The Pros and Cons of Pay Transparency

7 minutes read

If you’re feeling the pressure of the pay transparency debate, you aren’t alone. As a result of tight labor markets, many employers are reevaluating their value proposition to employees and candidates, leading some to conclude they should no longer be ambiguous or silent on something as significant as their pay structure. So, how can you support fair and transparent pay practices in a positive way, while avoiding the potential pitfalls of publicly sharing your workforce’s wages?

Pay Transparency Pitfalls

There are two types of pay transparency: the legally protected right for employees to discuss their pay with other employees without repercussions- and the intentional publication of applicable pay ranges for positions or even specific employees. While only a handful of states require employers to provide pay ranges upon reasonable request, in most states this is not a legal requirement.

What’s the downside of revealing employee wages to your workforce as well as potential applicants? Employers runs the risk of:

  • Lowering morale and camaraderie within the workforce
  • Creating internal competition and conflict, and generally fostering an environment where employees lose focus, make mistakes, and refuse to collaborate.
  • Struggling to hire and retain quality employees. If it becomes apparent that you pay at-market or lower rates, it may push away potential hires and drive talented workers away.
  • Increasing legal risks regarding pay equity laws. Lower paid employees may question if the perceived inequity is really discrimination against a protected characteristic, disability, etc.

These are all valid concerns but are often the result of underdeveloped or uncommunicated HR policies. With the right focus and guidance, pay transparency efforts can actually improve your business operations and your workers’ experience.

Advantages of Implementing Pay Transparency Policies

Building trust is a true asset when it comes to combating turnover and maximizing your workforce’s productivity. In many ways, it sets the tone for your operation and forms the basis of a positive culture.

At the least, in order to be transparent about your company’s overall compensation philosophy, you might include a section in your employee handbook on how your business determines compensation, as well as how it evaluates performance and determines pay raises and bonuses.

In addition, carefully orchestrated pay transparency initiatives can offer employers the following advantages:

  • Lead employees to feel that they are compensated fairly.
  • Motivate employees to work harder, especially when they know their wages fall in the middle of a pay scale.
  • Attract new talent—assuming your business is able to pay at or above going market rates.
  • Save time and money by setting the correct expectations for potential hires from the outset.
  • Confirm your federal and state compliance with regards to existing pay equity laws.

If your company is struggling to effectively write an employee pay guide or handbook on safe interviewing and hiring practices, consider partnering with a human capital management team like EPAY Systems. When you have reliable access to informed HR consultants, EEO-1 reporting assistance, and compliance management tools, you can achieve the best pay methodology for your workforce. We offer training courses and tools like our Sample Employee Handbook to make sure you’ve covered all your compliance bases. 

What to Do If You Discover Pay Disparities

In your effort to be open about the many payrates present in your workforce, you may discover inconsistencies. In this event, it’s important to:

  • Determine whether the individuals subject to pay disparity are performing equal or substantially similar work.
  • Determine if there is a legitimate justification for the pay disparity — such as differences in education, experience, training, or performance.
  • Conclude whether changes will need to be made as a result of your findings or whether your payroll software’s pay rules need to be corrected.

In the event you need to make some changes, keep your intentions and calculations transparent and well-strategized as you navigate correcting pay disparities.

Smooth Sailing with EPAY

EPAY Systems is the only human capital management provider built with hourly, distributed labor in mind. That means we designed our software solutions to accommodate complex pay rules, offer advanced compliance safeguards, and ease HR administration for employers with your unique struggles. Take a two-minute tour or contact us for a live demo today!

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