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Why Pay Equity Keeps Getting More Complicated

With state and local pay laws more common, audit pay to uncover disparities

A miniature man sitting on top of a bunch of wires.

Momentum to ramp up requirements on employers to address the pay gap between men and women, and between white and minority employees, is shifting to the states and cities, said Mickey Silberman, a shareholder in the Denver office of law firm Fortney & Scott and chair of the firm's affirmative action and pay equity practice group.

Speaking March 13 at the Society for Human Resource Management's 2018 Employment Law & Legislative Conference in Washington, D.C., Scott said that conducting a proactive pay analysis and taking steps to stay on the right side of the law, be that federal or local law, can no longer be a task that's put off for another day.

According to the most commonly cited government statistic about the gender pay gap today: U.S. women on average earn only 80 cents per each dollar earned by men. Silberman cited other research showing that black women earn 63 cents per dollar and Hispanic women earn 54 cents per dollar compared to white, non-Hispanic men.

When asked, more people say that they favor "equal pay for equal work," meaning that employees doing the same job should be given equal pay, Silberman noted. That response seems right but can overlook factors such as education and credentials, tenure on the job, past employment experience and performance ratings, he noted.

Taking such differences into account, or not doing so, distinguishes two approaches to employee pay, Silberman explained:

  • Pay equity, or paying employees fairly and consistently, without discrimination on the basis of gender, race or other protected categories but taking into account job-related factors such as education, work experience and tenure.
  • Pay parity, which requires that employers show there is no pay gap across the entire workforce between men and women and between whites and racial or ethnic minorities.

"The federal law standard essentially says to compare employees doing the same job who are similarly situated," which is a pay equity approach, Silberman said.

State and local ordinances are treating that practice as being too subjective and providing an opening for deliberate or unconscious discrimination. For instance, in 2016 the California Fair Pay Act adopted an expanded "substantially similar" standard, requiring that employers view similar work as a composite of skill, effort and responsibility, and holding them legally liable if pay differs among white men and others performing substantially similar jobs.

California employers "must explain and justify the entire wage differential," Silberman said.

Going further down this road, the Massachusetts Pay Equity Act, scheduled to take effect on July 1, seeks to close the gender gap and make it unlawful for employers to pay men and women different rates for "comparable work."

Oregon's version of pay parity, which becomes effective next January, requires that "work of comparable character" be equally rewarded.

"There is growing momentum at the state and city level to enact aggressive pay laws," Silberman said. As a result, "many states and big cities are quickly passing a patchwork of pay equity laws that differ and often contradict each other," with regard to what factors might justify pay differences between white men and other employees.

Driving these moves are coordinated efforts by shareholder activists, academics, women's and civil rights groups to "attack the gap," he said.

[SHRM members-only toolkit: Managing Pay Equity]

Proactive Pay Audits

Last year, Glassdoor, a website for candidates to search for jobs and research companies, published How to Analyze Your Gender Pay Gap: An Employer's Guide. "Perform an internal gender pay audit to understand whether a gap exists at your company," advised Andrew Chamberlain, chief economist at the firm. An audit "involves examining your own payroll data for evidence of a gender pay gap, and making recommendations to senior management about ways to lower gender barriers in recruitment, hiring, pay and promotion before they arise as broader organizational concerns."

Silberman likewise advised employers to conduct pay audits in the quarter before an organization's regular pay-cycle increase. He pointed out that in some states, such as Massachusetts, a proactive pay analysis audit can be a "safe harbor" from legal action, if conducted in good faith, with reasonable analysis, and if reasonable progress is then made to eliminate unlawful pay disparities.

"Each year, consider keeping an 'equity reserve' off the top of your payroll adjustment budget, and use these funds to close the parity gap," he recommended. Adjustments to close the gap don't need to be announced as a remedial action, but can be made under the radar as part of an employee's annual pay raise, Silberman said.

But beware: Conducting a pay audit and then not investigating disparities and, if necessary, making pay adjustments "puts employers in the danger zone" for litigation, Silberman warned. "If you have exhausted the ability to explain pay differences, consider pay adjustments."

Given the increased likelihood of pay disparity litigation, he noted, "CEOs are telling HR and in-house counsel, 'This is going to get done.' " 

Related SHRM Articles:

Using Data to Help Close the Gender Wage Gap, SHRM Online Employment Law, April 2017

How to Conduct a Multistate Fair-Pay Audit, SHRM Online Employment Law, March 2017

Addressing the Gender Wage Gap and Pay Transparency, SHRM Online Employment Law, March 2017

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