More and more employers are addressing pay equity within their organizations and implementing ways to ensure it going forward. Pay equity means equal work deserves equal pay, regardless of the person’s gender, race, ethnicity, age, or any other non-job-related factors. In fact, there are many state laws that require employers to provide equal pay for equal work. If you’re not sure why this is important or how to implement a compensation policy, we’ll cover it all for you.

Pay Equity and Why It Matters

As stated previously, employees who do similar jobs or the same job should receive equal pay, regardless of the non-job-related factors. It eliminates wage discrimination by ensuring everyone is treated fairly, which also promotes diversity and inclusion in the workplace. For a long time, certain individuals received lower pay than their coworkers doing the same job for discriminatory reasons. The effect of this goes beyond the workplace to the person’s ability to take out loans, build wealth, and improve social status.

In some places, fair pay standards are required by law, making it essential for employers to review their pay scales and policies to remain compliant. Having fair pay also leads to greater morale and higher productivity, as well as higher retention rates. According to a survey from Fidelity Investments, 70% of 534 responding companies reported they had taken action on improving pay equity. These companies cited building and maintaining a culture of trust as their number one reason for addressing pay inequalities.

Pay Equity Laws

In terms of compliance, the federal government has a collection of laws that address pay equity among employers. The first was the Equal Pay Act of 1963. This law required employers to pay men and women equally, whether the work is identical or substantially similar. Title VII of the Civil Rights Act of 1964 prohibited employers from discriminating against employees based on race, color, religion, gender, or national origin. Other laws include the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Lilly Ledbetter Fair Pay Act. Currently, Congress is aiming to pass the Equality Act which will expand Title VII protections. 

The Equal Employment Opportunity Commission (EEOC) is the government agency responsible for enforcing these federal laws. The EEOC investigates complaints filed with them and requires employers to complete an annual survey (the EEO-1 report) which includes the demographics of their employees.

Latest Employment Trends

In addition to federal laws, some states and local authorities have enacted their own regulations regarding equal pay. The most popular are:

• Pay Transparency. This requires companies to disclose salary ranges for open positions and provide candidates with how their pay is determined.
• Salary History Bans. This law prohibits employers from asking about salary history in job interviews and applications to prevent wage discrimination based on the person’s pay history.
• Pay Equity Studies. Some companies are encouraged to conduct audits of their pay scales and salaries to identify and address any disparities in compensation based on non-job-related factors (gender, race, etc.).

If you’re an employer in California, Maryland, Massachusetts, New York, or Oregon—or have employees working from any of these states—each state has its own laws and regulations regarding pay equality so you’ll want to check with your human resources team to ensure compliance with any state and city laws.

Conduct a Compensation Audit

The first step to implementing a pay equity policy is to conduct an audit of your current payroll data. This includes pulling information on pay data (salaries, commissions, bonuses, etc.) to identify any inequalities in pay based on gender, race, or other factors. This process can be broken down into seven steps:

1. Gather relevant data. You’ll want to first collect all employee data related to compensation e.g., job titles, job descriptions, performance evaluations, and pay history.
2. Determine relevant factors. Next, you’ll need to determine the factors that affect pay such as job duties, experience, performance, education, and seniority. Evaluating the job titles and descriptions will help you define what “comparable work” means with your company.
3. Create a pay/salary benchmark. This benchmark is to determine fair and equitable pay. It can be based on market rates, industry standards, or your organization’s pay scales.
4. Analyze the gathered pay data. Once you’ve gathered the data, determined the factors, and set a benchmark, the next step is to go through the data and identify any inconsistencies in pay based on non-job-related factors. It is best practice to perform this analysis as objectively as possible. Oftentimes, companies opt to outsource this audit to remain objective.
5. Determine the causes of any disparities. When you do come across any inconsistencies, look at what might be causing them, for example, there may be a difference in job duties, experience/qualifications, or it may be due to more discriminatory reasons if all other factors are the same.
6. Address any disparities. Ways to address any inequalities could include adjusting pay for the affected employees, updating compensation policies and pay scales, and addressing any discriminatory practices. It’s a good idea to include human resources in this process, especially when addressing sensitive matters.  
7. Regularly monitor and update. Laws and regulations change constantly, so it’s best to monitor any updates to any regulations and adjust your policy accordingly.

Implement a Pay Equity Policy

After your audit, you can create or update a policy around compensation practices. A best practice is to use objective criteria for pay. This means someone’s pay should be based on job duties, education, experience, and performance. This will help when creating salary bands and pay scales. Another component of your policy could be pay transparency. This is part of the recruitment and hiring process providing pay ranges for the open position and clearly defining what criteria the pay is based upon. Every time you conduct a pay audit, you’ll want to refer to your policy and make any necessary adjustments.

Pay equality is not something to take lightly. When adjusting or implementing any company policies that surround legal compliance, involving human resources (HR) is in the organization’s best interest. HR will ensure any audit is managed objectively and that any sensitive data or findings are dealt with compliantly and delicately. VensureHR provides expert HR guidance, and our team of seasoned HR professionals will ensure any pay equity concerns are managed effectively and in compliance with local, state, and federal regulations. Moreover, VensureHR provides regular employment law updates which aid in keeping you up to date with the latest changes in legislation. Schedule a call with us to learn more about how our HR services can serve your company.

References

Forbes Advisor- What is Pay Equity and Why is it Important?

HR Dive- More Employers are Addressing Pay Equity Because It’s the Right Thing to Do

PR Newswire- Organizations Are Taking More Action On Pay Equity