Employers operating in the state of Minnesota are no longer allowed to ask job applicants about their prior compensation or benefits. The law (Minnesota SF 2909) went into effect Jan. 1, 2024 and updated the Minnesota Human Rights Act.
Minnesota is the 29th state to impose a salary history ban, which is intended to prevent employers from making compensation decisions based on an employee’s prior pay history, as it can perpetuate pay inequity.
For employment covered by collective bargaining agreements, the ban takes effect upon the implementation of collective bargaining agreements that occur after Jan. 1.
What it Means for Employers
The prohibition does not apply if an applicant’s pay history is a matter of public record — unless employers seek access to those public records with the intent of obtaining pay history for the purpose of determining wages, salary, earnings, benefits or other compensation for that applicant.
Applicants in Minnesota may voluntarily disclose pay history and, if they do, employers are permitted to consider voluntarily disclosed pay history to support a wage or salary higher than that initially offered by the employer.
Employers are still allowed to provide applicants with information on wages, salary, benefits or compensation offered in relation to a job position and they may also engage in discussions with applicants regarding their expectations or requests for compensation.
Additionally, employers should be aware that while they cannot inquire into the salary history of applicants, Minnesota’s wage disclosure law prohibits employers from preventing employees from telling others about their wages or conditions of employment. Further, employers cannot require that employees sign waivers that remove their right to discuss their wages and working conditions with others.
Employers must include information about the state’s wage disclosure law in their employee handbook.
It’s important for employers to ensure their hiring practices comply with the new law. This may involve:
- Updating job application forms to remove questions on pay history,
- Training HR and managers on interview practices,
- Solidifying pay structures and updated associates policies.
Curbing Pay Inequity
The gender pay gap in the U.S. narrowed to the smallest on record in 2023, with median weekly earnings of women amounting to 83.8% of the typical amount that men were paid, according to the Bureau of Labor Statistics. This was after nearly no movement for 20 years, according to a Pew Research Center report that examined data between 2002 and 2022.
While there’s still significant strides that need to be made in achieving more equitable pay, salary history ban laws are intended to help close that gap further. The National Women’s Law Center noted that employers’ requests for an applicant’s salary history in the hiring process, and reliance on that information to determine compensation, forces women and, especially women of color, to carry lower earnings and pay discrimination from job to job.
Prior to salary history ban legislation, employers used salary history to:
- Determine a new hire’s starting pay, providing a standard percentage increase over the new hire’s previous salary or otherwise directly correlating the new hire’s pay to her salary history.
- Screen out job applicants whose salaries, the employer determines, are too high or too low to allow them to be considered for the job. The employer assumes that someone whose salary is “too high” would not be interested in a lower-paying job and that someone whose salary is “too low” does not have sufficient skill, knowledge, or experience for the position.
- Strengthen the negotiation position with applicants. Even if the employer is willing to pay an applicant significantly more than she previously made, the negotiation is likely to be affected by “anchoring,” a cognitive tendency to heavily weight the first piece of information encountered during a decision-making process. Because of this cognitive bias, a low prior salary may have an outsized effect on the salary negotiation and the employer’s perception of a reasonable salary for the employee, depressing the resulting salary offer.
- Evaluate and compare applicants’ job responsibilities and achievements. As with screening, this practice assumes that prior salaries are an accurate measure of an applicant’s experience and achievements, and not the product of discrimination, bias, or other factors that are simply irrelevant to the employer’s business.
A study from American Progress found that a significant percentage of employers that conduct pay equity audits found that relying on applicants’ salary history is a key driver of gender wage gaps within their organization.
The federal government concurs, as the Biden administration announced Jan. 29 that it’s rolling out policies that will prohibit the use of an applicant’s salary history in setting pay for a role in the federal government.
Leveraging Software for Internal Equity
Leading organizations are consistently ensuring their pay practices are equitable, which includes checking for instances where starting salary based on salary history has resulted in inequitable pay.
For employers that have goals to demonstrate fairness in pay, support more diverse and inclusive workplaces; elevate their reputations among clients, investors, employees, and the public; and minimize the risk of litigation, a pay equity audit is vital and pay equity software solutions make the process seamless.
A pay equity audit identifies pay differences between employees that cannot be explained due to job-related factors. It is a multi-disciplinary effort that requires extensive domain knowledge and expertise in labor law across various jurisdictions, such as econometrics, statistics and statistical modeling, workforce data management, and knowledge of regulatory audit processes by agencies such as the OFCCP and EEOC.
By leveraging pay equity software, organizations can ensure they are not only compliant but ahead of the curve with various pay equity, pay transparency and salary history ban laws as they evolve.
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