On January 1st of this year, a California state law to restrict the use of salary history in the hiring process went into effect. This makes California the latest—and by far the largest—jurisdiction to join a growing trend to further restrict the use of background information in evaluating job candidates. Although these early laws have been adopted in coastal areas, it is possible that more jurisdictions at the state or local level will adopt similar laws. Employers need to be aware of this trend and make sure their hiring processes remain compliant.
The underlying rationale for this trend is that many advocates believe asking about salary history creates a bias against paying women the same as men for the same job. The argument goes that since women often enter the workforce later or have significant interruptions for family commitments, they are inherently disadvantaged in the competition for income. Therefore, since women are more likely to have a history with relatively lower incomes, there is a built-in tendency to perpetuate the disparity if the salary at the new job is based on the salary at the previous job.
Employers have offered counter arguments showing that the gender gap is not caused by hiring procedures, and that salary history is a valid piece of information to use in evaluating a candidate. Nevertheless, restrictions on salary history is now the law in jurisdictions covering tens of millions of employees, so revising the hiring process to comply with these new laws proactively will likely save time and money in the long run.
What do the Salary History Bans Accomplish?
We will use the new California law as the model, but be aware that there are variations in the exact formulas used in different jurisdictions. Once again, it is incumbent on HR managers to learn about the variations and their impacts on the hiring process.
California AB 168 is a simple law that prohibits employers from using salary history about a candidate as a factor making a hiring decision or in setting the salary for a new hire. It forbids employers from using any method to seek salary history information about a candidate. It also requires employers to provide the pay scale for the position in question if the applicant requests it.
AB 168 applies to all employers, public and private. The law recognizes that applicants may “voluntarily and without prompting” disclose their salary history, and the employer may consider that information in determining the salary for the new job. Note that the law also does not say that the voluntary disclosure may be used in determining whether to hire or not.
What’s the Best Way to Comply?
The essence of the employer’s response to bans on salary history is to know the market-based compensation range for a specific position. Then, a salary can be offered to a potential hire based on their unique qualifications and experience, within the market-based salary range.
Some HR experts caution against using volunteered salary history in making a hiring decision since an adverse action, or a relatively low offer, might trigger a legal response. It may be possible to enter a conversation with an applicant about what kind of salary they believe is proper for the job in question, but this should be forward-looking, not a way to get their salary history.
In the end, your hiring process must be as transparent as possible and clearly communicate to the candidate which parts of his or her background you are going to investigate. Get their permission to conduct the background check. Avoid using potentially discriminatory information to make an adverse decision or to offer a specific salary. And always give the applicant an opportunity to rebut information you have acquired.
A fair process will make for a happier employee, and a more productive workforce.