Restrictions on Prior-Salary Inquiries

January 31, 2018

Topics: Hiring and Recruiting

Employers should be well aware of the prohibitions against asking job applicants questions that might reveal their age, national origin, intention to become pregnant, religion, disability or other protected category.  Add to the list recent “ban the box” laws that prohibit inquiries regarding an applicant’s criminal background until later in the hiring process.  The latest addition to the “pre-employment inquiry prohibition list” is questions regarding an applicant’s prior salary history.

Employers have long found this information helpful in making hiring decisions. For example, if a company is hiring for a $70,000.00/year office manager position, knowing that an applicant a never made more than $36,000.00/year tells the company that he likely lacks the skills and experience for the office manager role.  Similarly, a former General Manager who made $130,000.00 in her prior position would likely be qualified (if not over-qualified) and might take the office manager role out of desperation if she has been unable to find a job in her prior salary range.  However, this candidate is likely to keep her options open and jump ship as soon as something better (and more lucrative and closer to her prior compensation range) becomes available.   A prudent employer might think twice about hiring an over-qualified candidate for fear he or she is not a long-term solution.  Thus, compensation history can be helpful in the hiring process.

So why the recent run to ban the salary question when hiring?  In October 2017, New York City joined Philadelphia, Delaware, Massachusetts, Oregon, and Puerto Rico in banning inquiries regarding salary history.  A number of other states have similar laws pending.  The supposed logic has to do with the alleged wage gap for women and minorities.  The idea is that employers should set compensation for a role based on the job requirements, not based on what the applicant earned in a prior job.  For example, as in the example above, the office manager salary was set at $70,000.00.  In all likelihood, a highly experienced star applicant might be able to start at $75,000.00 where a lesser qualified, but promising, candidate, might be brought on at $67,000.00.  Employers, of course, have flexibility to set salaries based on business reasons such as experience and qualifications.

What these new prohibitions are attempting to prevent is a situation where equally qualified candidates of different genders would be offered the same compensation for the role.  For example, a male candidate who made $85,000.00 in his last role, and an equally qualified female candidate who made only $65,000.00 in her last role because of gender pay inequity, should both be offered the gender-neutral $70,000.00 slated for the open job.  Raising the opening salary offering to the male to be more in line with his prior compensation, or lowering the salary due to the female’s prior low salary to save money, but obtain a qualified candidate, is seen as forwarding the gender wage gap.  The solution?  Eliminate the employer’s ability to obtain prior salary compensation information.

While the various laws currently in effect differ in the details, they generally prohibit any inquiries about salary histories.  Most permit discussions regarding salary “expectations” – in other words, what is the candidate looking for?  They also generally permit the applicant to voluntarily disclose their compensation history, including their current compensation.  What is prohibited are inquiries by the potential employer.  The laws also permit the employer to disclose the salary range for the position.

Without regard to whether your company is located in a jurisdiction that has passed, or is considering, a law banning salary history questions, employers should be mindful to set compensation ranges based on legitimate business reasons, such as qualifications, experience and training.  Having an idea of the compensation level for a position before considering candidates is a good business practice and helps ensure that only business factors went into selecting those amounts.