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Corporate Talent & Inclusion

How employers should handle pay equity issues in 2021

Megha Jain  Lawyer

Megha Jain  Lawyer

Pay equity is a growing issue among employers, and there are several key actions they need to keep in mind when considering compensation parity and pay gap issues

To many, it is still surprising that we live in a country in which pay equity is still a pervasive issue. Although we have made much progress in the gender pay gap, there is still work to be done. In 2020, women’s annual earnings were 82.3% of men’s, and the gap is even wider for many women of color, according to data from the U.S. Bureau of Labor Statistics.

Under the federal framework, there are several laws that help protect pay discrimination, such as Title VII of the Civil Rights Act of 1964, which prohibits workplace discrimination on the basis of sex, among other protected class characteristics; and The Equal Pay Act (EPA), which prohibits sex-based discrimination in payment of wages for equal work. The EPA requires that employers pay male and female employees equal wages for equal work on jobs that require equal skill, effort, and responsibility to perform, and are performed under similar working conditions in the same establishment.

There have also been other legislative actions addressing fair pay — for example, the Lilly Ledbetter Fair Pay Act of 2009, and The Paycheck Fairness Act, which is still being considered in the U.S. Senate — and there is an increasing trend showing that state laws have been moving towards more transparency for employees in the workplace.

Indeed, such states as California and New York have increasingly changed their laws to further enable transparency of salaries at every level. For example, in New York there are broader protections that require employers to provide equal pay for equal work within the same geographical region, not only within the same establishment; and in California, the state has added protection for pay disparity not just according to race but with ethnicity as well. New York also has mirrored that, by using any protected class under the New York Human Rights Law.

There has also been increasing legislative action with salary bans, which prohibit an inquiry into one’s past salary when applying for a new job, in order to break the cycle of pay inequities. For employers in New York, there is a more burdensome challenge when defending pay equity cases; and the New York Equal Pay Act now mandates that employers must show that any pay disparity is job-related and consistent with business necessity.

The need for consumer transparency

In my personal experience, I have found in dealing with pay equity claims that it is about being heard. It is about looping in the right partners such as HR, legal, and compensation — and if your company has an Employee Relations department, bringing them in too. These allies can help facilitate these types of complaints. Further, it is about committing your company to make the right decisions when faced with any inequity in pay. I’ve seen how for employers facing compensation disparities, facing them head on is the best way to deal with those issues.

“The trend is that state and local laws are increasing legislation to close the gender gap and transparency is a hot issue,” says Maya Raghu, Director of Workplace Equality and Senior Counsel at the National Women’s Law Center. “The events of last year and a large effort for diversity, equity & inclusion (DEI) initiatives has helped progress the pay equity efforts forward, because the equal pay story is the story of women of color.”

Key actions employers should consider

There are several considerations and key actions that employers need to keep in mind when dealing with compensation parity and pay gap issues.

Assume your employees are sharing salary information — Pay transparency is a continuing trend among employees and millennials want their employers to be open and transparent about pay data within an organization. Although its often a misconception, an employee does have the right to discuss personal salary information with coworkers, and that right is protected by the federal government. According to the National Labor Relations Act, employers cannot ban the discussion of salary and working conditions among employees.

When faced with employee “red flags”, act quickly and thoughtfully to address concerns — When an employee raises such words as “pay equity, equality, or fairness” make sure the company’s HR and legal teams are looped in to investigate those claims. Inquiries or concerns about compensation, pay increases, promotional opportunity, or title re-leveling relating to one’s peers or peer group (actual or perceived peers) should be taken seriously and addressed.

Use substantially similar job roles as “comparators— When doing a pay equity investigation on an employee, look for peers that are performing substantially similar work and receiving higher pay because of gender, race, etc., and make sure the job comparator is the correct one.

Message your results effectively — As an employer, make sure you are ready for the results and know how to effectively communicate those results to the company and employees. It may help to loop in a communications team to better structure that message conveyance.

Partner with your legal function — Make sure you loop in employment counsel, in-house legal teams, and (if needed) outside counsel to assist with employee pay equity complaints and the results of a pay audit. It also may help to make sure correspondence and data is privileged.

Review pay grades and conduct periodic review — Pay grades should account for numerous factors, such as job duties and responsibilities, experience, education, geography, and any other objectives and identifiable employee characteristics. Make sure the company is up to date with various state laws addressing pay equity, and that the company conducts periodic annual or bi-annual pay equity audits.

Train your managers — Training management on pay transparency compliance is crucial to ensuring long-term progress towards pay equity.

The trend for pay equity is likely to continue as more Gen-Zer employees enter the workforce and want greater transparency, including on pay. Employers who conduct a good-faith pay audit within their companies now can help decrease future litigation, correct pay inequities, improve morale, and forge a better brand relationship with future employees that strengthens companies’ own sustainability going forward.

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