Pay transparency exposes weak pay structures but doesn't automatically compress pay. Gaps nobody can explain are where the compression risk comes from.
Highlights
- Under the pay transparency laws of 2026, disclosure rules now cover current employees and pay structures, not just job ads.
- Federal worker classification rules are still changing. Whatever the final rule says, actual working practice will count for more than contract wording.
- Hard stops in the HR system are payroll's best defense against misclassification. They should be set at the position level, before a worker ever reaches payroll.
Three payroll, HR and technology experts look at whether pay transparency compresses wages, why data skills may matter more than credentials when hiring payroll managers, and how HRIS hard stops prevent worker misclassification, as new pay transparency laws take effect in 2026 alongside EU directive deadlines and a proposed DOL contractor rule, making it more important for payroll to be able to defend its decisions.
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Why this matters for payroll right now
Q1: Pay transparency and the compression question
Q2: Credentials vs. capabilities at the payroll manager level
Q3: Building hard stops against misclassification
The bottom line for payroll leaders
Why this matters for payroll right now
Sooner or later, someone will question every payroll decision. An employee wants to know why a new hire earns the same salary. A candidate wants to know where the posted range came from. An auditor wants to know why a long-term “contractor” never appeared on a W-2. In the final quarter of 2026, those questions are coming faster, and payroll needs to have answers ready.
Pay transparency laws in 2026 are the biggest source of pressure. Connecticut’s Public Act 26-12 is the latest example. Its provisions generally take effect on October 1, 2026, unless otherwise noted. The Act amends existing salary disclosure law to require employers to include in both public and internal job postings the wage or wage range for the position, together with a general description of benefits. Connecticut now joins other states like California, Colorado, and New York in requiring employers to make proactive disclosures in job postings. Unlike in some other states, however, Connecticut’s disclosure requirements are not tied to employer size and instead apply to all employers.
Europe is moving more slowly. Only four member states met the June 7, 2026, deadline for the EU Pay Transparency Directive, and as of September 2026, five had enacted implementing laws. Slovakia went first. On April 15, 2026, its National Council adopted the Equal Pay Act, making it the first EU member state to transpose the Directive into national law.
Talent and classification add to the pressure. In ADP’s 2026 global payroll survey, 68% of respondents admit that their payroll service has been affected by a shortage of payroll staff. At the federal level, the U.S. Department of Labor (DOL) is rewriting its independent contractor test. As Checkpoint News reported in May, industry surveys show payroll costs often account for 40% to 60% of operating expenses. When a cost that large depends on pay decisions, hiring choices and classification logic, payroll has to be able to explain all three.
The experts
For this issue, Checkpoint News spoke with three payroll, HR and technology experts:
- Anita Lettink, Managing Partner, HRtechradar
- Nick Day, MA, CMI, ILM, CEO, JGA Recruitment Group
- Steve Bogner, Managing Partner, Insight Consulting Partners
This month’s Payroll Pulse looks at whether payroll can defend its pay structures, hiring choices and system controls when someone asks why.
Q1: Pay transparency and the compression question
Pay transparency laws have exposed pay gaps. Do they also cause wage compression, and what should payroll and reward leaders do about it?
Many headlines say transparency is flattening pay. Lettink is more cautious. She says she hasn’t seen evidence that transparency severely compresses pay. In her view, the answer depends on how strong the organization’s pay structure already is.
She points to two studies with different results. In a study of 100,000 US academics published in Nature Human Behaviour, pay became more equal once people could see what colleagues earned, but the link between performance and salary weakened. A 2025 National Bureau of Economic Research working paper studied US states that require salary ranges in job ads. It found that wages rose by 1.3% to 3.6%, with no meaningful change in how widely pay was spread. Lettink concludes that transparency in the outside job market does not necessarily flatten pay. It may simply give candidates more information and more bargaining power.
Inside an organization, the effect is different. Pay structures built through years of individual negotiation can contain large, unexplained gaps between people doing similar work. Once employees can see those gaps, they can ask why they exist. If leadership can’t explain them, it will be pressed to close them. That is the real compression risk. Disclosure doesn’t cause it. Closing gaps that can’t be justified is what narrows pay ranges.
The regulatory backdrop
The pay transparency laws of 2026 increasingly give current employees the right to ask, and require employers to show how ranges were set. In Massachusetts, the Attorney General’s guidance confirms that employees or prospective employees of covered employers have a right to know the pay range for a position when applying, upon promotion or transfer, upon beginning a new position, and on request for their current position. Massachusetts also gives employers a short cure period. Until October 29, 2027, an employer that receives a Notice to Cure from the Attorney General’s office has two business days to fix the problem.
A first violation brings a warning, and later violations carry fines of up to $500 for a second and up to $1,000 for a third. Connecticut employers must also provide this information to employees upon hiring, upon a change in position, or upon the employee’s first request for a wage range. Connecticut also revises the definition of “wage range” to mean the range of wages “set in good faith” by reference to an applicable pay scale, a previously determined wage range for the position, actual wages for current employees holding the position, actual wages for employees in comparable positions, or the employer’s budgeted amount for the position. That is close to Lettink’s point: a range is only defensible if there is a documented basis for it. In California, SB 642 now defines “pay scale” as a good-faith estimate of what the employer expects to pay on hire. It also extends the statute of limitations for California Equal Pay Act claims from two to three years.
In Europe, regulators are focusing on the same thing Lettink does: the structure itself. The Directive’s own text treats gender-neutral job evaluation and classification as the basis of a transparent pay system. In Slovakia, employers face firm deadlines. The Equal Pay Act took effect on June 7, 2026, and employers had to have compliant pay structures in place by July 31, 2026, just under eight weeks later. Fines for failure to report range from €4,000 to €8,000, and the Labour Inspectorate’s broader sanctioning powers also apply. In Greece, the law requires pay structures to be documented in writing, and most employer obligations take effect November 1, 2026.
What it means for payroll
Payroll holds the record of what people are actually paid, so the gaps employees ask about will usually show up in payroll data first. Lettink says organizations with clear job levels and consistent salary ranges can keep paying people differently, because those differences rest on clear, defensible criteria. Before the questions arrive, payroll and reward teams should make sure job levels and ranges are correctly maintained in their systems, so that every pay difference can be traced to a documented reason. Under 2026 pay transparency laws, that traceability is what makes a range defensible.
“The lesson for HR and reward leaders is that transparency doesn’t automatically cause pay compression. Instead, it exposes the quality of your pay structure.”
Managing Partner, HRtechradar
Q2: Credentials vs. capabilities at the payroll manager level
If a candidate applies for a manager role with a Chartered Institute of Payroll Professionals (CIPP) qualification but poor tech skills, and another applies with data science skills but no CIPP, who wins the desk and why?
Day gives a clear answer. If both finalists have enough payroll experience to run the operation credibly, he would hire the candidate with data skills, and he would move fast, because that person won’t stay on the market for long.
He still values the credential. Day rates CIPP qualifications highly. He says they show a professional cares enough about the field to invest in themselves, and that they signal technical depth that takes years to build. (For US readers, the same reasoning applies to the Certified Payroll Professional, or CPP, credential.) His point is that recruiting should look at the next three years of a role. The payroll manager job specifications JGA Recruitment Group receives today look very different from those of five years ago. Accurate, compliant, efficient processing is now the minimum. On top of that, clients want AI and automation, data analysis, system ownership, transformation and board reporting.
To decide between finalists, Day asks which gap will be easier to close once the person is in the role. A capable manager without the qualification can make a study plan and earn it later. Building curiosity about data in someone who has avoided spreadsheets for fifteen years is much harder, and in his experience it often doesn’t happen.
What the data says
Industry research supports Day’s view. ADP’s 2026 global payroll survey covered 1,816 senior payroll stakeholders across 20 countries. A substantial share of leaders want dedicated expertise in IT (34%), data security (37%), analytics (37%), compliance (38%), and payroll processing (35%), indicating a surge in demand for more sophisticated, tech-enabled teams.
PayrollOrg’s summary of the findings shows why analytics matters. Only 12% of respondents have comprehensive global and regional reports, 31% lack any, and 49% depend solely on country-level data. Teams are also being asked to do more with fewer people. ADP reports that 72% are exploring ways to run payroll with fewer people, and among them, 44% are turning to AI.
The wider job market points the same way. PwC’s 2026 Global AI Jobs Barometer found that the average wage premium for workers with AI skills reached 62%. It also found that roles where AI automates routine tasks and human judgment becomes more important are growing faster than other AI-affected roles. For payroll, this means the professionals who can question and interpret system output are the ones employers are competing for.
What it means for payroll
Day notes that payroll holds some of the largest and most accurate data in any business. Someone who uses it well can support workforce planning and cost control, and help with decisions well beyond payroll. In his experience, data-minded hires also pay off faster.
They spot the trend behind a recurring payroll issue, find a compliance risk buried in an exception report, or fix the manual process that costs the team two days every month. He adds a caveat: in a heavily regulated operation with a very junior team, he would put more weight on technical depth. In most cases, though, the data candidate gets the job, and he would still tell them to earn the qualification.
“Teaching someone to be curious about data after fifteen years of avoiding spreadsheets is much harder, and in my experience, it often doesn’t happen at all.”
CEO, JGA Recruitment Group
Q3: Building hard stops against misclassification
How do you configure modern human resources information system (HRIS) workflows to put hard technical stops in place that prevent hiring managers from mistakenly onboarding a full-time employee (FTE) as a contractor?
Bogner describes misclassification prevention as layered controls that begin long before a worker’s first day. The first layer is position management. Each position is set as eligible for an FTE or a contractor, and HR usually controls that setting. Hiring managers can’t change it, so the key classification decision is out of their hands from the start.
The second layer is how workers enter the system. FTEs typically arrive through talent acquisition, from internal or external candidates, and carry FTE attributes. Contractors usually come through procurement. Keeping the two routes separate is a safeguard in itself.
The third layer is the onboarding workflow. Bogner says it must confirm that the person’s attributes match the position being filled. If they don’t match, the process stops. Some organizations go further and manage employees and contractors in entirely separate systems, which forces separate workflows by design.
The regulatory backdrop
Federal classification rules are changing. The DOL’s proposed rule was published on February 26, 2026. It reestablishes a five-factor economic realities test, with greater weight given to two factors that the DOL considers “core”: (1) the nature and degree of control over the work and (2) the worker’s opportunity for profit or loss based on initiative and/or investment. The comment period ended April 28, 2026. The rule is not final yet. As one law firm notes, because this is only a proposed rule, it has no immediate legal effect, and the 2024 rule remains in place unless and until a final rule is issued. In practice, however, the DOL stopped enforcing the 2024 rule in May 2025.
One part of the proposal supports Bogner’s approach: what actually happens counts more than what the paperwork says. Another law firm observes that a carefully drafted independent contractor agreement cannot overcome operational practices that resemble an employment relationship. The proposed rule also has limits payroll should keep in mind.
A third law firm cautions that the proposed DOL rule would not affect how states define independent contractors under their respective employment statutes, including states with more demanding standards such as the “ABC” test. The proposal also would not redefine who an independent contractor is under the Internal Revenue Code, and that is the definition that controls W-2 versus 1099 reporting. System controls that keep everyday practice consistent with each worker’s classification therefore matter under any federal standard.
What it means for payroll
Classification accuracy is mostly decided before a worker reaches payroll, but payroll is well placed to test whether the controls work. Three questions are worth asking now:
- Who can edit position classification attributes, and is that access logged?
- Does the onboarding workflow actually block a mismatch between worker type and position type, or does it only display a warning?
- How do contractor records from procurement connect to the HR system, and who reviews long-running contractor engagements?
“An FTE can’t fill a contractor position and vice versa.”
Managing Partner, Insight Consulting Partners
The bottom line for payroll leaders
This month’s three questions cover different ground, but they share one test: can payroll defend its results when someone asks why? Lettink shows that transparency doesn’t so much compress pay as reveal whether pay differences rest on clear criteria. Day argues that the managers worth hiring can question and interpret what the data shows, not just process it. Bogner shows that classification accuracy comes from controls built into the system, not from trusting hiring managers to get it right.
The timing matters. The pay transparency laws of 2026 are no longer a future concern: Connecticut’s expanded rules are now in force, Massachusetts employers have a two-business-day cure period that ends October 29, 2027, EU countries are still writing the Directive into national law, and the federal contractor rule is still pending. Legal observers expect significant developments through the end of 2026 and into 2027. Organizations that wait for final rules before fixing their structures will be doing that work under pressure.
Accountability stays with payroll. Payroll may not set salary ranges, make hiring decisions or design HRIS workflows by itself, but its records show the results of all three. The leaders best placed for 2027 are the ones whose pay structures, teams and system controls have answers ready when someone asks why.
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