Insights into the forces shaping our industry.

Compensation Laws

Hiring Advice, Industry Commentary

Since 2017, we’ve had at least 16 states and 12 cities enact a new regulation that stipulates you cannot ask a candidate for employment how much money they make. There is no equivocation there…you cannot ask them how much their salary is, their bonus, their past W-2, their estimated earnings or their history of income.

These new laws specifically prohibit anybody in the interview chain from asking that question; which includes third party search firms. A candidate can offer that information, but you have to document and provide evidence that the candidate stated his/her earnings history and was not asked for that information. In fact, the best approach, should a candidate offer up his earnings history, is to confirm in writing back to them and require they sign that letter or email certifying they offered their compensation information on their own; without provocation or prodding.

Why the requirement of them verifying that they offered the information? In NYC, the statute will include up to a $250,000 penalty just for asking that question; part of which the plaintiff may be entitled to as recompense in that penalty. In short…the candidate could try to trap you into asking that question.

What can you ask? You can ask what their compensation needs, requirements or expectations are.

Why are the new laws there? The logic was to eliminate the serial wage disparity between men and women. Since women tend to be paid less; when they try to apply to a new company, they are required to disclose their current or past earnings. As most offers are typically tied to past earnings, not the salary range of the position; the cycle of wage disparity has little opportunity to be mediated by simply changing employers.

What states? AL, CA, CO, CT, DE, HI, IL, ME, MA, NJ, NY, NC, OR, PA, VA and WA. Plus Atlanta, Louisville, Kansas City, Cincinnati New York City, San Francisco, Pittsburgh, New Orleans and a few more cities and counties. Michigan and Wisconsin have had laws passed but vetoed by the governors, so far. Philadelphia enacted a similar law, but it is currently in litigation and under review.

In 2017, there were only 4 states that enacted such law. The impact has broadened and will continue to do so. Most national companies hire people throughout the country. Changing interviewing behavior to accommodate at least 2 handful of states will be very difficult to do. I’d expect to see a range of corporate directives that state you can no longer ask about compensation from any applicant and to instruct your recruiting and staffing firms to not provide any compensation information. The ability to be able to ask about financial expectations will be somewhat of a relief on the new burdens, but this will have far reaching impacts over the next several years as we are forced to unlearn our most basic question about employment. The laws are, also, different, with some regulations stating that if the candidate asks for the salary range of the position, you are required to give them the documented salary range. In general, the laws appear to support the premise that you should quantify the position and hire people to accommodate the responsibilities; within a salary range, regardless of the current income or sex of the applicant.

It is unlikely the Federal Government would be able to intercede in what is currently a state-driven rollout of employment policy. There is a bill pending in the House of Representatives for a national ban on asking for salary information; but it’s unlikely to succeed under this administration. In 2017, over half of the states have considered legislation to ban asking about salary history.1

We can expect this trend to grow and keeping track of which state or city is endorsing it will be challenging. As a national professional search firm, Egret began asking solely for salary expectations in 2017 and no longer provide exact current compensation as in the past.

Whether salary history is a core contributor to the wage disparity will be tested soon as these new laws are rolled out. For the vast majority of hiring authorities and HR practitioners, this law will be very difficult to fully implement. After more than 50 years since the enactment of the EEOC requirements, it’s still common for us to have a discussion with clients that mistakenly request something that is specifically proscribed in Title VII. Change is slow and traditions dim even more slowly.

As the talent market changes, it will be far more incumbent on employers to address hiring for the skills of the position.  Talent is scarce, compensation is rising and will likely rise faster over the next year or two. We have arrived at full employment, so the challenge to attract the right talent to further your growth plans will have to rely on developing an aggressive bench strength plan (college recruitment and training) and an even more aggressive ‘free agency’ acquisition strategy to meet critical talent needs. We will be in a talent shortage for several years to come; Boomers are going away, GenX’ers are a much smaller population segment to fill those spots; so ‘youth’ will become a necessity. With youth, comes training and mentoring programs to ensure your new hire will ramp up more quickly.

The new hiring paradigm? Define the position, find the talent to do that role… build your compensation plan to be flexible enough to attract the talent. And don’t ask how much money they make!

Updated: June 2019