Pay Equity Answers

Pay Equity laws are coming into play all across the world and the risks associated with non-compliance can be costly. Employers can get started in the right direction with our Pay Equity FAQ.

Find out how First Capitol's PayParitysm service can help you manage the new pay equity laws

What is pay equity?

1) What is pay equity?

“Pay equity” is an umbrella term that includes issues related to the fairness of compensation paid by employers to their employees for performing comparable work, without regard to gender or race or other categories protected by law (such as national origin or sexual orientation).

It includes fairness both in terms of base pay and in total compensation, including bonuses, overtime, employee benefits, and opportunities for advancement.

Pay equity does not mean that all employees are paid the same. It is concerned with ensuring those employees performing comparable work are receiving comparable compensation and that any differences in pay can be explained by legitimate job-related factors, such as:

  • Skills, effort, responsibility, experience, education, etc.
  • Quality and quantity of production
  • Location (depending on jurisdiction/locality)

Pay equity is also concerned with rectifying past injustices with respect to unequal pay. Pay equity is influenced by laws, policies, regulations, and internal practices. 

Who does pay equity affect?

Pay equity affects all working people and their families because it aims to level the playing field in terms of compensation. It is of particular concern to women and members of racial and ethnic groups, and other groups that have historically been victims of wage discrimination.

Why should pay equity matter to my organization?

There are four reasons why pay equity should matter to your organization:

  1. First, under the federal Equal Pay Act and an increasing number of state and local laws, providing unequal pay for comparable work is illegal.

For instance, federal and state laws prohibit pay disparities between “Similarly Situated” Employees (employees with comparable titles performing comparable work) along the lines of Protected Classes (individuals that may be subject to discrimination based on their race, color, sex, sexual orientation, gender identity, religion, national origin, disability, or status as a protected veteran).

Organizations should be considered in compliance with pay equity laws if any pay differences between Similarly Situated Employees and Protected Classes are only based on legitimate business factors.

Under the federal Equal Pay Act, criteria such as skills, effort, responsibility, experience, education, quality and quantity of production, and physical location (depending on jurisdiction/locality) would be considered legitimate business factors that might influence compensation.

  1. Pay equity is an issue reshaping business, non-profit, and government sectors, particularly in light of the #MeToo and #TimesUp movements, as well as growing national and international concern over compensation practices.
  2. Achieving pay equity increases respect, dignity, and fairness in the workplace, and assists in attracting and retaining qualified candidates.
  3. Perhaps most urgently, it is a best practice for mitigating the significant risks of expensive litigation and reputational “brand” damage posed by unequal pay practices.

How do I know if my organization is complying with pay equity laws?

The industry standard for measuring pay equity compliance is to perform a pay equity audit.

To learn about how First Capitol conducts a pay equity audit, click here.

What are the potential risks for organizations that disregard pay equity laws?

Some of the potential risks associated with disregarding pay equity laws include:

  • Regulatory audits and penalties
  • Lawsuits (individual and class-action)
  • OFCCP enforcement and audits may lead to lost government contracts
  • Compliance challenges as more states and local jurisdictions pass pay equity laws with accompanying penalties for non-compliance
  • Employee dissatisfaction, leading to lower productivity and higher turnover
  • Adverse effect on talent acquisition and retention
  • Poor public relations and brand image

What is the Equal Pay Act?

The federal Equal Pay Act of 1963 was described at the time of its passage as “the first step towards an adjustment of balance in pay for women.” The Equal Pay Act requires that men and women be given equal pay for equal work in the same establishment.

What kind of things do I need to look for when evaluating my organization’s compliance?

You need to first understand what affirmative obligations you have in your jurisdiction as an employer. The federal Equal Pay Act and its prohibition on compensation discrimination applies to all employers, but you may have additional obligations under state or local law.

For example, California’s Equal Pay Act prohibits an employer from paying its employees less than employees of the opposite sex, or of another race, or of another ethnicity for substantially similar work “when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.” Under the federal Equal Pay Act, the standard for comparable employees is more stringent; they must be performing equal work.

The Massachusetts Equal Pay Act forbids the payment of salary or wage rates less than the rates paid to employees of the opposite sex for “work of like or comparable character or work on like or comparable operations.” These state by state and state vs. federal differences can have major impacts on which employees should be compared to determine whether an equal pay violation has occurred.

What does the Equal Employment Opportunity Commission (EEOC) do?

The EEOC is responsible for enforcing federal laws that make it illegal to discriminate against a job applicant or an employee because of the person's race, color, religion, sex (including pregnancy, gender identity, and sexual orientation), national origin, age (40 or older), disability or genetic information. It is also illegal to discriminate against a person because the person complained about discrimination, filed a charge of discrimination, or participated in an employment discrimination investigation or lawsuit.

Most employers with at least 15 employees are covered by EEOC laws (20 employees in age discrimination cases). Most labor unions and employment agencies are also covered.

The agency performs two core functions:

  • Collects equal employment data from employers throughout the U.S. via annual EEO-1 Report filings, which collects employment data from employers throughout the U.S.
  • Investigates equal employment complaints that are reported to the EEOC by alleging employees.

The EEOC only investigates complaints if employees file a timely complaint, and the EEOC determines that there is merit to the complaint’s allegations.

What is an EEO-1 Report?

The EEO-1 Report, formally called the Employer Information Report EEO-1, contains employment data to be categorized by race/ethnicity, gender and job category. It is filed annually by employers with more than 100 employees and federal contractors with more than 50 employees and at least $50,000 in federal contracts. The EEOC shares the information presented in the report with the Office of Federal Contract Compliance Programs (OFCCP).

When must the EEO-1 Report be filed?

The EEO-1 Report must be filed by employers by March 31st each year. The deadline for the 2018 report is March 31, 2019.

When is the data gathered for use in the EEO-1 Report?

Employment data must be gathered from one pay period in October, November or December of the current reporting year. For example, EEO-1 Reports filed in 2019 must use data gathered in the fourth quarter of 2018.

What does the Office of Federal Contract Compliance Programs (OFCCP) do?

The OFCCP, a part of the U.S. Department of Labor, is responsible for ensuring that employers that engage in business with the federal government comply with the laws and regulations requiring non-discrimination, such as Executive Order 11246, which requires various equal employment practices of government contractors with at least $10,000 in government contracts.

These businesses must periodically self-audit their pay practices to address disparities based on race/national origin and gender. If selected for a compliance evaluation by the OFCCP, contractors must provide compensation information to the government.

Part of OFCCP’s oversight is to ensure that federal government contractors and subcontractors comply with the legal requirement to take affirmative action and not discriminate on the basis of race, color, sex, sexual orientation, gender identity, religion, national origin, disability, or status as a protected veteran. In addition, contractors and subcontractors are prohibited from discharging or otherwise discriminating against applicants or employees who inquire about, discuss or disclose their compensation or that of others, subject to certain limitations. 

OFCCP obligations for employers can include:

  • Preparation of Affirmative Action Programs (AAPs)
  • Retention, documentation, and analysis of applicant, hire, promotion, termination, and compensation data
  • Preservation of all personnel or employment records; time frame depending on size of workforce
  • Inclusion of equal employment opportunity statement in job advertisements
  • Posting of anti-discrimination and pay transparency notices

Permitting access to compensation data to OFCCP for the purpose of conducting compliance evaluations and complaint investigations

What kind of action have states taken to address the gaps in the federal Equal Pay Act?

States have recently become more active in issuing new standards for bolstering the concept of equal pay for comparable work. The table below compares older views of equal pay issues to new standards being established by state laws and being enacted more actively by the courts.

Old Reality

New Reality

Equal Pay for Equal Work

Equal Pay for Comparable Work

Employees compared only at same establishment/location

Employees can be compared across multiple establishments/locations, even potentially across the country in some cases

More leeway for employers to avoid liability through affirmative defenses  

More difficult for employers to avoid liability thought affirmative defenses

What reporting requirements do employers have in regards to pay equity?

In the U.S., new pay reporting requirements to be provided in the EEO-1 Report have currently been postponed. However, there is a clear indication of requiring more expansive pay reporting in the future. The OFCCP, under Directive 2018-05, has set guidelines for federal contractors’ audits of pay discriminations. Both the EEOC and the OFCCP continue to enforce and litigate pay discrimination cases.

Individual states are passing aggressive pay equity legislation that far supersedes the federal standards of the federal Equal Pay Act. There is an array of state agencies responsible for enforcement of equal pay laws in individual states.

Which forms do I need to submit?

There is no current nationwide form to submit to report pay practices. Federal contractors have reporting requirements through the Office of Federal Contract Compliance Programs (OFCCP). Organizations in San Diego, San Francisco, New Jersey, New York, and other jurisdictions have various reporting obligations related to pay equity that are enforced by their respective state and local agencies.

What is a Proactive Pay Equity Audit?

A Proactive Pay Equity Audit identifies pay differences between employees that cannot be explained due to job-related factors. It is a multi-disciplinary effort that requires extensive domain knowledge expertise in labor law across various jurisdictions, econometrics, statistics and statistical modeling, workforce data management, and knowledge of regulatory audit processes undertaken by agencies, such as the OFCCP and EEOC.

This type of audit identifies problems, and also provides actionable solutions. It gives employers an opportunity to ensure fairness in pay and prevent employee issues. It allows the employer to minimize risk by identifying and remediating deficiencies, providing the employer with greater standing to defend against and win claims of discrimination.

Are the findings from a Proactive Pay Equity Audit “privileged?”

They can and should be. The term “privilege” relates to attorney-client communications and attorney work product. The audit itself should be conducted under attorney oversight so that it is privileged and documents from the audit can be protected from discovery in a court of law.

The purpose of the privilege is not to hide or cover-up any wrongdoing; rather, it is intended to allow the attorney overseeing the matter to facilitate candid discussions with the client or his or her company about the findings.

What kind of experts should I consult?

Pay equity has far-reaching impacts on many elements of your workforce, including legal, financial, and human resources-related.

We recommend consulting with your general counsel, or outside counsel, accountants, and, most importantly, experts in data cleansing and validation.

Data is the fuel of the business engine of the 21st century. It has become the core economic input of business. If fuel contains impurities, the engine will not run smoothly.

At First Capitol, a relentless focus on data quality and data validity are core competencies that distinguish us from our competitors.

First Capitol ensures that our client’s business engines run smoothly by acting as a purity filter for their data.

As the saying goes, garbage in, garbage out (GIGO) — a meaningful review of pay practices depends on the integrity of your organization’s employment data.

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