Pay Equity:
It’s the Right Thing to Do

About a year ago, five prominent members of the U.S. Women’s Soccer team claimed they were unfairly paid as compared to their male counterparts on the U.S. Men’s Soccer team. The U.S. Women’s National Hockey team recently upped the fair pay ante, saying they would not play in this year’s world championships unless meaningful progress is made on fair pay issues.

What do these two teams have in common? They win. On the world’s stage, they are more successful than the men in both sports, yet they are paid less.

That same stubborn problem is seen throughout the workplace. The facts speak for themselves. For every $1.00 a woman earns, a man earns $1.28 on average. And, on average, men earn 28% more than women across all industries.

But pay equity goes beyond “the right thing to do.” Attracting a wider pool of applicants and keeping them engaged is critical to your business, and your brand. You also need to stay in compliance with increasingly rigorous federal and state regulations. And, as discussed below, federal, state and local governments have been very busy battling pay inequity.

Federal government takes the lead

In 2016, the U.S. Equal Employment Opportunity Commission (EEOC) released an updated EEO-1 reporting form that will require covered employers to provide pay data starting in March 2018. Currently, the EEO-1 report, which is a compliance survey mandated by federal statute and regulations, only requires employment data to be categorized and filed by race/ethnicity, gender, and job category. The EEOC’s updated form is a significant change, because it will be the first time pay information will be required on the report. This information can be used by the government to address pay inequality.

Also in 2016, the EEOC published a fact sheet which highlights the agency’s interpretation of the Equal Pay Act (EPA). The EPA prohibits employers from paying unequal wages to men and women who perform jobs that require substantially equal skill, effort, and responsibility under similar working conditions in the same establishment. The EEOC’s fact sheet summarizes its interpretation of each of these factors:

 Skill

Skill is measured by factors such as an employee’s experience, education, ability, and training to perform a job. It is important to distinguish between the skills required for the specific job and the skills of the employee in general. An employee may have skills in a certain area, but if those skills are not relevant to the job (e.g., a graduate degree in an unrelated field), they should not be considered in the employer’s analysis.

 Effort

The amount of physical or mental exertion needed to perform a job.

 Responsibility

The degree of accountability required in performing a job. Note, however, that minor differences in responsibility will not justify a pay differential (e.g., turning off the lights at the end of the work day).

 Working conditions

Working conditions refer to both (1) physical surroundings (e.g., temperature, fumes, and ventilation) and (2) hazards.

 Establishment

An establishment is a distinct physical place of business rather than an entire business consisting of several places of business. However, in some circumstances, physically separate places of business may be treated as one establishment (e.g., if a central administrative unit hires employees, determines their compensation, and assigns them to separate work locations, the separate work sites can be considered part of one establishment).

Lastly, Executive Order 13665, which applies to federal contractors, prohibits policies and practices that prevent applicants and employees from freely discussing their pay. Federal contractors must also incorporate a prescribed pay transparency nondiscrimination provision in employee handbooks (or implement a stand-alone policy) and post it for applicants and employees. Specifically, this provision must provide applicants and employees with notice that the federal contractor will not discriminate against them for inquiring about, discussing or disclosing their pay or, in certain circumstances, the pay of their co-workers.

The federal government is not acting alone. Rather, its rules and regulations are part of a climate of increasing regulatory measures aimed at closing the pay gap, with a particular focus on restrictions on the use of salary history to set pay.

California

On September 30, 2016, California Governor Jerry Brown signed into law two bills designed to address ongoing concerns of pay inequity.

  • Effective date: January 1, 2017.
  • Prohibits employers from relying on an employee’s prior salary to justify a disparity between the salaries of similarly situated employees.
  • Prohibits employers from paying employees of one race or ethnicity less than employees of different races or ethnicities who perform substantially similar work, subject to some exceptions. For example, exceptions include seniority, merit, a system that measures production, and/or another bona fide factor.

Massachusetts

Governor Charlie Baker signed a bill amending Massachusetts’ Equal Pay Act on August 1, 2016.

  • Effective date: July 1, 2018.
  • Prohibits employers from screening job applicants based on wage or salary history.
  • Prohibits employers from seeking the salary history of an applicant from a current or former employer, unless the prospective employer made an offer of employment to the applicant, and the applicant provided written authorization to the employer to confirm wage or salary history.
  • Employers cannot prohibit employees from discussing their compensation with coworkers or colleagues.

New York

On January 9, 2017, New York Governor Andrew Cuomo signed two executive orders.

  • Requires state contractors to regularly disclose employee job title and salary data. Contractors must disclose this data for all state contracts, agreements, and procurements issued and executed on or after June 1, 2017.
  • Prohibits state agencies from making pre-job offer inquiries about candidates’ prior or current salary. This requirement is now in effect.

    On May 4, 2017, New York City Mayor Bill de Blasio signed into law legislation regarding pay equity.
  • Effective date: October 31, 2017.
  • Prohibits employers in New York City from inquiring about, relying upon, and verifying a job applicant’s salary history, subject to some exceptions. For example, if an applicant makes an unprompted and willing disclosure of his or her salary history to the prospective employer, the employer may consider salary history in determining the prospective employee’s salary, benefits, and other compensation, as well as verify the applicant’s salary history.

New Jersey

In March 2016, the New Jersey Legislature gained bipartisan support to pass a new bill on pay equity.

  • The bill would have required equal pay for “substantially similar work,” allowed damages for the entire period of discrimination, and required certain public contractors to report employment information.
  • Effective date: None. Governor Chris Christie vetoed the bill.

Philadelphia, PA

On January 23, 2017, Philadelphia became the first major U.S. city to make it illegal for employers to inquire about a potential employee’s salary history.

  • The Wage History Ordinance makes it unlawful “for an employer, employment agency, or employee or agent thereof” to “inquire about a prospective employee’s wage history, require disclosure of wage history, or condition employment or consideration for an interview or employment on disclosure of wage history.”
  • Originally effective May 23, 2017, the ordinance was temporarily halted by a now-dismissed lawsuit. It remains in effect pending further legal challenges.

What should employers consider doing now?

Employers cannot afford to operate in this regulatory climate without knowing whether there is pay inequality among their own employees and where risks may lie. Consequently, employers are advised to conduct a review of their pay practices to identify and correct any pay equity problems.

Similarly, for employers that operate in locations that prohibit the use of salary history, all applications, interview forms, and related HR documents should be modified to avoid the use of unlawful questions.

Not sure where to begin?

Start with ADP®. Our HR solutions can help you see if a pay gap exists at your company. From compensation analysis, to helping you with a pay equity evaluation, we have the expertise that you need to stay in compliance and ahead of changing federal and state regulations.

Keywords:
HR Management
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Human Capital Management
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Talent Management
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Research for Human Resources Professionals