The Case for Ditching the Salary History Question

This month, California Governor Jerry Brown signed into law AB 168, which prohibits employers from requesting salary history from applicants.  The bill also requires employers, upon reasonable request, to provide the pay scale for a position to an applicant applying for employment.

According to the National Women’s Law Center, in 2017 nearly half of states considered legislation that would ban the salary history question in hiring. Massachusetts adopted a salary history ban in 2016. In 2017, California, Oregon, Delaware, Puerto Rico, San Francisco, New York City, Pittsburgh (Philadelphia’s ban is on hold pending a legal challenge), and New Orleans also passed salary history bans.  Add to this the fact that 42 states offered Equal Pay legislation in 2017, and what do you get?  Serious risk for employers – everywhere.

Much of the legislation regarding salary history is predicated on the theory that asking women about salary history perpetuates disparity in pay because women have historically earned less than men for performing the same work.  However, a recent survey released by PayScale suggests that the salary history question can also hurt female job candidates in another way.  According to PayScale’s survey, a woman who is asked about her salary history and declines to disclose that information earns 1.8 percent less than a woman who discloses her salary history. If a man declines to disclose, he gets paid 1.2 percent more on average.

While we can debate about the reasons for this disparity, the results highlight a significant risk to employers: The salary history question results in lower starting salaries for women; and if women are starting out at a lower salary than their male counterparts, there is a heightened risk of a pay equity claim later regardless of whether the employer actually has discriminatory pay practices. 

Still not convinced?

That’s okay.  Many of our clients have serious concerns that these new salary history prohibitions will limit employers’ ability to attract talent and negotiate competitive salaries.  However, where you see limitations, I see risk management opportunity.

Built in to California’s AB 168, is an obligation that creates an opportunity for all employers to reduce their overall risk for a pay equity claim.  Set clear salary ranges based on labor market data, and share that information with applicants.  It will set expectations at the outset, and if it is based on market data, it will attract talent.  Then, use the candidate’s job experience, skills, education, and performance in the interview process to set the salary.  This will ensure that the employer has a justifiable position with regard to each employee’s pay at the outset, and will be less likely to have a pay equity problem later.

By avoiding the salary history question altogether, employers don’t have to worry about the extensive risks these bans create.  Salary history questions in online applications are problematic because employers in a state without a salary history ban have to worry about out of state job applicants filing a complaint based on a salary history ban the employer was unaware of.  There is further risk due to the variances in the different state laws.  Some salary history bans allow employers to rely on salary history that has been volunteered by applicants, while other pay equity laws prohibit employers from relying on salary history alone regardless of the source.  Multi-state employers in particular will find it increasingly difficult to comply with pay equity laws while relying on salary history when setting pay.

By ditching the salary history question, employers can comply with salary history bans now, and limit their risk for pay equity problems later.