Not Everyone Is Protected by Pay Transparency Ruling
by Angelo Kostopoulos on October 19, 2015
This month’s analyst is Eileen Taylor, a member of the HRA-NCA Compensation committee, and Maria Gupta of AKRON, Inc. Eileen has over 15 years of experience in Human Resources including human capital plans, compensation programs and recruiting strategies. With a degree from Radford University, she is a Certified Senior Professional in Human Resources (SPHR) and a SHRM Senior Certified Professional (SHRM-SCP). She co-authored the handbook “Simplify Social Media for Recruiting” to motivate the recruitment and HR community and clients.
A recent final rule on Pay Transparency from the Department of Labor was published on September 11, 2015 that may impact your watercooler conversations. It stems from President Obama’s Executive Order (EO) 13665 that prohibits covered employers from discharging or discriminating against employees or applicants who inquire about, discuss, or disclose their own compensation or the compensation of another employee or applicant. This Executive Order was signed in April of 2014 as a way to give employees more rights and to reduce pay inequalities for women and minorities. Prior to that, the Lilly Ledbetter Fair Pay Act had been created with similar goals in mind. The rationale is that pay gaps persist due to pay secrecy policies within organizations, and giving employees a right to discuss their pay without fear of repercussions is the underlying purpose of this ruling.
Which employers are covered?
EO 13665 covers all organizations that are insured, contracted, given grants or funded by the government. This includes banks that are insured by the government, government contractors, non-profits, or any other businesses that are government funded or contracted.
In addition to EO 13665, wage transparency rights are also provided to employees by the National Labor Relations Act and the Colorado Wage Transparency Act. Will it end there? Will other states follow? Is it safe to assume none of your employees are protected by wage transparency law? Should you attempt to discourage any of your employees from discussions of pay when states are starting to follow suit on the Pay Transparency ruling? Keep in mind that it would be difficult to have exclusionary policies and procedures for employees that are not affected by this ruling when others are, as enforcement would be difficult.
Which employees are protected?
The Department of Labor clarified that pay transparency ruling does not protect human resource professionals “when acting as guardians of compensation information.” This also means that people who have access to pay information — managers, executives, payroll and other HR professionals — are not protected by the rule in the same manner as other employees. It is incumbent upon HR and other professionals to keep in mind that the compensation information to which they have access to make business decisions is and must be kept confidential.
So, why doesn’t HR post pay, anyhow?
Employers generally do not want employee compensation information to be broadly available because they want the opportunity to manage employee pay and to reward employees based upon specific criteria – such as performance or unique skills. And, while pay itself does not generally motivate employees, the perception of pay inequity can have a negative impact on employee morale. Since employees are not necessarily the best judge of their relative worth, and that of others, making employee pay information openly available puts pressure on HR and managers to have difficult discussions with employees about why they are paid less than others. Consider the manager who mentors and becomes close to an employee in another department, offers insight as to how much other employees at the same level are currently paid, and encourages that employee to approach HR about how they can get a pay increase. This may seem innocent enough to the manager/mentor, but it can serve to damage the employee’s morale if they don’t get what they want because they may always feel like they are not valued.
Employees of unionized organizations know everyone’s pay
Unionized employers are one example of forced pay transparency for the union members who perform the same job – employee pay is established by a collective bargaining agreement under which employees are paid a set wage, and everyone who holds the same job receives the same rate of pay and increase. As mentioned previously, the National Labor Relations Act of 1935 protects employee’s rights, including the right to communicate pay. This act does not protect those who have access to compensation information due to job duties. Anyone who has regular access to employee pay information should keep it confidential.
As a general rule, anyone with access to compensation information should strive to avoid casual conversations regarding pay. HR professionals and management are responsible for creating a culture of confidentiality and trust. Since they have access to compensation information because of their involvement with hiring decisions, promotions and pay increases, it is important to refrain from discussing this compensation information with other employees.
Make sure your organization complies with the ruling via policies and procedures that are distributed to the employees. Review your employee handbook for any language that addresses concealment of pay. Develop a written policy and formal practices to comply with any pay transparency Acts with which your employer must comply, and ensure that those who are not protected because they have access to compensation information as a part of their work are aware of their rights and responsibilities. In the end, it may well be easier to practice pay transparency across your organization, regardless of location.
While pay transparency, in theory, is meant to empower women and minorities in light of any real or perceived pay gaps that exist, reality causes a few areas of concern for HR professionals, as well as managers and executives that would like to be compliant with the ruling.
Disclaimer- Eileen Taylor is not a lawyer and does recommend that each affected organization seeks legal advice regarding the Pay Transparency Rule.