location-specific hiring policies outlining how your organization will comply with the law in each place you hire. Location-specific policies may provide more flexibility in your hiring practices, while a national policy encourages consistency. Some companies, such as Amazon, Facebook, and Google, have already adopted national salary ban policies.
Remove salary history questions from all hiring procedures and materials
Salary bans are not limited to verbal salary requests. They include written requests and any materials you use in the hiring and interviewing process. Make sure you have removed salary questions from all candidate communications, including the following:
- Online and paper applications
- Screening questionnaires and interviews
- Reference checking procedures
To build more compliance into your hiring process and remove salary history questions from your candidate screening activities, work with a knowledgeable and compliance-minded background screening company. A capable background screening provider uses compliance expertise and smart screening technology to eliminate prohibited salary history questions from your background check activities.
Train hiring managers and interviewers
Everyone involved in the hiring process needs to understand how to evaluate candidates without breaking salary laws. Training managers on the proper ways to communicate with candidates can help you avoid accidental violations. Anyone interacting with candidates should be properly trained to conduct exploratory discussions, informal follow-ups, and formal interviews.
Align background screening practices with salary history bans
As a critical part of your hiring process, background checks must also comply with pay equity laws. For example, background checks cannot include a public records search to obtain candidates' current or prior compensation. You can keep your background check activities aligned by working in partnership with a reputable background screening provider. Your provider can advise you on best practices and conduct periodic reviews of your background screening program to keep you in compliance with changing salary laws.
Seek salary expectations
Past salary is not the only way to arrive at a reasonable salary offer. Try to understand the candidate's current expectations and see how they align with your salary range for the position.
Add transparency to hiring practices
Help candidates understand the potential salary for a position by listing salary ranges or other salary details in job postings. Alternatively, you can also provide salary information to candidates during the initial interview. If candidates know the compensation opportunity for a position early in the process, there’s less opportunity to have mismatched salary expectations down the road.
Make well-informed job offers
When you take steps to understand candidate capabilities and competitive salaries for your industry, you can make better-informed hiring decisions. The selection process is your chance to learn as much as you can about a candidate’s skills and potential for growth. When it’s time to make an offer, competitive salary data from surveys, benchmarks, and job search sites can help you determine the right salary.
Require all third parties to follow your policies
Agencies, search firms, and outside recruiters conducting hiring activities on behalf of your organization must also comply with salary history bans. Make sure any third parties follow the law and your policies related to salary questions.
Stay in Compliance with Salary Legislation
Salary history laws are ever-changing. Moreover, the laws in one city can conflict with the laws of another city in the same state. To keep up with changing pay equity laws, it’s important to work with a partner who shares your commitment to compliance in hiring. By taking steps to review and update your policies and practices, your organization can realize the benefits of complying with salary history bans and achieve a more effective hiring process.