The Equal Pay Act (EPA), a federal law that is supposed to guarantee equal pay for equal work, prohibits employers from paying men and women different wages for substantially equal work that requires equal skill, effort and responsibility under similar working conditions. And Title VII of the Civil Rights Act of 1964 prohibits wage differences based on race, national origins, religion and other protected characteristics. Other federal laws like the Age Discrimination in Employment Act (ADEA) also forbid wage discrimination based on age. Yet the court system is flooded with discrimination cases citing unequal pay.
Many states have stepped in with their own laws designed to make sure everyone receives equal pay for equal work. These laws include requirements that new hires not begin their jobs with starting salaries based on their past salary and that employers post salaries for open positions and promotions. The idea is to break the cycle of lower wages for equal work.
But employers may not realize they’re perpetuating past discrimination by not equalizing pay across protected characteristics. Nor may they realize, for example, that female employees in one division whose jobs are substantially equivalent to male employees in another division are being underpaid. That lack of awareness may end up costing an employer thousands, if not millions, of dollars in a lawsuit.
How to discover—and fix—unequal pay
Employers who want to fix the problem may choose to look for inequity and then equalize pay. There is a right way and a wrong way to do this. Here are the crucial steps:
1. Don’t do this alone. You don’t want to discover pay inequity and then announce it. That opens you up to a lawsuit. Instead, contact counsel to guide the way. By retaining counsel, your organization is protected by attorney-client privilege. The pay audit won’t have to be shared with the employee who sues you. The report will be for your eyes only. That’s much better than having to admit in front of a jury that you have been underpaying a protected group for years.
2. Get the right expert. Your attorney will bring in a statistical expert who can analyze your pay structure. That expert will be using advanced statistical tests, including multiple regression analysis, to determine whether any pay differences are the result of discrimination (intentional or unintentional) or some other factor (like experience level or job duties). The test can reveal the likelihood that pay differences are the result of change or due to a factor like race or sex. The expert’s report is also covered by attorney-client privilege.
3. Fixing the problem without drawing attention. If your expert uncovers red flags indicating possible discrimination, it’s time to equalize pay. You can do this without publicly admitting that there are pay differences. One option is to make the changes at your regular salary-adjustment time—typically year-end at evaluation time. This tends to trigger fewer questions about why some are getting larger adjustments than others.
Another option is to make the changes as part of an announced overhaul of your compensation system. Make equity adjustments. Fix any procedures and policies that may have contributed to the pay disparities. For example, if you have been setting starting pay based on salary history, revise your starting pay formula.
Final note: Remember that under the EPA, you cannot lower salaries but can only adjust up. For example, if you were paying men more than women, you must raise the female salary to the male level.
