Legal Side of Pay Equity

The Legal Side of Pay Equity

In the US, the Equal Pay Act (1963) is the foremost legal reference for what constitutes equal pay. Most states now have their own laws that offer added protection to employees. 

For example, there’s a recent trend at the state level to encourage transparency, where many states now require pay ranges to be disclosed during the recruiting process. The laws may also discuss how wages are disclosed, when salary info should be provided to employees, and how the employer stays compliant on the issue of pay equity.

There are also laws against basing compensation based on salary history, as well as protecting employees from retaliation should there be a backlash if they are discussing salary with colleagues.  

HR professionals need to always keep pay equity in mind not only as policies and procedures are being developed but also reassess as part of biannual or annual reviews and always consider whether the processes are happening on a consistent basis.  Another legal aspect for managers to bear in mind is that should there be an inequality discovered, the employer can’t reduce one party's wages, but can only raise the lower set of wages. 

Whether a company is US-based or not, all employers should be clear on applicable pay equity laws and regulations. 

Navigating Pay Equity

According to the US Equal Employment Opportunity Commission:  

“The Equal Pay Act requires that men and women in the same workplace be given equal pay for equal work. The jobs need not be identical, but they must be substantially equal.” 

Pay equity may seem self-explanatory and even obvious—after all, most managers (hopefully) want to pay two different people the same amount if their jobs are similar. However, implementing a consistent practice that works to prevent inequities can be complex. 

How can you really tell whether pay between two jobs can you tell if a job is “substantially equal”? 

And how are managers to make pay decisions based on the bottom line when they are only allowed to raise (not reduce) wages in the case of an inequity? 

Here are some key questions that can be a useful starting point for managers looking to do a pay equity assessment:

  • What is the overall skill level required to do the job well? 
  • How much education does a person need to do the job well?
  • What type of other training or experience is required to perform the job? 
  • How much physical and/or mental exertion is generally required to complete the tasks involved? 
  • What is the overall responsibility level? 
  • What are the physical working conditions of the job? (This may include temperature, fumes, ventilation, hazards, etc) 
  • Where do the job duties regularly take place?
  • What types of compensation are in question here? Bear in mind that compensation includes anything from the company that may be considered a “perk” or benefit, including bonuses, stock options, vacation time, insurance, etc.  

Many managers might assume that the way they’ve set up wages is fair, but it takes a thorough investigation to understand whether (and why) pay gaps exist; statistical audits can be useful tools for this. 

How to Assess and Audit for Pay Equity

An audit or analysis is useful for identifying not only pay gaps themselves but also understanding the reasons behind them—basically whether they can be considered legitimate or discriminatory. 

Here are the initial steps that should be taken for a pay equity assessment: 

  1. Collect data on all current employee positions 
  2. Understand factors that legitimately do affect pay 
  3. Establish benchmarks for what is fair pay (for instance, compare against market rates)
  4. Using objective data, employ an HR professional or use reliable HR software to analyze all relevant data to perform a full statistical analysis 
  5. Identify possible disparities and determine which legitimate or discriminatory 
  6. Create a plan of action to develop policies that eliminate/previous disparities 
  7. Include future reviews and assessments in the plan to ensure that compensation practices continue to be assessed on a consistent basis 

An audit or assessment is meant to be an objective analysis of where your employees currently stand and why. It’s not meant to be a criticism or an extra “unnecessary” exercise. A third party can be a helpful resource here to take on the complex parts of this process.

Pay Equity Best Practices

With regard to salary equity, transparency is key. Salary information, as well as other compensation information, and the justification behind these levels, should be completely available to employees. Regular discussions around compensation need to happen. 

Other best practices include: 

  • Ensuring that starting wages are clear and accessible for applicants and new hires
  • Including equitable pay changes in budget forecasting and planning 
  • Understanding current compensation standards and trends in a given industry/role
  • Ensuring employees understand pay scales and how decisions regarding pay equity are made
  • Having a clear policy that eliminates salary negotiations 
  • Being clear on how and when increases/incentives normally occur for all employees 
  • Establishing a transparent/standardized compensation system 
  • Having objective standards for establishing pay at each level
  • Raises should be clearly defined and based on performance only 
  • Everything to do with salary and compensation needs to be documented carefully 

Regular communication with employees about compensation transparency is essential. They need to feel safe coming forward should they suspect a discriminatory pay gap, and be clear on the reasoning behind the pay for each position. This information can be easily included as part of regular job description updates and performance reviews.

Pay Equity is a Strategic Imperative

Ensuring that employees receive truly fair compensation and that the pay is on par with their colleagues in similar roles is essential to today’s workplaces. Managers need training on all aspects of pay equity, and employees alike should be completely aware of the reasoning behind certain salary levels. 

There’s more to ensuring pay equity assessments than just sticking with legal requirements or conducting regular audits; no matter what, it's going to be a solid business decision.  

In the interest of promoting diversity and inclusion all around, organizations of all sizes should employ HR professionals willing and able to conduct a thorough annual audit to ensure that businesses are not only in compliance with the law but also encouraging true equality at all levels. 

In this uncertain economic climate, employee satisfaction and productivity will be higher when they feel secure about their position as a whole—not just financially but emotionally. And they’ll be more likely to stick around in the long term.

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