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Is It Time to Conduct a Pay Audit?

By Nancy Owen, PHR, Senior HR Consultant, East Coast Risk Management

pay audit

Pay equity is a hot topic these days. With large companies such as Oracle, Disney, Nike and Walmart having been in the news facing lawsuits, pay equity has now caught the attention of state and local governments as well as the Equal Employment Opportunity Commission. In fact, many companies are choosing to proactively conduct pay audits to try to identify and remedy pay disparities as audits are very effective tools in the challenge for pay equity.

A few things to know:

The Law on Equal Pay/Compensation Discrimination

The Equal Pay Act requires that men and women in the same workplace be given equal pay for equal work. The jobs need not be identical, but they must be substantially equal. Job content (not job titles) determines whether jobs are substantially equal. All forms of pay are covered by this law, including: salary, overtime pay, bonuses, stock options, profit sharing, bonus plans, life insurance, vacation, holiday pay, cleaning or gasoline allowances, hotel accommodations, reimbursement for travel expenses, and benefits. If there is an inequality in wages between men and women, employers may not reduce the wages of either sex to equalize their pay.

Title VII also makes it illegal to discriminate based on sex in pay and benefits. Therefore, someone who has an Equal Pay Act claim may also have a claim under Title VII.

Title VII, the ADEA, and the ADA prohibit compensation discrimination on the basis of race, color, religion, sex, national origin, age, or disability. Unlike the EPA, there is no requirement under Title VII, the ADEA, or the ADA that the jobs must be substantially equal.

What If You Have Pay Disparity?

A very common reason that companies see pay disparity between two people who perform the same job can be because one was hired at a time when market demand for his or her skills was lower than when the other employee was hired. But a best practice would be to change that over time. But you will want to be 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.

Education may be one consideration: One worker may have an advanced degree or hold a certification 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 been experienced before coming to the company maybe they had 20 years’ experience in previous jobs.

Are You In A Risky Position?

When workers in what seem to be 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.

Employees Who Are Paid Fairly Are More Committed

One of the most important benefits of equal pay at your workplace is a greater sense of employee morale. Your employees want to feel good about coming to work at a company that they believe values their talents and skills.  You could directly impact the professional and personal lives of your employees because of the high value you place on their worth. When employees believe they are rewarded fairly for their work, they are more likely to put in extra effort and pitch in to help their coworkers. This higher level of commitment can lead to better job performance.

But on the flip side, when employees think they’re underpaid, they are more likely to look for a new job, and attrition costs companies’ money and valuable institutional knowledge.

It Can Have An Impact on Employee Retention

One of the other benefits of equal pay is that it can help you remain competitive when it comes to retaining talented employees.

One Last Suggestion…

You may want to eliminate salary history as a question on your employment application. In some states, employers can no longer ask a prospective employee about her previous salary. The candidate, however, can volunteer that information but the employer can’t use the previous salary to determine what it will pay the prospective employee. Implementing these practices can help you avoid the cons of equal pay.

If you are an employer with questions about this or any issue relating to safety, human resources or workers’ compensation, contact East Coast Risk Management by calling 724-864-8745 or emailing us at hrhelpline@eastcoastrm.com.

DisclaimerThe information provided on this web site is for informational purposes only and not for the purpose of providing legal advice. Use of and access to this Web site do not create an attorney-client relationship between East Coast Risk Management or our employment law attorney and the user or browser.