Pandemic and Social Justice Issues Prompt Pay-Equity Audits

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Economic and social justice issues have been top of mind for employers as the COVID-19 pandemic and protests over racial inequities continue—and these issues may prompt employers to review their pay practices for fairness.

2020 has been filled with mass layoffs and pay reductions, which have altered the functions that the remaining employees perform across affected organizations, said Allison Hoeinghaus, a managing director with consulting firm Alvarez & Marsal Taxand's compensation and benefits practice in Dallas.

If left unaddressed, these economically motivated workforce changes can have secondary effects on pay equity, she said, so it is prudent to take a fresh look at both gender and racial pay equity to ensure that any unintended consequences are quickly remedied.

"Employers who are transparent in their efforts to promote and ensure pay equity may benefit from increased employee retention and satisfaction and reduced litigation risk," said Elizabeth Wylie, an attorney with Snell & Wilmer in Denver. 

Cheryl Pinarchick, an attorney with Fisher Phillips in Boston, noted that the #MeToo movement prompted many companies to review their sexual-harassment-prevention programs and take action to eliminate systemic harassment. 

"The current social justice movement has similarly prompted employers to take a closer look at their pay structures and practices to ensure employees are paid equitably and to eliminate any historic or systemic pay inequity among employees of different races and genders," she observed. 

Finding and Fixing Discrepancies

The COVID-19 pandemic has forced many employers to review detailed information about the actual duties their workers perform to determine which jobs can be done remotely and which positions can be eliminated during an economic downturn.  

Employers may discover that job duties don't match up with job titles or that multiple employees are performing similar duties, even though they have different titles and pay structures, explained Karen Denney, an attorney with Haynes and Boone in Fort Worth, Texas.

When job information is outdated or doesn't match up, she said, employers should analyze a variety of issues, including whether an employee is being paid the same as other employees who perform the same job duties. Do the employees have the same level of experience, performance record and tenure with the employer? Employers should also review whether employees are properly classified as exempt or nonexempt from overtime pay requirements under the Fair Labor Standards Act and applicable state laws.  

[Need help with legal questions? Check out the new SHRM LegalNetwork.]

"Audits play an essential role in pay equity initiatives and compliance," Wylie said. "In the absence of a thorough audit, an employer's claims to support pay equity may ring hollow."  

An audit affords employers the opportunity to examine and document various circumstances that may justify pay differentials. Wylie noted that the cost of correcting any pay inequities will likely be outweighed by the benefits of reducing litigation risk and increasing employee morale. 

"Overall, pay audits are likely to be a win for employers and workers," she said.

Hoeinghaus also thinks that audits are a critical component of pay equity initiatives. "Start with a diagnostic of payroll data to determine any irregularities between gender or race."

HR professionals should work with internal and external legal counsel to protect any attorney-client privilege arguments and shield from litigation if word gets out within the organization that an issue exists, she suggested.

The planning stage of the audit is critical, and the first step for any successful pay audit is to identify goals. "In some cases, it may be that your company is trying to limit your legal risk," Pinarchick said. "In other cases, your company may simply want to ensure that you are paying employees equitably."

Where pay differentials cannot be justified under federal and state law, employers should take steps to remedy the discrepancy. "In most instances, this will require the employer to make adjustments to compensation," she said.

Hoeinghaus noted that pay audits are a great tool, but they shouldn't be an employer's only plan to combat pay inequities. "Corrective actions and preventative measures to avoid issues in the first place must be part of the holistic approach to pay equity," she said. "Also, these efforts should be coordinated more broadly with diversity and inclusion initiatives within an organization."

Reviewing State Law Trends

Over the last several years, many jurisdictions have passed more-robust pay equity legislation. Compliance challenges for employers have become more complicated because each jurisdiction has its own unique set of rules, Pinarchick said. However, she highlighted the following common trends that employers should note:

  • States are limiting the lawful justifications for paying employees differently when they are performing comparable work.
  • In addition to covering gender pay equity, states are expanding equal pay laws to cover race, nationality and other protected categories.
  • Many state laws have pay transparency provisions that make it unlawful for employers to prohibit employees from discussing their pay.
  • Many states and cities prohibit employers from asking job applicants about their salary history.
  • Colorado, Massachusetts, Oregon and Puerto Rico provide a safe harbor against liability if a pay audit is conducted in accordance with the new laws and reasonable steps are taken to address any potentially unlawful pay disparities. 

Training Managers

In addition to evaluating job duties and pay for current employees, employers should review their initial recruiting and onboarding process and how compensation is set for new hires. "If the initial compensation determination is misaligned, this inconsistency can be perpetuated over time and tenure with the organization," Hoeinghaus said.

Manager training is also essential. Employers should provide training to their executives and managers on how to make pay recommendations and decisions, Denney said. Leaders should understand what pay equity is and why it is important.

Employees who feel valued are usually more committed to their employer and will put in the effort to help the company succeed, Denney added. "When all employees are doing their respective parts, this supports a positive, teamwork company culture."

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