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Major pay transparency laws are going into effect next year, and employers are nowhere near ready.
Various states in the U.S., including Illinois, Massachusetts, Minnesota, New Jersey, Michigan, and Vermont, will all have new laws enacted in 2025 that bolster salary transparency or aim to combat pay discrimination based on gender. They join 14 other states with similar statues. The European Union (EU) also has a pay transparency law that will go into effect in 2026. It requires companies to disclose gender pay gaps at their organization and either defend or revise pay structures if there’s more than a 5% gap between men and women. This will apply to companies with more than 100 employees in the region, even if it’s headquartered in a different part of the world.
Although it may seem like companies have plenty of time, most are already falling behind when it comes to getting ready for these changes. A staggering 75% of employers report being unprepared for this new regulation, according to a new survey of 626 U.S. employers with workers based both inside and outside North America by financial services firm Aon.
For companies, preparation for these new laws requires more than just legal compliance: Organizations will have to train managers on how to answer questions about pay. A majority of employers (63%) say they don’t currently communicate salary ranges to their employees, and 61% say they only do so when legally required.
That could be an issue, particularly considering that under the new EU law, employers must provide workers with a range of pay for their role should they ask. That means managers need to know how to justify an individual’s pay, or at the very least, communicate the company’s philosophy around pay equity.
“The manager is going to be the first line of defense; they need to be prepared to explain why employees are paid the way they are within the range and what options are available for them if there is a gap present,” Brooke Green, head of North American talent solutions for Aon, told Fortune. “You have to educate your managers about how your people are paid at your company.”
You can continue reading more about new pay transparency laws and how companies can comply here.
Brit Morse
brit.morse@fortune.com
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