Will a new bill to prohibit asking about salary history hurt companies and job candidates?

Posted on: September 29th, 2016 | Category: Government Regulatory & Compliance Issues, Hiring Methodology, hiring process, HR Documentation, HR Training Programs, Interviews, Our Blog, Our Workplace

asking about salary historyIn mid September, a bill was introduced to Congress that is meant to combat pay inequality facing women and minorities. SHRM Online reported that the Pay Equity for All Act of 2016 (H.R. 6030) would allow the U.S. Department of Labor to assess huge fines against employers who violate the law by asking questions about an applicant’s salary history. Prospective and current employees would also be able to file private lawsuits against employers who violated this legislation, receiving up to $10,000 in damages, plus attorney fees.

That’s not chump change.

This bill mirrors new California legislation already in effect, and which has subsequently been added in several other states, including Maryland, Massachusetts and New York. According to Bloomberg BNA, ambiguities in the new law have many employers in California worried about a possible onslaught of claims against them based on really vague terms, such as “substantially similar” and “bona fide factor”. Trying to understand what these vague generalities mean in the workplace is turning out to be frustrating and time consuming for many businesses.

This is a big deal for employers. Hiring is so expensive to begin with. Losing the ability to gauge pay based on previous employment in order not to waste both the hiring manager and candidate’s time is a big deal. Salary expectation is a huge factor for all parties involved, and this legislation would make it the elephant in the room. Small companies often don’t pay the same as larger ones, and they rely on the discussion of salary history to tout what they can offer beyond pay in order to compete.

Band-Aid legislation

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“I understand the reasoning behind the legislation,” says Tina Hamilton, PHR, president of myHR Partner. “But the real issue is gender equality in setting pay within entire industries. Legislation should address that directly rather hitting small and mid-sized businesses with minor, incremental steps towards the greater goal that will hurt their ability to hire the right people.”

Hamilton notes that avoiding discrimination in all its forms is in a company’s best interest, and that examining hiring practices periodically to address issues is important. “Focusing on modern HR practices creates a better hiring process that protects your company from litigation, and promotes a work culture where employees are happier,” she adds. “It’s worth it on many levels.”

What you can do now

“If you learn a candidate’s previous salary and find they were underpaid,” says Hamilton, “you can take the opportunity to show that your company has a commitment to equal pay by bringing it up during the negotiation.” Imagine the appeal to high-talent candidates and the positive brand-building buzz that could result from a company saying, “Based on your previous salary, we believe you were underpaid. Our company is committed to pay equality and would like to offer you $_____ instead.”

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Sadly, notes Hamilton, the only way to know if a candidate was previously underpaid is to ask. If new legislation prevents that, smaller businesses will especially be at a disadvantage because they won’t be able to present to candidates that the are committed to pay equality. “Open dialog matters.”

“Avoiding the appearance of discrimination is important, no matter what the future holds for some of these proposed laws,” says Hamilton. “Business owners may be surprised to learn that some of their practices can somehow be inadvertently construed as discriminatory.”

Some things to consider doing, she suggests:

  • Training will bring your hiring managers up to speed on regulatory compliance and best practices
  • Conducting an HR audit that includes your organization’s pay and hiring practices
  • Having pay practices in place that are clear to everyone, with structured salary levels, and make them realistic so that managers can stick to them
  • Making pay criteria objective and measurable, so that starting salaries, awards and raises are part of a fair formula
  • Documenting clearly what factors are used to determine salary, promotions, bonuses, etc.
  • Making sure your documents are user-friendly and archived properly

“A lot of good can come out of updating older procedures and documents, even beyond the issue of avoiding the appearance of discrimination,” says Hamilton. “like implementing streamlined processes and establishing ways to collecting useful data.”

An HR audit can help you avoid discrimination issues

The best way to avoid discrimination issues in the workplace is to make sure you’re compliant. Our HR audits will show you where your organization is vulnerable to accusations or discrimination, and we will help you remedy the situation with modern policies, procedures and practices, including how to properly react to complaints. Beyond being compliant, we can help you create a more productive workplace as well. Contact us today!

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