​​Pay Equity: An Employer’s Guide To Avoiding Wage Discrimination

When it comes to paying your workforce, there’s a lot to consider. Pay equity is an increasingly important issue when setting compensation. That’s because, while the topic has been regulated on a federal level for decades, states are stepping up their attention to the matter with a number of recent laws. To help you understand what you need to do to stay compliant, we’ll break it down for you step by step.

At Complete Payroll Solutions, we provide outsourced HR guidance to thousands of companies. Our experts have the specialized knowledge to help you understand regulatory changes and government mandates that affect nearly every aspect of the workplace, including pay. To help save you from fines, lawsuits, and litigation over pay disparities, here we’ll discuss:  

• What is pay equity
• Why is pay equity important
• What pay equity laws are in effect
• What are the penalties for noncompliance
• What should I do to stay compliant

After reading this, you’ll know how to adapt your pay policies to comply with pay equity laws.

What is pay equity?

Generally speaking, pay equity means compensating employees the same when they perform the same or similar job duties while taking into account legitimate job-related factors like tenure and experience. Pay equity is intended to remove gender, race, and other factors of discrimination when setting compensation, which includes bonuses, employee benefits, and other elements that make up total pay.

Why is pay equity important?

Pay equity is important to help close the wage gap that still persists among groups of workers who have been historically underpaid. For example, in 2021, women workers earned an average of 83 cents for every dollar earned by white men, with black and Latina women facing even larger gaps.

In addition, ensuring employees are paid fairly for the same roles is essential to enhancing satisfaction and productivity among existing employees as well as improving your recruitment efforts.

What related laws are in effect?

Both federal and state laws are in place to ensure equal pay.

Federal Pay Equity Laws

On a federal level, there are two laws that prohibit wage discrimination:

1. Equal Pay Act: This law was enacted in 1963 and prohibits discrimination in pay based on gender.
2. Title VII of the Civil Rights Act: Passed in 1964, the law further prohibited discrimination in pay and expanded the protection to include race and other protected characteristics like age or religion.

One way the federal government can enforce these laws is through the use of EEO-1 data that’s required by companies with 100 or more employees and can be used by the EEOC to investigate potential discrimination.

State Pay Equity Laws

In addition to federal oversight, states have increasingly been enacting their own laws to give workers even further protections. In Colorado, the Equal Pay for Equal Work Act, which went into effect in 2021, prohibits pay discrimination based on sex alone or in combination with another protected characteristic for substantially similar work absent a legally justified reason. But it goes beyond preventing discrimination on the basis of protected characteristics with other provisions to ensure workers are paid fairly. For example, it requires employers to post a salary range in all job postings and makes it illegal to ask about salary history or restrict employees from discussing their pay with other workers.

These additional provisions in Colorado’s law are in place in other states as well.

• Pay Transparency Requirements: In Connecticut, starting in October 2021, employers must provide a salary range if an applicant asks for it or if the employer extends an offer, whichever occurs first. New York City also just passed a bill set to go in effect in April 2022 that will require employers to post the salary ranges for all job openings. In total, there are at least 10 jurisdictions that require salary ranges to be disclosed during the hiring process.
• Salary History Bans: Salary history bans are increasingly common in states and municipalities to prevent employers from setting a starting salary based on what an applicant was previously earning. In addition to the numerous jurisdictions that already regulate the practice in some form, Rhode Island will prohibit employers from asking about salary history beginning January 1, 2023.
• Anti-Retaliation Laws: Since pay secrecy can foster discrimination, some states like New Jersey and Virginia have passed laws protecting the right of employees to share information about their compensation and discuss their pay with others – important to giving employees the knowledge they need to be able to raise concerns about their own pay. (Federally, the National Labor Relations Act also protects workers who communicate with other employees at the workplace about their wages.)

What are the penalties for noncompliance?

If you are found in violation with one of the pay equity laws in effect, you could face both fines and imprisonment. For example, employers who willfully violate the Equal Pay Act may be fined up to $10,000 or imprisoned for up to six months. In addition, you may be responsible for paying lost wages and equitable relief to those who have faced discrimination based on their sex.

For the state laws, the consequences vary. In Colorado, employers who violate the Equal Pay for Equal Work Act may result in a fine of $500 to $10,000 for each violation. Be sure to check with your state labor department to find out what practices may be prohibited in your state to avoid the applicable penalties.

What should I do to stay compliant?

To ensure compensation equity and comply with legal requirements, it’s important to assess your pay practices and adjust them if necessary. The best way to do this is with a self-audit that can uncover discrepancies.

During an audit, you should review pay data for all employees and allowable factors that may account for the discrepancies like seniority or job-specific experience. When differences can’t be explained by legitimate job-related factors, you’ll want to adjust pay to ensure fairness. This type of audit can also help you spot trends in pay practices and where discrimination exists across protected categories so you can prevent future inequities.

Moreover, a self-audit may be able to help you in defending against a discrimination action in some states. For example, in Massachusetts, organizations who complete self-audits within three years and can demonstrate reasonable progress has been made towards eliminating wage disparities based on gender have an affirmative defense.

How to Best Create Equitable Pay Policies

Beyond affording protection against charges of discrimination, fair pay can help improve morale, performance, and retention. To get salaries right from the start, it’s important to have policies in place to ensure compensation equity. Your practices should address topics like job descriptions, pay ranges, and bonuses to ensure they are being applied consistently. Once you develop your policies, make sure you train managers and communicate them to employees to ensure transparency.

Since creating these policies can require specialized knowledge, you may want to consider HR outsourcing to professionals who have the experience to help you develop a compliant compensation strategy. To decide if outsourcing may be right for you, read our next article on in-house versus outsourced HR or visit our dedicated HR page to see what services we offer. For more information on ensuring nondiscriminatory practices in your company, read our blog on EEO laws.