States Put New Spin on Pay Gap Laws With Promotion Transparency

Rules will require employees to receive notice on job opportunities.

(Bloomberg) — As a growing share of US companies are forced to tell job applicants and employees upfront how much they’ll pay for work, lawmakers are beginning to ask them to be equally transparent about opportunities to get a promotion.

Illinois legislators included so-called opportunity transparency when enacting this year’s pay equity law, which takes effect in 2025, and Colorado’s legislature beefed up requirements for next year to insist employers be more forthcoming on information about promotions. New Jersey has a similar provision in pending legislation.

“If people are not aware of opportunities then they would be less likely to know how to move up in their careers,” said Christine Hendrickson, vice president of strategic initiatives at Syndio, which provides software that helps employers identify pay disparities. “That has a much bigger impact on how much you’re paid.”

Opportunity transparency is meant to build on the pay disclosure laws that started in Colorado in 2021 and have since spread to states including Washington, New York, California, and Hawaii. Those laws aim to make sure people know how much they should be paid for their current job or an open position, especially women and people of color who lag behind White men in pay. Most of those laws don’t address equal access to promotions.

The new rules aim to discourage what’s known as the “shoulder tap,” Hendrickson said. It’s the practice of quietly selecting employees for advancement to executive roles, often without co-workers even being aware that the job opening existed. It’s likely other states such as California will follow Colorado and Illinois as they seek to close pay gaps that disadvantage women and minorities, she said.

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Disparate levels of promotion are seen as one of the key factors explaining why women still earn only about 80 cents on the dollar compared to men. A 2022 study by consultant McKinsey & Co. and the women’s advocacy group LeanIn found that for every 100 men elevated from entry-level to manager positions, only 87 women are promoted and only 82 women of color. That’s a factor in men holding almost two-thirds of manager roles, despite comprising only half the workforce, the study showed.

Additional McKinsey research shows Black workers fare even worse in selection for supervisory jobs, as they account for only 7% of managers in the US private-sector workforce.

Colorado’s promotion transparency law requires companies to give current employees notice of openings that could advance their careers. The state can order fines of up to $10,000 per violation and changes in business practices.

This mandate has created compliance challenges for Colorado businesses, said Roger G. Trim, labor and employment lawyer at Jackson Lewis P.C. in Denver. The current law requires that businesses with a Colorado presence make a reasonable effort to notify all employees of promotion opportunities in writing when the job becomes available, giving them sufficient time to apply before the company decides whom to hire.

Amendments to the law taking effect in January will require businesses to notify Colorado employees about all job openings, not just promotions, with an exception for roles that are part of a worker’s routine career progression.

Colorado companies also will have to alert each new hire’s prospective colleagues of the person’s name, job title, and how other employees can pursue a similar position, according to a guidance memo from the Colorado Department of Labor and Employment.

The new Illinois law, effective in 2025, will require businesses to announce all potential promotions to their current employees within 14 days of posting a position externally, in addition to requiring salary ranges and a summary of benefits in job ads.

A New Jersey proposal similarly would mandate that companies alert workers of chances to move up, specifying they should make a reasonable effort to notify all employees. That legislation hasn’t yet gotten committee approval in the state Assembly or Senate.

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State lawmakers have used a variety of more direct tactics to narrow pay gaps. Some have tried to require companies to report pay data by demographic group, like California, and a slew have banned employers from forcing applicants to disclose their prior salary history.  

The promotional opportunity notices and the salary range disclosure laws have a “cascading impact” on improving pay equity when added to other policy efforts, said Helena Almeida, vice president and managing counsel at human resources services and payroll processing company Automatic Data Processing Inc.

Promotional transparency “is definitely an interesting approach,” Almeida said. “The idea behind this is you close the gap because you might not know who was interested in that promotion. Companies shouldn’t make assumptions because it might perpetuate stereotypes about who’s best qualified.”

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