British Columbia passed the Pay Transparency Act in May 2023. Effective as of May 11, 2023, employers in British Columbia are prohibited from seeking pay history from job applicants, or actions of reprisal against employees for inquiring about their pay or revealing their pay to other employees or applicants.
Starting November 1, 2023, employers in British Columbia will be required to include wage or salary ranges in job postings, prepare reports identifying systemic discrimination in pay, and disclose pay information to employees and applicants upon request.
What is pay transparency?
Pay transparency involves openly sharing information about employee compensation to employees and external stakeholders. It typically involves sharing clear and accessible details about salary ranges as well as variable compensation such as bonuses and benefits.
Pay transparency is a significant change to workplace norms relating to compensation. Many organizations are not transparent about pay – this information is highly confidential and closely guarded.
The purpose of pay transparency legislation is to enable employees, job applicants and other stakeholders to evaluate whether pay inequality is the result of compensable differences – such as experience, skills or responsibilities – or systemic discrimination based on gender, ability, race, ethnicity or other protected identities.
Employees in British Columbia already have legal protections against discrimination. But, with the disclosure of information about an employer’s pay practices, employees and job applicants will have more information to form the basis of a complaint under the Human Rights Code.
Overview of the new Act
The BC Pay Transparency Act:
- Requires employers to publish the expected salary or wage range in public job postings
- Prohibits employers from asking about an applicant’s pay history unless the pay history is publicly accessible
- Prohibits employers from disciplining or retaliating against employees for discussing pay with other employees
In addition, BC employers with 50 or more employees will be required to prepare and post pay transparency reports. This requirement will apply in stages over the next 3 years:
- November 1, 2023: B.C. government and the six largest Crown corporations, which are BC Hydro, BC Housing, BC Lottery Corp., BC Transit, ICBC, and Work Safe BC
- November 1, 2024: all employers with 1,000 employees or more
- November 1, 2025: all employers with 300 employees or more
- November 1, 2026: all employers with 50 employees or more
BC recently published the Pay Transparency Regulations setting out the requirements for completing pay transparency reports. An online reporting tool is in development to assist employers in preparing the reports.
Pay transparency reports must include:
- Name of organization
- Mailing address
- Applicable North American Industry Classification 2022 sector code or NAICS code
- Dates on which the reporting period began and ended
- The number of employees as of January 1, reported as within one of the following ranges:
- 50 to 299 employees
- 300 to 999 employees
- 1000 or more employees
- The gender category that is being compared with (for example, a comparison of men versus women or non-binary employees)
- The results of the pay gap calculations
The following data should be included in the calculations:
- Salary (ordinary pay), excluding any bonus pay and overtime pay, received in the reporting period
- Number of hours worked that can be attributed to the salary
- Bonus pay received in the reporting period (either the organization’s financial year, or the previous calendar year)
- Overtime pay received in the reporting period
- Number of overtime hours worked that can be attributed to the overtime pay
The government has published a mock report, as well as links to each of the 2023 reporting employers.
There are limits on reporting where a gender category has fewer than 10 employees, recognizing that there are potential issues with privacy when collecting data from smaller employers.
At this point, it does not appear that the government will require detailed reporting or disclosure – in contrast to, for example, the EU Pay Transparency Directive, adopted on March 30, 2023. The EU Directive requires employers to conduct a pay assessment and remediation plan. If reporting exposes a GPG of at least 5%, and the gap cannot be justified with objective gender-neutral factors, companies will have to carry out an assessment together with employee representatives to remedy the GPGs that cannot be reasonably justified.
Employees have the right to request information from employers on their individual pay level and average pay levels broken down by gender for categories of employees doing the same work or work of equal value, and companies will have to make information on the objective and gender-neutral criteria used to define pay and career progression easily accessible.
The BC government has indicated that it may require reporting on intersecting identities, such as Indigenous women and racialized women. This requirement is not yet part of the Act or regulations.
What are the consequences of not complying with the Pay Transparency Act?
The Pay Transparency Act is effectively an “opt in” model, which encourages compliance but does not require it. The Act does not give the government powers to enforce the legislation or issue fines or penalties for failing to comply.
This approach to enforcement could change over time, as a number of human rights advocates, including the British Columbia Human Rights Commissioner, have criticized the legislation for its lack of enforcement. In addition, the government has indicated that it is considering approaches to enforcement that could include publishing a non-compliant employer list or limiting eligibility for government grants or procurement opportunities.
Pay transparency could significantly impact the workplace, for a number of reasons:
- Collecting and reporting pay ranges is not a simple process for many companies. It takes a significant amount of work to collect, assess and track pay data across various roles based on gender (and potentially, ethnicity, race, and disability).
- To assess potential human rights or reputational risk, companies will need to verify that pay gaps are based on justifiable, earned differences between employees, and not bias or discrimination. Companies will also need to communicate the reasons for the differences. Absent this analysis and communication, employers face a reputational risk if they have a wide pay gap.
- Transparency risks lower productivity and retention, if high performing employees do not believe they have opportunity for recognition, increased compensation and advancement within the organization.
- Effective performance management systems will be a key enabler for explaining differences in pay. The KPIs used to rate an employee’s performance can also explain justifiable, earned differences in pay between employees.
- Where there are pay gaps based on gender, ethnicity, disability or other protected grounds, the employer will need to articulate a clear strategy to improve inclusion, equity and accessibility at the workplace.
Human rights implications
As noted above, pay transparency has implications under human rights laws, because it provides information for employees and job applicants to evaluate whether pay inequality exists at the workplace.
Section 12 of the British Columbia Human Rights Code prohibits discrimination in wages based on sex. Under section 12:
- An employer must not discriminate between employees by employing an employee of one sex for work at a rate of pay that is less than the rate of pay at which an employee of the other sex is employed by that employer for similar or substantially similar work.
- Skill, effort and responsibility must be used to determine what is similar or substantially similar work.
- It is not discrimination if the difference in the rate of pay reasonably justify the difference.
In addition, complaints about discrimination in wages on grounds other than sex may be filed under section 13 of the Code, which prohibits discrimination regarding any term of employment – including wages – based on a ground protected by the Code, including Indigenous identity, race, disability, sex, sexual orientation, gender identity or expression.
The existence of a pay gap does not necessarily mean there has been a breach of the Code. But, if a woman demonstrates a pay gap that she was paid less than a male co-worker for work that is similar or substantially similar, she will have a prima facie case of discrimination. The onus would fall the employer to demonstrate that the pay difference is based on factors other than sex that reasonably justify the pay difference.
Impact of pay transparency on the workplace
The purpose of pay transparency is to reduce pay inequality across gender, ethnicity, sexual orientation, racialized employees and other dimensions. However, pay transparency can have a number of unintended consequences, such as:
- Reducing employee bargaining power, because employers do not negotiate pay or pay ranges with prospective or current employees.
- Productivity decline if employees do not understand pay differences or believe their performance warrants higher pay relative to their peers.
- On the other hand, transparency can motivate employees to work for a promotion. Knowing managers’ salaries can make employees more optimistic about their potential future compensation.
- Performance management becomes a more challenging process, because it is one of the main reasons for justifying pay differences. Individual performance is not easily observed, in part because performance is based not only on the employee’s own effort, but on the effort of many others.
- Salary increases are based on factors that are easily observed and verified by employees, such as seniority or job level. Pay transparency is more difficult to adopt in environments where pay decisions are highly subjective and the organizational structure is relatively flat.
- Outsourcing may become more common, if workers with critical skills demand pay that diverges from the rest of the organization.
- Unions will have publicly available information about wage ranges for non-unionized roles, which could create challenges (or opportunities) during collective bargaining.
- Organizations will be more aware of the impact that recruitment, promotion and pay negotiations have on the GPG. Managers may require training to change their approach to negotiating pay increases and promotions.
- Once pay information is made available in BC, other Canadian employers with employees across multiple provinces will have to consider their pay transparency strategy. Organizations can consider whether to adopt a phased-in approach, or whether to communicate all pay ranges even if not required outside of BC
What can companies do now to prepare?
To comply with the new Act, organizations will need to gather data about the pay ranges of all employees working in British Columbia, including hourly rates of pay, overtime pay, overtime hours and bonus pay.
Before the reporting deadline, organizations should review their data for accuracy and ensure they have collected the information required under the Act (once the BC government clarifies the reporting requirements). If the organization needs to collect further personal information from employees – such as data relating to race, ethnicity, disability status or Indigenous status – the collection, use and disclosure must comply with BC privacy laws.
In addition, to proactively manage risks related to pay gaps, organizations should review and assess their data, keeping in mind the following questions:
- Are there pay gaps between employees with similar skills, efforts and responsibilities?
- Are these gaps defensible? For example, is there a point factor job evaluation for each role that provides a reason for differences in pay? Are differences in pay based on seniority, geography, merit, premium skills or other differentiators?
- If pay gaps are discriminatory, what is the plan to remedy these gaps?
- Are there gaps between unionized and non-unionized roles that could raise concerns during bargaining?
- Is there a communication plan for responding to questions from employees about their pay?
- Is there a plan to improve HR processes to reduce pay gaps, such as through more inclusive hiring practices, improving accessibility, more effective compensation, performance management and promotions processes?
- How will the organization monitor pay gaps in the future?
Information is current to November 1, 2023. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.