Pay equity laws are not new. Federal law has prohibited pay discrimination for decades. However, current media attention to sex-based discrimination, including sexual harassment and pay inequities, has placed these issues in the spotlight. This focus creates new challenges—and opportunities—for compliance-minded employers to face this issue head-on, rather than waiting to defend a claim. Pay equity claims can cause an expensive distraction, but it doesn’t have to be that way. By understanding the law, and your obligations, you can rest assured you are protecting your organization, and your employees.
Understand The Law.
As we mentioned here, one of the strongest state laws in the country addressing equal pay for comparable work will take effect in Massachusetts on July 1, 2018. The sweeping Act makes many changes to existing law, including definitions of how to determine comparable work, and prohibiting organizations from requesting salary history before hire, to name a few. Additionally, employees will not be required to file a claim with the MCAD prior to filing a lawsuit, making this an expensive proposition for unprepared employers. The silver lining in these new obligations is the Act provides an affirmative defense to employers who perform a good-faith evaluation of pay practices, and create a plan for addressing identified disparities. Below is an overview of how that process can work to your organization’s advantage. And, if you are interested in getting in on that attorney client privilege, we’ve got you covered.
Perform a Pay Equity Evaluation.
In addition to the affirmative defense the Massachusetts Act provides employers, a pay equity assessment or audit is arguably the most efficient way to address the risk of a pay equity claim. The focus and depth of the analysis can vary depending on the size and needs of your organization, but there are three common goals:
- Determine whether pay disparities exist that cannot be explained by other factors (remember, these are not factors that could explain the disparity, but factors that actually influenced the pay decision);
- Identify weaknesses or gaps in compensation policies and practices that contribute to such disparities; and
- Create a plan for addressing the disparities.
Exercise Attorney-Client Privilege.
Any time you internally audit or review your internal policies and procedures that review may be subject to disclosure, either during a government agency investigation or during discovery in litigation. By using an attorney, that same audit or review becomes protected by the attorney client privilege. When we are talking about an audit that may reveal evidence of pay inequity, using an attorney becomes a key risk management tool. You won’t know beforehand what the audit will reveal, so the conservative approach is to take appropriate steps to protect the audit and its results to the greatest extent possible.
Make Appropriate Comparisons.
At its core, a pay equity assessment analyzes your organization’s pay data to determine whether there are disparities. A typical analysis compares the average pay of men to the average pay of women (or other protected groups) within relevant job classifications to determine whether disparities exist. Under the federal Equal Pay Act, for example, this means comparing employees who perform jobs that require equal skill, effort and responsibility and are performed within the same establishment under similar working conditions.
Under the new Massachusetts law, this comparison is extended to include “comparable work,” defined as “work that is substantially similar in that it requires substantially similar skill, effort and responsibility and is performed under similar working conditions.” In other words, employers need to use more than job titles to make an appropriate comparison.
Disparities Require a Deeper Dive.
If your pay equity analysis reveals pay disparities within certain jobs, it will be necessary to more closely examine the affected groups to identify whether other relevant factors explain the pay differences. These factors can be objective or subjective and are usually unique to the particular job or industry. For instance, compensation for some jobs is based on the quantity or quality of achievements, such as sales revenues, patents filed, degrees achieved or publications made. Differences may also be attributed to market data or difficulties in filling the position that required paying a higher salary.
Review Compensation Practices.
Often, pay disparities are not the result of intentional discrimination, but a variety of factors ranging from salary history to lack of clarity in the organization’s pay policies and practices. Even after the pay analysis is complete, it is important to consider whether modifications must be made to existing compensation policies, procedures and practices in order to help prevent unexplained disparities from continuing to occur. Failure to take this step could create an ongoing risk of future pay disparities. The following questions will help identify whether policies and practices should be examined:
- Are there written guidelines that define the factors to be considered when making pay decisions?
- Are decision makers held accountable for complying with compensation related policies and guidelines?
- Do different departments or teams within the organization operate independently and without oversight when making compensation related decisions, rather than a cohesive approach within the organization?
- Do the organization’s pay practices require evidence to support the factors that are used to make pay decisions, such as written performance evaluations or objective market data?
- Is there documentation recording the reasons for pay decisions, particularly where those decisions deviate from expectations?
Update Job Descriptions and Performance Evaluations.
Job descriptions alone are not sufficient to show that jobs are equal. However, they can provide the foundation for demonstrating that certain jobs are either comparable or should be differentiated for purposes of salary comparison. Conversely, poorly drafted job descriptions can adversely impact an organization’s ability to defend themselves when confronted with pay equity claims. Additionally, because performance reviews generally impact salary directly, a flaw in the performance evaluation process may affect the legitimacy of pay decisions (and other employment decisions) that are tied to those results. For this reason, it is important that managers and any personnel responsible for setting salary levels are trained and understand the importance of accurately documenting performance issues and achievements.
Create a Plan.
The final step in any pay equity assessment is to make a plan for addressing pay disparities that are identified. Employers cannot lower the pay for some employees in order to equalize pay, so the righting of identified inequities can take time.
With the renewed focus on pay equity—whether across gender, race or other protected lines—employers can expect increased scrutiny of their pay decisions. Conducting an effective pay analysis will help ensure legal compliance and provide useful insight into the effectiveness of existing compensation practices. In Massachusetts, it will also provide an affirmative defense in the event of a pay equity complaint. And finally, to protect the process and your findings, strongly consider the use of an outside attorney. This will give you the benefit of the affirmative defense coupled with the protection of the attorney-client privilege. We are here to help.