Compensation Inquiry Limitations Gain Traction

Posted: December 06, 2017

The following information is provided for general educational purposes only and should not be considered legal advice. Consultation with qualified legal counsel is recommended in all matters of employment law.

It has long been standard practice for employers to ask candidates about their compensation history either on an employment application, during interviews, or both. Similarly, background screening companies often verified compensation information and provided it to an employer as part of a pre-employment background check. Depending on where the employer and candidate are located, those practices may need to change … soon.

In an effort to help ensure “equal pay for equal work,” a growing number of cities and states are considering, or have already passed, laws to limit inquiry into a candidate’s compensation history. As provided in the California law, the purpose of restricting compensation inquires is to ensure employers “not rely on the salary history information of an applicant for employment as a factor in determining whether to offer employment to an applicant or what salary to offer an applicant.”

Among those locations enacting laws are:

States/Territories

  • California, effective 1/1/2018
  • Delaware, effective 6 months after passage, approximately 12/14/2017
  • Massachusetts, effective 7/1/2018
  • Oregon, effective 91 days after legislature adjourns, approximately 10/09/2017
  • Puerto Rico, effective 3/8/2017

Cities/Counties

The growing tide of compensation inquiry limitation laws is reminiscent of the “ban the box” trend that began several years ago. The two most striking similarities are: 1) laws and ordinances are being enacted at the local and state level and, 2) importantly, laws and ordinances vary by location. These two characteristics can make compliance a challenge for employers.

The laws are the same in one regard – inquiry into a candidate’s compensation history is limited. Varying aspects of compensation inquiry limitation laws include:

  • Some laws prohibit inquiry by a third-party, such as a recruiting company or background screening company, on behalf of the employer.
  • Some laws permit inquiry after an offer of employment, which includes compensation, has been made. Some laws, however, prohibit inquiry at all stages of hiring.
  • Some laws allow an employer to consider compensation, but only if it’s voluntarily disclosed by the candidate without any prompting.
  • Some laws have an exception for positions where compensation verification is required by federal, state, or local law or where compensation is established through collective bargaining.
  • Some laws specifically include benefits (such as car allowances, bonuses, and commissions) as part of compensation, while others are silent on this point.
  • Some laws specifically allow an employer to ask a candidate about his or her expectations in regard to salary, benefits, and other compensation. Additionally, one law requires an employer to inform the candidate about the position’s anticipated salary range, if requested.
  • Some laws set forth possible employer penalties for violation. New York City, for example, allows for up to $125,000 for unintentional violation of the law and up to $250,000 for willful violation.

Employer Takeaways

  1. Where applicable, remove questions about compensation history from employment applications and other candidate data collection tools.
  2. Educate team members on changes in law and new processes regarding compensation inquiry.
  3. Consider the feasibility of a single, nationwide policy to minimize confusion and continuing process changes.
  4. Keep in mind that compliance with the Federal FCRA, State FCRA Analogues, and other applicable law is still required.

For more information about the latest hiring regulations around the world, visit our Compliance Corner.

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