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How to avoid claims of discrimination, lowered morale, attrition
In a recent discussion on SHRM Connect, the Society for Human Resource Management's (SHRM's) online member community, several HR professionals weighed in on what to do if a longtime employee discovers that her compensation is significantly lower than that of a new hire performing essentially the same job.
Since HR departments try to keep wage and salary information private, the issue may not arise often. But when it does, it can be tricky and uncomfortable for an HR manager to address such a complaint. There may be legitimate reasons for the pay disparity. But sometimes, there may not be, and a salary analysis may be advisable. Not only that, there could be legal issues involved, so an HR department's response needs to be well-considered.
If the pay difference isn't due to discrimination, "as far as I know … [an] employer can have two titles with similar duties and the employees can be paid differently," said Milagros Ocasio, HR director for Jaspan Schlesinger LLP in Garden City, N.Y. "Favoritism, cronyism and nepotism are not illegal either. The employer can say, 'I gave that employee an increase because I felt like it,' and that is not illegal."
Explanations for Pay Disparity
There are often legitimate reasons for treating the compensation of two workers differently.
Education may be one consideration: One worker may hold a certification or advanced degree that the other doesn't, and that could justify higher pay.
Experience is another factor: An employee who has worked at a company for 10 years may earn less than one who was just hired—even if they are performing the same job duties—because the new hire already put in 12 years at a previous company.
The complainant in the SHRM online discussion, however, had been at the company for several years but was being paid $5,000 less a year than a new hire recently out of college—someone the established employee had to train.
[SHRM members-only platform: SHRM Connect]
In a case like this, some questions that line managers or HR managers may want to ask themselves about the two workers to ensure the pay disparity is fair and legal, Ocasio said, are the following:
"It comes down to this: Is the [lower-paid] employee as much of an asset to the company as the employee thinks?" Ocasio asked. "That's a tough question. Although a good employee, the employee may have done nothing more or less than the position [required]. The employee may have done nothing to add value in the sense of learning a new skill, absorbing other duties, obtaining certification. Meanwhile, the new [higher-paid] employee may not have the same years of experience, but the skills offered were vital to the growth of the business."
When workers in seemingly identical jobs are paid differently, the employer leaves itself open to claims that the motivation for the different pay is discriminatory—particularly if the person on the lower end of the pay scale is a member of a protected class. Title VII of the Civil Rights Act of 1964 prohibits employment discrimination based on race, color, religion, sex and national origin.
"There are very few circumstances when an employee may not fall into a protected class," said Ocasio, who noted that just being in a protected class doesn't automatically give a pay-disparity complaint merit.
But Allison Dunham, operations manager for Trinity Door Systems Inc. in Youngstown, Ohio, said that in instances of pay disparity for people performing the same job, she would be less worried about lawsuits than she would be about attrition, falling morale and lack of motivation.
"At ethical companies, I think they work to correct disparate impact when they find it occurring," she said.
Some HR managers noted that there may be pay disparity between two people performing the same job because one was hired at a time when market demand for his or her skills was lower than it is now.
But that doesn't mean the disparity should continue, Dunham said.
"I think that's a fair explanation as to how the circumstance came to be but not fair if there is no action to correct the longtime employee's wages," Dunham said. "We developed a wage chart with new starting wages and figured out the wage track for new hires. Then we determined where the rest of our experienced staff fell on that chart, and developed a timetable to move their wages into the new corrected range. To me, the job performed is worth what it is worth. If the market now shows it to be worth more, all workers performing that job need to be moved along accordingly."
Periodic pay analyses—like the one Dunham's department created—are advisable, HR managers said, so that a company is not blindsided when confronted with a pay disparity complaint.
The HR managers interviewed for this story suggested documenting the reasons behind different salary structures for similar titles and paying close attention to data that can show that the disparate treatment is not discriminatory.
"It is not difficult [to conduct an analysis] given that I have an already established system that can run reports," said Helen Brown, SHRM-CP, HR manager for EnSync Inc., an electrical services company in Menomonee Falls, Wis. "We benchmark internally as well as externally. We use [pay benchmarking] sites as additional resources to help make decisions."
There may be instances when, after a salary analysis, a company decides to adjust the compensation of a lower-paid worker performing the same duties as a higher-paid one.
That, however, can be a slippery slope, Ocasio said, especially if other workers find out about the raise and demand pay boosts for themselves.
"When the analysis is created, be cognizant of a domino effect," Ocasio said. "If we give the increase to Mary, do we give it to Jack? Is Jack offering any other skill that sets him apart from Susan? If Susan left, who can we get to immediately replace her? This can permeate to other departments."
Raising one employee's salary can "definitely" be problematic at government agencies, where salaries tend to be public record, said one HR manager who works in local government and asked that her name not be used.
Employees might complain "that they should be making more money than someone else," the manager said. "We are very careful to have an explanation based on experience, education, skills, abilities or additional duties being performed by one employee that the others may not have, even though they have the same title. The only time we ever gave in was when we had an employee who was doing a great job and complained about another person making more even though they were at the same level. It was explained that [the higher-paid worker] had taken on some additional duties. So, we ended up revising [the lower-paid worker's] job description to include extra duties and gave her an increased salary as compensation for those duties."
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