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pay secrecy policies

Is Your Business Breaking the Law With Pay Secrecy Policies?

For many years, it was typical for employers to discourage discussions about pay in the workplace. And, many businesses had or have pay secrecy policies to prevent employees from talking about their compensation.

According to the Department of Labor, nearly half of all workers said they were strongly discouraged or forbidden from discussing their pay with colleagues in 2010.

Nowadays, pay transparency is on the rise to help combat gender inequality at work. In fact, 17% of private companies practice pay transparency. And, more companies are jumping aboard the transparency train each year. To keep up with the push for transparency, rethink your pay secrecy policies. Read on to learn about pay secrecy contracts, laws, and pay secrecy pros and cons.

Pay secrecy policies

What is pay secrecy? Pay secrecy is a workplace policy that prohibits employees from talking about how much money they make with co-workers.

Overall, pay secrecy policies can be:

  • Discussed verbally
  • Implied by the employer
  • Written down

Some businesses might include these types of pay secrecy policies in writing, like in their employee handbook. Other companies may just imply pay secrecy policies and urge employees not to discuss their salaries.

Some employers might even have employees sign a salary confidentiality agreement to acknowledge they understand the business’s pay secrecy policy.

Pay secrecy laws

As an employer, it’s your responsibility to know and understand pay secrecy laws. Learn about the different pay secrecy laws below.

NLRA

One major pay secrecy law is the National Labor Relations Act (NLRA). The NLRA limits employers who want to prevent pay discussions. It allows workers to discuss topics that impact them at work (e.g., wages).

The NLRA was established in 1935. It protects both union and non-union employees who want to discuss their wages with other workers.

With the NLRA, employees can legally discuss their compensation, regardless of whether they signed a nondisclosure agreement. This means employers legally can’t discipline or terminate employees for discussing their pay at work.

Limitations to NLRA pay secrecy law

There are some limitations to the NLRA. The NLRA applies to most private sector employers. However, it only covers workers treated and defined as an employee. Under NLRA, workers who are considered independent contractors and agricultural workers are not treated as employees.

Local, state, and federal government workers are also not subject to the NLRA.

Typically, businesses that are subject to the Railway Labor Act (e.g., railroad and airline workers) do not have to follow NLRA rules.

Paycheck Fairness Act

The Paycheck Fairness Act is a law that has been proposed but is not yet in place. The main goal of the Paycheck Fairness Act is to prevent unequal wages for employees doing similar work. This act would also prohibit employer retaliation against employees who openly discuss their wages.

Pay secrecy state laws

In addition to the NLRA, some states have state laws pertaining to pay secrecy. The following 10 states have additional pay secrecy laws:

  • California
  • Colorado
  • Illinois
  • Louisiana
  • Maine
  • Michigan
  • Minnesota
  • New Hampshire
  • New Jersey
  • Vermont

If your business is located or employs a worker in one of the above states, be sure to brush up on your state’s pay secrecy laws.

To find out more information on salary secrecy laws, visit the Department of Labor’s website.

pay secrecy policies

Violating pay secrecy laws

Employers who violate the NLRA’s guidelines can be subject to penalties issued by the National Labor Relations Board (NLRB). Businesses that violate pay secrecy laws may be required to:

  • Pay back wages to affected workers
  • Rehire workers who were fired for violating the secrecy policy
  • Retract any pay secrecy policies in place

Businesses that violate pay secrecy laws might also need to post signs in the workplace explaining workers’ rights to discuss pay.

Keep in mind you must follow both federal and state (if applicable) pay secrecy laws to remain compliant.

Pros and cons of pay secrecy and transparency

Understandably, employees being more transparent about their pay has both pros and cons. Take a look at some advantages and disadvantages of pay transparency below.

Pay transparency pros:

  • Motivates employees to work harder
  • Boosts productivity
  • Makes your business more open and transparent
  • Combats gender inequality

Pay transparency cons:

  • Causes conflict at work
  • Leads to a culture of competition
  • Negatively impacts collaboration
  • Causes an employee to quit

Pay secrecy policies allow you to avoid awkward situations and jealousy in the workplace. However, if employees know each others’ salaries, it might motivate more employees to reach their goals to reach the same pay.

Although businesses truly can’t control whether or not employees discuss their wages with each other, businesses might still discourage it in the workplace.

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This is not intended as legal advice; for more information, please click here.

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