Equal Pay and the Law: What Business Owners Need to Know

February 7, 2018
Equal Pay and the Law: What Business Owners Need to Know

One of the biggest HR trends that is sure to continue in 2018 is equal pay, also commonly known as pay equity. Equal pay—particularly related to gender—has been a stubborn issue for many industries.

The federal Equal Pay Act already abolishes wage disparity based on sex, while federal laws such as Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, and the Americans with Disabilities Act prohibit compensation discrimination on the basis of race, color, religion, sex, national origin, age, or disability. However, many states and municipalities are taking it upon themselves to enact laws aimed at further addressing pay equity. Some laws are more restrictive than others in matters such as prohibiting employers from asking about compensation history or relying on it to help determine employment and compensation offers. Other laws prohibit employers from restricting workplace discussions among employees about their wages.

Salary history inquiries are becoming history

One way some of the new laws are addressing pay equity is eliminating the “what did you make at your last job?” type of question from the recruitment process. The laws also typically prohibit asking the candidate’s previous employers for their pay history.

Such inquiries, if allowed, can help perpetuate pay disparities. If employers can no longer use past compensation as a factor in their offers to applicants, underpaid workers will have one less barrier on their road to salary equality.

California is on the cutting edge of this trend, having previously enacted the California Equal Pay and Fair Pay Acts. These laws allow employees to openly discuss compensation and require equal pay for employees who perform “substantially similar work,” among other provisions. In addition, California passed a ban on salary history inquiry on January 1, which prohibits employers from asking about or seeking previous salary history (either personally or through an agent of the employer, prohibits relying on that information in decisions regarding compensation or whether to offer employment, and notably requires an employer, upon reasonable request, to provide an applicant with the pay scale for a position.

Delaware and Oregon also have compensation history inquiry restrictions in place, while Massachusetts is set to follow this year. San Francisco and New York City have passed similar regulations. You can expect the list to grow over time, as more cities and states seek strategies to address pay equity.

Pay equity laws can vary

As an increasing number of pay equity laws go into effect, it is crucial for employers to be prepared to comply. That is why it’s best to work with an HR services professional to make sure you are compliant in the city(ies) and state(s) where your business operates.

For instance, as noted above, California’s pay equity law requires employers to provide a pay scale for the job in question upon reasonable request by an applicant. Massachusetts’s pay equity law allows employers to ask for salary history but only after an offer of employment has been made. New York City’s pay equity law not only prohibits asking about salary history but also prohibits searching any available records for salary history information.

It’s also worth mentioning that many pay equity laws allow an applicant to voluntarily disclose their previous salary and the employer to consider or rely on that voluntary disclosure. For instance, say you offer a candidate a job with a salary of $75,000 and they respond by telling you that their current job pays them $82,000. They also tell you they aren’t willing to move to your company for any offer under $85,000. You can then use this salary information, which the applicant voluntarily disclosed, as a means for recrafting your offer. Be careful, however, not to use any voluntary disclosure of past compensation as the basis to justify any disparity in compensation for the current position.

Keep in mind that even if an applicant voluntary discloses their salary at any time during the recruitment process, you are still exposing your company to potential discrimination claims if you use that information to offer them less compensation than what your pay scale dictates for that position and experience, or than what your current employees with similar experience, education and responsibilities are earning.

What employers should do to prepare for equal pay laws

We recommend employers make implementing equitable compensation practices a priority in 2018. This isn’t just a great way to mitigate risk and to comply with existing federal, state, and local laws, it helps an organization get ahead of the compliance curve as new laws are passed. It’s also a good business practice to create a workplace culture where all employees feel like they are valued and compensated fairly.

The following are good places to start:

  • Remove salary history from the recruitment process by taking the question off your job applications and training your hiring managers not to ask any questions related to compensation during the recruitment or interview process. Keep in mind that compensation doesn’t just include salary but also includes bonuses, benefits, additional perks and anything else given to an employee, by an employer, in exchange for their work. 
  • Review your compensation practices and commit to fixing the issues you find. Ensure that only non-discriminatory factors, such as education or experience, account for pay differentials. It is important that equally situated individuals who do similar jobs are not receiving disparate compensation that can be perceived as being due to factors such as gender, ethnicity, disability, nation of origin or any other protected category. Document any pay differentials you find and then ask your HR professional to help you start creating and implementing equitable compensation plans.  
  • Be prepared to offer pay scales to those who ask. While offering your salary range to candidates is not yet a law in most places, this kind of transparency is still good HR practice. Being up-front with compensation can help protect you from complaints of discrimination as well as foster a company culture of fairness. This can save employers from investing time in a candidate who, at the end of the process, may not be willing to accept your compensation offer. 
  • Ban online searches of salary history during the recruitment and interviewing process. Inquiring into an applicant’s salary history may also include searching online for this information. Protect your company by simply banning any searches of applicants’ salary information.

    Keep in mind that you may come across this information accidentally, especially when hiring C-suite executives from public companies whose financial compensation is public record. In these cases, be very careful not to use what you find as a determining factor in your job offer and consult an employment attorney or HR professional for best practices advice.   
  • Train your hiring managers to have the salary discussion in an appropriate way. Many organizations like to find out, before time is invested in the interviewing process, if the candidate’s compensation demands fit into the pay scale for the position. A good practice for handling this is to frame the question as “I’m not asking for your salary history but what is your desired compensation for the position I’m offering?” Be clear you are asking for what they desire, just to make sure you aren’t wasting anybody’s time, and not what they’ve made in the past.

If you are in need of strategic compensation guidance and help maintaining compliance with salary equality and other laws in your jurisdiction, TriNet’s HR experts can help. Contact us for more information.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

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