Our related article explores the origin of salary history bans, how they create greater pay equity for women, where salary history bans are currently in place, and how your business can prepare for forthcoming legislation that may affect federal policy.
In this article, we’ll discuss the ethical implications of salary history inquiries and when organizations should consider an alternative approach to determine salary and appropriate pay for potential new hires. Whether it’s to avoid bias, ensure fair compensation offers, or remain legally compliant, it’s important to assess your organization’s policy regarding salary history inquiries. This can help you make adjustments that align with company values, respect employee privacy, and develop background screening practices to support informed, responsible hiring.
Currently, 20 states, 21 municipalities (some within those states), and the District of Columbia all have salary history bans in place, each with varying conditions regarding employee protections/rights, employer penalties/rights, and other factors. For example, some salary history bans forbid any form of salary history disclosure (mandated or voluntary) while others only prohibit an inquiry prior to making an offer. Although each jurisdiction has its own distinct terms, the overriding goal remains: to promote pay equity, compensation transparency, and make salary negotiation based on the qualifications, skills, and perceived value of the potential employee’s contributions.
The issue of salary history inquiries remains contentious – with two states creating outright bans on salary bans, including Wisconsin and Indiana. Meanwhile, a sizable number of states still do not have state-wide legislation banning salary inquiries in the hiring process. Among other factors, this is due to the fact that salary history inquiries have been used in the past as an imprecise (and potentially biased) touchstone for determining the “market value” of a candidate’s labor.
Of course, more employers are beginning to recognize the shortcomings of this approach. Namely, the objective demands, responsibilities, and skills required to successfully fulfill a role should play a major part in determining salary (not an individual’s salary history), in addition to the unique talents and abilities candidates themselves offer.
Employers that make adjustments to salary history inquiry policy are often motivated by data regarding pay disparities and hiring bias. As just one example, recent data from the United States Census Bureau demonstrates that between 2020-2023 women earned only 77 to 83% of what men earned in similar or equivalent full-time roles. In certain states and municipalities, the gender wage gap is even greater.
In nearly half of the United States, salary history inquiries are partially or fully disallowed. When this is the case, employers must be vigilant in instituting company policies that are in alignment with municipal or state laws, and keep hiring managers and other employees involved in the recruitment and hiring process aware of best practices and legal requirements.
Penalties for violating salary history bans can be quite severe. For instance, in Chicago, employers must pay up to $5,000 for each salary history ban violation, or even $10,000 in the event that the inquiry was conducted with “malicious intent.” In other jurisdictions, penalties may range from civil penalties, $100-$500 per-violation fines, or mandated reinstatement of job applicants who were illegally dismissed based on salary history or a related form of hiring bias. In certain jurisdictions, if violations occurred company-wide or on a large scale, salary history violations could reach up to $250,000 in total penalties.
Forgoing a salary history or pay history inquiry is especially important when a candidate is switching from a former career or industry that is unlikely to reflect what they fairly deserve at a new position. Similarly, a candidate who has recently graduated from high school or university, or who is applying for an entry level position, should not have their salary history scrutinized. In all cases, former pay rates or salaries are unlikely to reflect fair compensation for the position in question, especially if skills, educational credentials or other strengths make them qualified for what would be reasonably offered to any other candidate ideal for the position.
The practice of making the lowest possible offer that a candidate will (or is expected to) accept is flatly unethical and only contributes to further pay inequity. Instead, we advise employers to avoid salary history inquiries and offer/pay candidates fairly and equitably based on the objective value of the position and the candidate’s skills, credentials, and potential to conscientiously and productively fulfill job responsibilities.
Understanding salary history bans and the legal and ethical implications is only one part of ensuring a fair hiring process. It’s equally essential to develop and enact internal policies that align with your company values while building background screening processes that provide a comprehensive view of each candidate to let you hire with confidence.
Contact The Orsus Group today to learn more about our comprehensive compliance solutions.