Along with being required by law, pay equity promotes an environment in which employees believe they are being fairly rewarded for their work. Pay equity is also crucial during recruiting, especially when employers are vying for talent in a tight labor market.
By conducting pay-equity reviews, you can determine whether your compensation practices are lawful, fair and competitive.
The first step is to understand the regulations mandating equal pay.
Per the federal Equal Pay Act (EPA), employers must pay equal wages to men and women who perform equal work in the same establishment. Equal work means that the job requires the same or substantially equal skill, effort and responsibility and is performed under similar working conditions. Federal law, however, does not prohibit disparities in pay if they are based on factors besides gender — such as seniority, skills, education, qualifications or amount of responsibility.
Other federal laws related to pay discrimination include:
- Title VII of the Civil Rights Act of 1964.
- Age Discrimination in Employment Act.
- Americans with Disabilities Act.
- Lilly Ledbetter Fair Pay Act.
On top of federal laws, many states have passed more detailed or more stringent legislation about gender-based wage discrimination. Some states have also extended their equal pay laws to cover other forms of discrimination, such as race and religion. Further, some states and localities ban employers from using salary history as a basis for paying different wages to people with similar skills.
In addition to knowing your legal obligations, you’ll need to review your pay policies and practices.
Questions to consider:
- Is a diverse applicant pool an integral part of your talent acquisition strategy?
- Do you have a methodology for determining salaries and benefits? This may include evaluating the job description, market pricing, and skills and competencies.
- Do you have a system for ensuring equal pay for employees who perform substantially equal work — even though their job titles may differ?
- Are your pay decisions based on objective, rather than subjective, requirements?
- Do you have a legally acceptable reason for paying different rates to employees who do substantially equal work?
- Do you have documentation to validate your compensation decisions?
- What employee qualifications and contributions do you consider when determining raises and bonuses?
- Does your employee handbook include your general compensation policy?
- Does everyone involved in making compensation decisions know the rules surrounding “equal pay for equal work”?
- How are employees selected for opportunities that lead to advancement or promotion?
- Are employees complaining or have any of them left the company due to pay inequity?
- What steps do you take to investigate complaints about pay inequity?
- What procedures do you frequently undertake to monitor compliance with equal pay laws?
Conducting pay-equity reviews is an expansive initiative that requires deep expertise. If you do not have the appropriate internal resources to conduct the review, consider hiring a third-party firm.