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Using Salary History in Setting Compensation

Author: Tracey E. Diamond

6/27/2018
Using Salary History in Setting Compensation

Reproduced with permission from Bloomberg Law Reports. Copyright 2018 by The Bloomberg Bureau of National Affairs, Inc. http://www.bna.com.

Editor's Note: This checklist identifies issues for counsel to consider when assisting employers in determining whether they may use applicant salary history information in setting wages or salaries.

Salary History Questions — Purpose and Scope

□ Currently, there are no federal prohibitions against employers:

○ Inquiring about applicants’ previous wages or salary histories as part of the interview process;

○ Requesting wage or salary history from an applicant's current or former employer; or

○ Conditioning an offer of employment on an applicant's disclosing wage or salary history information.

□ Numerous state and local jurisdictions have enacted laws banning employers from inquiring about an applicant's wage or salary history as part of the pre-employment process. The purpose behind this legislation is to prevent employers from perpetuating the wage gap by basing current salaries on an applicant's prior wages or salary, which may have been depressed because of the applicant's gender or another protected category. For more information, see Bloomberg BNA's State/Local Salary History Provisions Chart.

○ Various state and local jurisdictions that permit wage or salary questions prohibit employers from using that information in making hiring decisions or setting compensation.

○ The goal of a salary history ban is to ensure that compensation is based on an applicant's skills and experience, the duties and responsibilities of the position, and market factors.

Employer Considerations in Jurisdictions Where Salary History Is Banned

□ Ban all questions about an applicant's prior wages or salary.

○ May include salary or wages, commissions, bonuses, and benefits.

□ Ban all salary history questions from employment applications, including electronic applications.

□ Ban all salary history questions from reference, background, and credit checks.

□ Refrain from performing electronic searches that are likely to generate salary history information, such as on LinkedIn, Glassdoor, Monster, Indeed, or Google.

□ Refrain from searching public records.

□ Refrain from asking an applicant's agent, such as a recruiter, for information about the applicant's salary history.

□ Ensure that outside recruiters hired by the employer also ban salary or wage history questions from their screening processes.

□ Train all employees involved in interviewing and hiring processes about the ban.

□ Monitor compliance.

□ Update EEO policies to reiterate the company's commitment to pay equity.

□ Update policies and train employees on the requirement not to disclose current employee salary information to potential employers without employee consent.

□ Post required notices.

□ Monitor federal, state, and local laws as this area continues to evolve.

Considerations for Employers with Multiple Locations

□ Understand the jurisdictional reach of the ban, including whether it extends to:

○ The employer's headquarters, satellite offices, or other worksites

○ The employee's residence if the employee will be working from home

○ Locations that the employee will travel to as part of his or her job responsibilities

□ Consider whether to apply different rules in multiple jurisdictions to comply with requirements, or implement a company-wide ban on inquiries and use of salary history information.

Permissible Inquiries and Use of Salary Information

□ In states and local jurisdictions where salary history questions are banned, some jurisdictions permit employers to ask for and use salary information for limited purposes, such as:

○ Asking applicants about their salary expectations

○ Asking applicants about competitive offers

○ Discussions with applicants about any deferred compensation or unvested equity they forfeit if they leave their current employment, and the value and structure of the deferred compensation or unvested equity

○ Discussions with an applicant about his or her book of business, profits generated or other objective indicators of performance

○ Internal promotions or transfers

○ Disclosure of current employee salary information as part of due diligence for an acquisition

○ Asking about salary history after an offer of employment for statistical purposes in evaluating the market or industry

○ Considering what a company pays a temporary agency in hiring a temporary employee on a permanent basis (but can't ask what the temporary agency is paying the employee)

○ Where disclosure of salary information is required by law

□ Employers are cautioned that each state and local jurisdiction has different requirements.

Inadvertent Disclosures

□ Establish a policy for addressing inadvertent disclosures of applicant salary history information, such as while conducting a background check or performing an electronic search:

○ Document the circumstances of the disclosure.

○ Remove information from the applicant's file.

○ Prohibit reliance on the information in hiring and compensation decisions.

○ Document decision-making process for hiring and compensation decisions to show they were based on permissible factors.

○ Put process in place to ensure inadvertent disclosure doesn't recur.

Use of Salary Information After Voluntary Disclosure by the Applicant

□ Document voluntary disclosure and absence of prompting.

□ Ask applicant to sign a consent form for disclosure.

□ Ensure that the information was not shared with others in the company unless permitted by jurisdiction.

□ May or may not use information in making hiring decision, depending on the jurisdiction.

□ May or may not use information in making compensation decision, depending on the jurisdiction.

□ Document independent basis for hiring and compensation decision in jurisdictions where information may not be used.

Permissible Considerations in Setting Employee Compensation

□ Set pay ranges or bands for each position, taking into consideration the following:

○ Salaries of similarly situated comparators at the company

○ Market data and industry standards

○ Skills and experience needed

○ Job duties and responsibilities

○ Managerial responsibilities

○ Number of hours and amount of travel required

○ Cost of living

○ How salary fits within compensation structure (including commissions, bonuses, and benefits)

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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