Transparency in HR Business Practices: A Legislative Overview

Key Takeaways

• Within business organisations, human resources (HR) teams have been at the forefront of innovating their business practices through operationalising emerging technologies such as artificial intelligence (AI).
• While this can offer numerous benefits for businesses, candidates, and employees alike, such practices are being increasingly targeted by regulations to promote (or rather mandate) transparency.
• In 2021, Colorado’s Equal Pay for Equal Work Act went into effect, making it the first pay transparency law in the United States.
• In California, SB 1162 went into effect in January, and similar to Colorado’s law, employers are expected to be including either salary or hourly wage ranges on their job posting; the law also applies to businesses with at least 15 employees, where only 1 has to be working in California for the law to apply.
• While the above laws target recruitment in general, New York City has specifically targeted automated employment decision tools (AEDTs) with its Local Law 144.
• In addition to these regulatory efforts, there has recently been a cultural shift in the US to address bias and discrimination, resulting from both human and technical sources, with transparency also cited as a governance best practice.

Within business organisations, human resources (HR) teams have been at the forefront of innovating their business practices through operationalising emerging technologies such as artificial intelligence (AI) and incorporating them into their talent sourcing and talent management practices.

While this can offer numerous benefits for businesses, candidates, and employees, such practices are being increasingly targeted by regulations to promote (or rather mandate) transparency. In this blog post, we summarise some of the emerging legislation seeking to promote greater transparency around hiring and promotion practices, focusing on efforts in the US.

Pay transparency laws in the US

In 2021, Colorado’s Equal Pay for Equal Work Act went into effect, making it the first pay transparency law in the United States. The law requires employers with Colorado-based employees to disclose salary or pay range for open positions. The aim is to ensure that people have the information they need so that they can negotiate for equitable salaries.

Although introduced fairly recently, the law is already having a significant impact, with 99% of employers in Colorado being in compliance with the Equal Pay for Equal Work Act, and similar numbers expected across relevant jurisdictions. While the Director of the division responsible for enforcing this law noted that in the beginning companies attempted to act in bad faith or find loopholes, now the message is clear. There is no meaningful way to circumvent mandated transparency.

Setting a precedent across the country, other laws on the same vertical have gone into effect as well. For example, last year New York City’s own version of the pay transparency act went into effect and now such laws are in effect in 17 states across the country; California, Washington and Rhode Island enacting their own laws as recent as 1 January 2023.

In California, law SB 1162 went into effect in January, and similar to Colorado’s law, employers are expected to be including either salary or hourly wage ranges on their job posting – even if these are nation-wide – so long as the position could be filled by someone residing in California. The law applies to businesses with at least 15 employees, where only 1 has to be working in California for the law to apply, broadening the scope of the law. Failure to follow the law can result in civil penalties of up to $10,000 per violation.

It is estimated that now ¼ of the US population resides in an area covered by a pay transparency law, with California likely to set an even more fast-moving precedent across the states. The premise of the pay transparency laws is to help the pave way for pay equity, protecting prospective and current employees from being underpaid by employers acting in bad faith, as well as to further ensure historically underpaid groups such as women and racialised employees have the opportunity to know how much they can be paid and should be paid.

Algorithmic systems and a growing mandate of transparency

While the above laws target recruitment in general, New York City has specifically targeted automated employment decision tools (AEDTs) with its Local Law 144, colloquially known as the  NYC Bias Audit Law 144.

Indeed, the New York City Council took decisive action to mandate bias audits of automated employment decision tools (AEDTs) used to evaluate employees for promotion or candidates for employment in New York City from 15 April 2023. The legislation states that bias audits should include, at a minimum, testing for disparate impact, or discriminatory outcomes, against component 1 categories required to be reported by employers under subsection (c) of section 2000e-8 of title 42 of the United States Code as specified in part 1602.7 of title 29 of the code of federal regulations. Rules proposed by the Department of Consumer and Worker Protection further clarify this, explicating that the audits, at minimum, should cover each race/ethnicity and sex category that is required to be reported to the Equal Employment Opportunity Commission (EEOC), with an updated version of the rules also specifying that intersectional analysis must be carried out in addition to standalone analysis.

While the law is targeted at auditing for bias, the major contribution of the legislation is transparency. This is because employers and employment agencies who are subject to these audits must make a summary of the results of the bias audit publicly available on their website. This will allow candidates and employees to make more informed decisions about their interactions with the tool and what it could mean for someone like them.

How we can help

In addition to these regulatory efforts, there has recently been an overall cultural shift in the US to address bias and discrimination, resulting from both human and technical sources, with transparency also being cited as a governance best practice within both legal frameworks and voluntary standards, such as NIST’s AI Risk Management Framework 1.0 (AI RMF 1.0). As such, there are growing expectations for businesses to inform consumers about the use of AI and when they are interacting with it.

Holistic AI has pioneered the field of responsible AI and empowers enterprises to adopt and scale AI confidently. Our team has the technical expertise needed to identify and mitigate risks, and our policy experts use that knowledge of and act on proposed regulations to inform our product. Get in touch with a team member or schedule a call to find out how you can take steps towards external assurance.