Is Your Business Breaking the Law with Pay Secrecy Policies?

Pay secrecy is just what it sounds like. It’s a workplace policy that bans employees from talking about their salaries. Sometimes, employers include the policy in their employee handbook. Other times, the policy is just implied, with management advising employees not to discuss how much money they make.

But thanks to a nearly 90-year-old federal labor law, most employers aren’t allowed to create those “pay secrecy” policies.

Is it illegal to discuss wages?

According to the 1935 National Labor Relations Act (NLRA), private-sector employees are allowed to participate in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

Say what? That means employees are allowed to talk with one another about things that matter to them in the workplace. Including how much they’re paid. Discussing your compensation with a coworker is permitted and, according to the National Labor Relations Board, pay secrecy policies violate the NLRA. Even if an employee signs a nondisclosure agreement with an employer, the employee would still be protected when talking about salary.

What are the limitations of pay secrecy laws?

For starters, the NLRA has a limited definition of “employee.” While the law applies to most private sector employees, including manufacturers, retailers, private universities and health care facilities, it does not apply to agricultural laborers, independent contractors, and employers subject to the Railway Labor Act (interstate railroads and airlines).

The NLRA doesn’t cover supervisors either—they don’t qualify as “employees” under the law. Nor does it apply to federal, state, or local government employees. Another exception is people who work in human resources and have access to a company’s payroll. They can be prohibited from sharing private salary information of employees.

How common are pay secrecy policies?

Despite it being illegal for most employers, pay secrecy remains prevalent in the workplace. A recent survey by the Institute of Women’s Policy Research found that 48% of fulltime workers (52% of women) report that their employers discouraged or banned discussions of wages and salaries. They also found that women are more likely than men to both work under a formal pay secrecy policy and to violate that policy.

“As we rebuild the economy from the devastation of COVID-19, we cannot deprioritize women’s right to equal pay,” says C. Nicole Mason, Ph.D., IWPR President and CEO. “A gender-equitable recovery requires that we ramp up protection of workers’ rights.”

Pay secrecy vs. pay transparency: the pros and cons

Pay transparency is the exact opposite of pay secrecy, allowing others to see your company’s compensation structure. It can be external, and shared with the public or internal, where the figures are privy to employees only. In today’s workplace, pay transparency has become interlaced with the push for pay equity. But will complete pay transparency help in those pay equity efforts or will it divide the workplace?

There hasn’t been a lot of research done on how pay transparency impacts the workforce because it’s not a widespread practice. Anecdotally, some of the positive effects of pay transparency include:

• More productive, satisfied employees (when they know they aren’t underpaid).
• An increase in job applications/potential new hires.
• Close the gender/race pay gaps.

Of course, there is an argument to be made that pay transparency hinders the workplace for a few reasons:

• Employers can’t hire top talent for a lesser price, which could lead to fewer hires if working within a tight budget.
• Tension and jealously among employees.
• Pay discrepancies taken out of context, exacerbating employee frustrations.

Mitigate Risk and Ensure Fair Pay Practices

Whether you’re an organization that adopts pay transparency or not, having a compensation strategy in place helps to eliminate uncertainty and implications of unfairness (which can come with potential fines and lawsuits). In a post-COVID world, the changing nature of compensation expectations is important for companies to address, as employees are quick to change jobs for the next best thing. But with a clear and defined compensation strategy that includes conversations about career growth and opportunities, you’re less likely to find yourself focusing on the dollar and more on the employee experience. 

For more free resources and tools that promote DE&I best practices in the workplace, visit Perspectives+. It’s Paycor’s online knowledge library designed to help our partner network drive change, empower colleagues, and foster new leaders.