Studies have shown that women, African Americans, and other people of color tend to be paid less than their counterparts for the same or substantially similar work. Federal, state, and local legislatures have enacted equal pay legislation to address this issue. Below we provide an overview of these laws and some best practices for ensuring pay equity.
The Equal Pay Act (EPA), Title VII of the Civil Rights Act of 1964 (Title VII), the Age Discrimination in Employment Act (ADEA), and the Americans with Disabilities Act (ADA) are all federal laws that prohibit employers from engaging in pay discrimination (among other types of discrimination).
The EPA applies to all employers covered by the Fair Labor Standards Act (virtually all employers). Under the EPA, employers are required to pay male and female employees at the same establishment equal wages for work on jobs that require substantially equal skill, effort, and responsibility, and which are performed under similar working conditions. Each of these factors is summarized below.
- Skill. The experience, ability, education, and training required to perform the job.
- Effort. The amount of physical or mental exertion needed to perform the job.
- Responsibility. The degree of accountability required in performing the job.
- Working conditions. This includes: (1) physical surroundings like temperature, fumes, and ventilation; and (2) hazards.
Keep in mind that the jobs that are compared need to be only substantially equal, not identical.
Permitted Wage Differentials:
Under the EPA, pay differentials between employees of the opposite sex who are performing substantially equal work in the same workplace may be justified only if the difference is based on:
- A seniority system that rewards employees based on length of employment;
- A merit system that rewards employees for exceptional job performance;
- An incentive system that pays employees based on the quality or quantity of their work; or
- A factor other than sex that is related to job performance or business operations, such as paying a shift differential to workers on less desirable shifts.
Correcting Pay Differentials:
When correcting a pay differential, you can't reduce the employee's pay. Instead, employers must increase the pay of the lower paid employee.
Title VII, ADEA, and ADA:
Title VII prohibits pay (and other forms of) discrimination on the basis of race, color, religion, sex, and national origin. The ADEA prohibits discrimination based on age, and the ADA based on disability. Title VII and the ADA apply to employers with 15 or more employees while the ADEA applies to employers with 20 or more employees.
These laws prohibit not only intentional discrimination, such as paying an employee with a disability less than similarly situated employees without disabilities, but also seemingly neutral policies or practices that disproportionately affect employees who are members of a protected group. For example, paying janitors with a high school diploma more than janitors without a diploma could have a disparate impact on groups that tend to graduate at lower rates. If challenged, you may be required to show that your pay practice is job related, consistent with business necessity, and that there are no alternative practices that meet your business needs.
Employers should also know that in 2019, the Equal Employment Opportunity Commission (EEOC) required employers with 100 or more employees to report certain pay data to help the EEOC analyze patterns in compensation and pay disparities. Some states also require employers to report pay data so that the state can evaluate pay equity.
State and Local Laws:
Many states have their own laws prohibiting pay discrimination, some of which cover smaller employers. In the past few years, several states expanded the scope of their laws. For example, New York recently approved a law that expands the state's equal pay law to cover all protected classes from pay discrimination. The amended law, which took effect October 8, 2019, also prohibits wage differentials between protected classes for substantially similar work. Be sure you understand and comply with the latest rules in your jurisdiction.
Restrictions on Pay History Inquiries:
More than a dozen states and several local jurisdictions have enacted laws that generally prohibit employers from asking applicants about their pay history and/or using it to make compensation decisions. These laws are intended to prevent discriminatory pay practices of a previous employer from continuing in new jobs. Make sure you understand what, if any, restrictions apply to you.
Pay Equity Best Practices:
Here are some best practices for ensuring pay equity:
- Conduct internal audits. Consider working with legal counsel to conduct an internal audit of your pay practices to confirm that employees working in similar positions are paid equitably based on skill, merit, and other nondiscriminatory factors.
- Examine policies and procedures. Review pay-related policies and procedures to ensure compliance with all applicable laws. Develop a clear written equal employment opportunity policy and include a complaint process for employees to raise concerns.
- Train supervisors. Provide training on the company's compensation-related policies and procedures and commitment to equal pay.
- Consider pay transparency. Clearly communicate how the company determines employees' compensation.
- Don't prohibit pay discussions. Under Section 7 of the National Labor Relations Act (NLRA), employees have, among other things, the right to act together to improve wages and working conditions and to discuss wages, benefits, and other terms and conditions of employment, with or without a union. The National Labor Relations Board (NLRB), which enforces the NLRA, and many courts have found that pay secrecy or pay confidentiality rules violate Section 7 rights. Additionally, some states and local jurisdictions prohibit pay secrecy policies.
- Promptly respond to all complaints. Take all complaints seriously and conduct a prompt, impartial, and thorough investigation.
- Document. Confirm employment decisions are made for legitimate, nondiscriminatory reasons and properly document all pay and performance-related decisions.
The expansion of equal pay laws has been one of the most prominent employment law trends in recent years. Be sure that your pay practices comply with applicable laws and do not intentionally or unintentionally discriminate against employees on the basis of sex or other protected characteristics.