Author: Heather Eastman
Minnesota's new pay transparency law, as part of the Labor and Industry Policy Omnibus that passed in May 2024, took effect Jan. 1, 2025. The law applies to most of the state's employers and requires that employers disclose starting salary ranges or a fixed rate for a job in all job postings.1 Postings also must include a description of any other compensation such as health and financial wellbeing benefits.
Steps to comply with the new pay transparency law, effective Jan. 1, 2025
- Ensure your compensation structure and program is defensible and market-based
- Update job descriptions to clearly articulate duties and responsibilities that map to grade levels or bands
- Conduct an equity and compression audit to identify and remediate potential liability
- Update job postings to include fields for compensation and related benefits
- Review recruiting materials and processes to ensure that your interview and offer methods are compliant
- If you employ people outside Minnesota, make sure you understand your obligations to the pay equity rules of other states, counties and cities, and comply as required.
Does this law apply to my organization?
Minnesota's law applies to employers with 30 or more employees at one or more sites in Minnesota. The law also applies to job openings posted by third-party agencies or vendors on behalf of covered employers. Further, the law extends to fully remote positions in a corporate function of a Minnesota-headquartered organization.
Does the law apply to my job postings in states other than Minnesota?
While the Minnesota law may not necessarily apply, other pay transparency laws may apply. Your responsibility will depend on the states, counties and/or municipalities in which you employ people.
How might this law impact my organization?
Lack of consistency and equity in pay practices creates risk of exposure. With salary ranges and pay rates posted, it is important to ensure that your organization uses fair and defensible compensation structures and practices to reduce the risk of pay inequity or pay compression, which happens when new hires or those new to a role earn as much or more than experienced incumbents.
What type of fallout can pay equity and pay compression issues create?
The risk associated with pay inequity and lack of transparency in compensation comes in many forms:
- Lawsuits: Pay equity or transparency claims can lead to legal action when employees or groups of employees file lawsuits against the organization. These lawsuits can result in financial penalties, including backpay, compensatory damages and attorney fees. Further, class-action lawsuits can significantly increase the potential financial liability for the organization.
- Legal expenses: Defending against compensation claims can be costly, because organizations may need to hire legal counsel to represent them in court. These expenses can add up, especially if the case goes to trial or if multiple lawsuits are filed.
- Reputational damage: Compensation-related claims can harm an organization's reputation, particularly if the issue draws negative media attention. Bad publicity can impact public trust and damage the organization's brand. Long-term consequences may include poor customer loyalty, flattened employee morale and reduced ability to attract top talent.
- Reduced employee morale and productivity: Pay equity or transparency claims can create a sense of unfairness and inequality among employees, leading to decreased morale and productivity. Employees who feel they have experienced discrimination may become disengaged, leading to lower job satisfaction and potentially higher turnover rates.
- Regulatory scrutiny: Pay equity and transparency claims can attract the attention of regulatory bodies, such as the Equal Employment Opportunity Commission (EEOC) in the United States. These agencies may investigate an organization's compensation practices and potentially impose fines or other penalties if the regulator uncovers violations.
- Difficulty attracting and retaining talent: Organizations perceived as having pay equity or transparency issues may struggle to attract and retain top talent. Prospective employees may hesitate to join a company with a tarnished reputation. Additionally, existing employees may seek opportunities elsewhere if they feel their compensation is unfair.
Gallagher can help
Gallagher's HR & Organizational Effectiveness consulting team can support your organization with all HR compliance matters in Minnesota and across the United States. An audit of your HR function's practices, policies and procedures can help you respond appropriately to changing legislation.
