What to Know About Pay Transparency Laws

Pay transparency is a new business-related trend that has been gaining traction across the nation in recent years. There are no pay transparency laws in Arkansas for private businesses, but employers should nonetheless keep the practice on their mind.

What is Pay Transparency?

Also known as wage or salary transparency, “pay transparency” refers to when an employer discloses compensation information to employees and job candidates. What this means exactly can differ from state to state, and even from employer to employer. Pay transparency can simply involve discussing compensation practices with employees and job candidates, including how their pay and benefits are determined. More detailed versions of pay transparency could include releasing salary ranges (or even exact salaries) for all positions, whether filled or not.

Advocates of pay transparency tout it as an essential way to close pay gaps between competing businesses, as well as internally between coworkers and protected classes such as race, gender, and national origin. Others promote pay transparency as a method of fostering goodwill and trust between employers and employees, and of promoting efficiency and employee morale.

State Pay Transparency Laws

Colorado, the first state to pass a comprehensive pay-disclosure law, enacted the Equal Pay for Equal Work Act in 2021, which requires all employers to disclose hourly or salary pay, benefits, and other forms of compensation in all job postings.[1] Beginning on January 1, 2024, Colorado will expand this requirement to mandate written disclosure to employers’ existing employees of any opportunities for promotion, along with the above-listed compensation information for any such position.[2]

Other states soon followed Colorado’s example, enacting their own pay transparency laws regarding wage disclosure. To date, 29 states, plus Washington D.C., have passed state and/or local laws requiring private employers to comply with various levels of pay transparency.[3] Individual laws differ as to which employers are subject to the law, who is entitled to disclosure, and what must be disclosed. Some states have even enacted so-called pay transparency laws that prohibit an employer from asking a job applicant for his or her pay history.[4] The common theme, though, is that pay transparency is becoming a norm.

Initially, some employers “complied” with pay transparency laws by posting almost comically large wage ranges in job postings, with as much as a six-figure difference between the low and high ends of the range. Although creative, this led to states affixing a “good faith” component to their laws, requiring employers to provide reasonable ranges that they believe to be accurate at the time of the job posting and/or that they would be willing to pay to a suitable candidate.[5]

Possible Federal Pay Transparency Law

Earlier this year, United States Representative Eleanor Holmes Norton introduced a bill titled “Salary Transparency Act,” which would amend the Fair Labor Standards Act (FLSA), the federal statutory framework that, in part, mandates minimum wage and overtime pay.[6] If passed, the bill would require covered employers to disclose a good-faith wage range (including the wage, salary, and/or any other form of compensation) for all open positions posted both publicly and internally, as well as upon request by a job applicant or an employee requesting the range for his or her current position. This would apply to employees of businesses with an annual gross volume of sales made, or business done, totaling $500,000 or more, and to employees individually covered by the FLSA because they are engaged in interstate commerce or in the production of goods for commerce.

An employer’s failure to comply with the bill’s requirements would subject it to possible civil penalties of $5,000 for a first violation, increasing by $1,000 for every subsequent violation, up to $10,000. Maybe more importantly, the bill would create a private right of action for “each employee or applicant” who was a subject of the violation, exposing offending businesses to potential civil lawsuits and possible liability for statutorily imposed damages, attorneys’ fees and costs, and injunctive relief.

The House of Representatives referred the bill to committee in March 2023, but has not acted on it since then. Given that the House of Representatives is currently controlled by a Republican majority, the bill seems unlikely to pass. However, if ultimately passed, the bill would cause a radical shift in the existing federal employment statutory framework. The bill would preempt any states’ pay transparency laws to the extent that they are less restrictive. In that event, Arkansas employers would be required to comply with the new federal requirement, even if Arkansas does not have a comparable law in place.

How Pay Transparency Applies to Private Businesses in Arkansas

After all of that, you may wonder: if Congress has not passed a federal pay transparency law and Arkansas does not have any such laws, why does any of this matter? If you only operate a business located in Arkansas, and only employ (and will continue to only employ) people located in Arkansas, then you likely don’t need to worry about mandated pay transparency, at least until Arkansas passes such a law or a federal law is enacted.

However, many states with pay transparency laws on the books apply the requirements to out-of-state employers who employ at least one person in that state. Some states even apply their pay transparency laws to out-of-state employers who advertise open positions that could be filled by someone living in that state. Thus, pay transparency should still be on your radar and you should develop contingencies to implement the practice if you have out-of-state locations, employees, or plan to accept applications from out-of-state individuals for remote positions.

For example, New York’s pay transparency law requires a good-faith disclosure of what the employer believes the minimum and maximum salary or hourly rate will be for any open, posted position that “can or will be performed, at least in part, in [New York.]”[7] Thus, if an Arkansas employer posts a job availability for a remote position, allowing applications from New York residents would make the job one that can be performed in New York, even if the job is not ultimately filled with an applicant from that state. Thus, the Arkansas employer would have to comply with New York’s pay transparency law when posting the job description, or otherwise risk potential investigations and civil penalties from the New York Department of Labor.[8]

The same is true for California, which requires “any job posting” by or on behalf of an employer with fifteen or more employees to include the salary or hourly wage range the employer reasonably expects to pay for the position.[9] Violations of this requirement could subject the employer to a possible lawsuit for injunctive relief and/or the imposition of a civil penalty by the California Labor Commission of between $100 to $10,000 per violation.

The law is silent on whether this applies only to California employers, but the California Labor Commission—the agency responsible for investigating alleged violations of the wage transparency law—interprets the law as applying to any job posting that “may ever be filled in California either in-person or remotely.”[10] Thus, any out-of-state employer who posts a remote position and accepts applications from California residents should comply with California’s pay transparency law or face potential civil penalties levied by the State of California. Other states, such as Washington, Colorado, and Illinois (beginning January 1, 2025) have these requirements, and the national landscape is ever-changing, with other states considering and adopting similar pay transparency laws.

Preparing for Pay Transparency Laws

Thus, even though Arkansas does not have private sector pay transparency laws, you should still be prepared to navigate this nuanced area. The best practice would be for Arkansas employers to determine and document reasonable pay ranges for all positions, both open and filled. Not only could that information be utilized to comply with out-of-state pay transparency laws, if necessary, but it could also be used to conduct a pay equity audit to identify any notable discrepancies in pay between similar positions. With this information, you could determine if additional steps are needed to remedy any unexplained pay gaps to eliminate exposure from a potential employment-discrimination lawsuit related to pay disparity.

Employers should review the number of out-of-state employees they have, as well as all open and soon-to-be-open remote and hybrid positions. If you are accepting applications from out-of-state residents for those positions (or if you plan to in the future), you should familiarize yourself with the pay transparency laws in those states, if any, to determine whether those laws might apply to your business. If so, you should prepare to comply with the strictest applicable law to ensure that you are not subject to invasive investigations from out-of-state labor commissions, which could result in the imposition of substantial civil fines and/or costly litigation.

To better understand how pay transparency laws may impact your business, you should work closely with competent counsel to analyze applicable out-of-state laws and create a plan to mitigate the risk of accepting job applications from residents of other states. If you have any questions regarding pay transparency laws or how to better prepare your business to navigate them, please contact one of the attorneys at Rose Law Firm, at 501-375-9131.

The author, Ross E. Simpson, is an associate attorney in Rose Law Firm’s litigation group. He can be reached at rsimpson@roselawfirm.com.

[1] Colo. Rev. Stat. Ann. § 8-5-201; 7 Colo. Code Regs. § 1103-13:4.
[2] 2023 Colorado Senate Bill No. 105.
[3] See, e.g., Conn. Gen. Stat. Ann. § 31-40z(8); Md. Code Ann., Lab. & Empl. § 3-304.2; Nev. Rev. Stat. Ann. §§ 613.133(2)(a, b); 28 R.I. Gen. Laws Ann. § 28-6-22(c); Wash. Rev. Code Ann. § 49.58.110(1).
[4] See, e.g., 19 Del. C. § 709B(a)(2).
[5] See, e.g., Cal. Lab. Code § 432.3(m) (defining the required “pay scale” as the hourly or salary range the employer reasonably expects to pay for the position); N.Y. Lab. Law § 194-b(7)(a) (defining the required “range of compensation” as the minimum and maximum salary or rate that the employer believes to be accurate at the time of the posting).
[6] The Salary Transparency Act of 2023, H.B. 1599, 118 Cong., § 1 (2023).
[7] N.Y. Lab. Law § 194-b(1).
[8] Id. at § 194-b(1)(b)(5); see also N.Y. Lab. Law § 218(1).
[9] Cal. Lab. Code § 432.3.
[10] See California Equal Pay Act: Frequently Asked Questions, California Division of Labor Standards Enforcement, https://www.dir.ca.gov/dlse/california_equal_pay_act.htm (last visited Nov. 25, 2023).