Key points to remember when the Pay Transparency Act, 2018 comes into effect
By Laura Williams
It’s a scenario familiar to any HR professional with experience navigating the employee interview process:
A candidate and hiring manager meet, with the former ready to field a series of questions that relate to the position on offer. So far, so good. However, during the course of the conversation, the hiring manager asks the candidate what she’s earned in previous positions and what her salary expectations might be moving forward. The goal is to determine whether the candidate’s earnings goals align with the compensatory budget set aside to fill the job. This used to be a relatively straightforward fact-finding process, but no longer.
When the Pay Transparency Act, 2018 (the Act) comes into force Jan. 1, 2019, employers in Ontario will be prohibited from asking applicants to reveal their compensation history. Organizations will also be required to include information relating to compensation, or a range of compensation, in all publicly advertised job postings. In addition, employers with at least 100 employees will be obliged to create pay transparency reports. These documents, to be filed with the Ministry of Labour on an annual basis – beginning in 2020 for employers with 250 employees or more, and in 2021 for employers with between 100 and 249 employees – must be published in the workplace or online and will then be made public by the government. Reports must include information about:
- The employer
- The composition of its workforce
- Differences in employees’ compensation with respect to gender
Full details as to what additional information will be required as part of the reporting process are still pending. What we do know is that employers will be prohibited from reprising against employees for:
- Inquiring about their compensation
- Inquiring about pay transparency reports
- Disclosing their compensation to other employees
- Giving information to the government pertaining to their employer’s compliance (or non-compliance) with the Act or its regulations
- Asking their employer to comply with the Act or its regulations
The legislation’s aim is to help ensure equitable compensation and opportunity for employees in the private and public sector, with the particular goal of promoting greater gender equality in the workplace. The long-term objective is to eventually strip away biases from recruitment, promotion, pay practices and considerations of employment status.
The previous government determined that the best way to achieve that outcome is to hold organizations accountable for their hiring and compensation practices by enforcing transparency rules. Whether rules change under the current regime remains to be seen, but for now the legislation is slated to move forward as planned.
In theory, at least, employees will be better equipped to compare the pay practices of any prospective employer, make informed decisions as to whether their approach to compensation is fair and equitable, and use that information to determine whether that organization’s values align with their own. Indeed, any perceived misalignment – either on an individual basis or when comparing the organization’s workplace culture to that of its competitors – could significantly impact that employer’s ability to attract, engage and retain top talent. Many labour and employee-rights advocates have argued that changes such as these are long overdue. Some employers have shrugged off the new compliance requirements as unremarkable; a non-factor in their day-to-day operations.
But make no mistake, the workplace implications stemming from the Act are far-reaching and certainly not benign. By effectively forbidding organizations from keeping compensation information confidential, this legislation represents a sea change in employer-employee relations during the often sensitive and competitive recruitment process. The new requirements could have even more serious implications in industries such as the technology sector, where the competition for talent is notably fierce – and acquiring top performers for the right price can make or break an organization’s bottom line.
Important, too, are the reporting requirements. For larger organizations, taking time to report compensation data could prove especially onerous and costly. It could also attract unwanted scrutiny from media or special interest groups who look at aggregate data and arrive at conclusions about an organization’s hiring practices, diversity record and workplace culture, in lieu of performing a complete analysis of the prevailing industry or economic conditions influencing those metrics.
It will fall to HR professionals to find innovative ways to comply with the Act by drafting customized policies that advance their organization’s strategic business goals, yet still carefully position the organization as an employer of choice. The most daunting question is: How? As always, the best approach is to be proactive and highlight potential labour and employment law risk exposure before developing that customized strategy. Effectively highlighting risk exposure likely requires a complete audit and analysis of the organization’s recruitment process, including documenting those in charge of hiring at every stage and their approach to interview management and questioning. This may seem like an obvious step, and information that most companies would already have on hand, but in practice there are cases where recruitment occurs outside of – or alongside – official HR channels.
This approach to recruitment creates significant risk when, for example, a line manager is brought into the interview process without proper compliance training. But that risk exposure isn’t limited to the interview process. An organization’s marketing-communications team is often the one writing job postings (typically under the loose direction of HR), while managers are the ones responsible for interacting with employees on a day-to-day basis. The former can easily run afoul of the Act if they fail to provide compensation information on all publicly-accessible job postings, while the latter could be sanctioned for attempting to prohibit employees from comparing salaries in the workplace, for fear they’ll subsequently demand raises if wage disparities become evident during discussions around the proverbial watercooler.
That said, it’s important to remember that the Act isn’t all bad news. Quite the contrary, in fact. Progressive organizations should see this new set of compliance requirements as an opportunity to modernize their recruitment process, become more competitive in the search for top talent and leverage transparency as a way to foster greater diversity, inclusiveness and engagement across the workplace. It’s not easy, but when done right, organizations can reap major bottom-line rewards by improving several key HR functions including compensation, recruitment, manager training and communication.
Compensation
Although the Act requires organizations to disclose salaries or salary ranges for open positions, it requires their competitors to do the same. This opens a window not only into prevailing market wage conditions, but also creates an opportunity for an organization to out-bid a rival for the professionals they both hope to attract. Since unemployment rates are hovering at less than six per cent – edging close to full employment and creating a seller’s market for labour – HR professionals and hiring managers can use these new requirements to produce more appealing compensation packages. This helps to avoid protracted interview processes where promising candidates are presented with a job offer, only to turn it down because the compensation isn’t commensurate with their expectations or in line with pay offered by comparable employers in the industry. In other words, the requirement to post salary ranges can be a source of valuable recruitment intelligence for HR teams – assuming they take the time to conduct necessary research and analysis to develop competitive compensation structures.
In addition to gaining a more comprehensive understanding of prevailing market wages, greater transparency should also influence an organization’s compensation philosophy. That can often mean adding critical objectivity to compensation decisions to help remove or limit personal biases and properly assess roles and their value to the organization. In the end, taking the subjectivity out of the compensation process will allow HR teams to create more effective job descriptions, cut costly employee turnover and help minimize disengagement.
Recruitment
Another potential advantage is the ability to attract a wider and more diverse pool of candidates by developing an equitable screening process. Salary history queries tend to lead to pay inequities. Women who are asked about their salary history and decline to disclose earn less than women who do disclose, while men who disclose salary history earn more than those who do not disclose. Updated screening questionnaires, interview guides or reference-checking forms will help to eliminate biased questions about salary history. The long-term goal is to ensure a more even wage playing field among candidates to help maximize engagement and foster more effective ideation and innovation across the company. Of course, this is no longer merely a best practice, it’s a requirement of the Act, so compliance is no longer an option.
Manager training
As the saying goes, employees don’t leave companies, they leave managers. Indeed, management dissatisfaction is one of the leading causes of staff turnover. Ensuring compliance with the Act will require additional management training to avoid running afoul of new compliance rules and exposing the organization to costly legal risk. But it’s also an opportunity to help managers gain expertise at properly assessing prospective recruits, managing conflict that may arise when pay discrepancies become apparent and sensitively communicating the finer details of the employer’s pay practices, remembering that the Act requires employees to be paid fairly, not equally. Properly trained managers will not only be able to navigate candidate interviews in a way that avoids running afoul of the Act, but also answer questions about wages and address perceived inequities. At a time when savvy employees are becoming more fluid in their approach to employment and are less afraid to ask tough questions, effective manager training can create a better employee experience by creating an environment of trust and engagement across the workplace.
Communication
Many employers are caught off-guard after being out-bid for top talent, or when their best and brightest are poached by competitors (often with the help of professional head hunters). They often wonder why their employees jumped ship, and what they can do in the future to prevent that costly turnover. One answer is to be more transparent about compensation policies; having a merit-based reward system and using the new requirements set out in the Act to rethink their compensation structure entirely. Perhaps it’s time, for example, to develop a more coherent and equitable pay scale, while adding in benefits such as a career learning and development allowance to enable ongoing employee education (always a popular feature especially for Millennial employees). Maybe that new compensation package includes improved health benefits or even measures to improve work-life balance such as greater telecommuting opportunities. In some cases, it could make sense to facilitate community giving programs by providing employees a paid day to volunteer with a charity of their choice.
The specific initiatives will vary by organization, but improving retention rates means effectively communicating the benefits of a compensation strategy and the merits of the entire employee experience. Being transparent and honest about pay practices will help reinforce the organization’s reputation as an employer of choice – including on social media channels and employer-rating websites where so many candidates research their prospective employers – and boost retention. That enhanced communication could mean tapping technology to proactively share compensation information, while also providing total compensation statements to employees.
The key takeaway is that organizations that take efforts to comply with the Act, and go a step beyond, will have greater success in attracting and retaining the kind of individuals that drive innovation, productivity and revenue growth. Gone are the days when employers could keep salaries under wraps and employees, out of politeness or fear of recriminations, avoided wage discussions at all costs. The Act will undoubtedly impact how business owners, managers and HR professionals recruit and interact with staff in the workplace, but savvy employers can embrace that change – and even turn it to their advantage. n
Laura Williams is principal at Williams HR Law.