Is your company’s pay equitable? 5 must-read tips

Fair pay is a frequent subject of human resources and employment law discussions of late, with commentary coming from such diverse advocates as the Pope, President Obama and Hollywood.

All have publicly voiced support for equal pay for equal work, and it would likely be difficult to find a businessperson in the 21st century who might argue against the premise of workplace equality.

But, it is a complex topic, with much more involved than what first meets the eye. It’s worth your time to learn more about it.

1. Know the rules

Wage equality may simply mean paying equal wages to employees who perform the same work, regardless of any factor that makes them different, including gender, race, age or ethnicity. However, it’s often more complicated and subtle than that.

Typically, wage inequality isn’t deliberate but is an act of omission in a company that hasn’t regularly analyzed salaries. This can be especially true in businesses that have been around for a while and have both tenured and newly hired employees.

If compensation is based on anything other than objective criteria, the risk is high that your business could be accused of engaging in unfair pay practices that could be viewed as discriminatory. 

That said, in certain limited cases, people in similar jobs can be paid different salaries. However, one of these legally sound reasons must first exist:

  • Documented seniority systems
  • Merit systems based on performance, including periodic performance reviews
  • Bona fide factors other than gender, race, etc., possibly including education, training certification or experience (You must be able to prove the exact factors that are directly applicable and essential to the job.)

 2. Risks can be substantial 

The financial ramifications of inequitable pay practices can be severe. If found liable for inequitable pay practices, you may have to pay back employees, pay interest on back pay and, in some cases, pay a penalty equivalent to the back pay and interest.

In addition, your company is responsible for the attorney fees required to defend the case. If your company is found liable, you may have to pay the complainant’s legal fees, too.

The risks go beyond financial damage. The mere presence of regulators sifting through records and questioning employees can send shock waves through your workforce, impacting employee morale.

A finding – or even an allegation – against your company can impact your reputation and credibility, making it difficult to attract and retain employees and customers. With the popularity of social media these days, such bad news can quickly go viral.

3. Start with the fundamentals

The best way to start is to take a good look at your pay policies and, if you don’t already have formal compensation policies and practices in place, develop them.

Before beginning any comprehensive analysis of your pay practices, you may want to consult with legal counsel. It might make sense for your counsel to conduct the analysis to ensure you maintain the privilege of the compensation review and any related conclusions and business decisions.

Your team should examine, document and make any necessary updates to the following:

  • Job descriptions – They should accurately detail the duties and responsibilities of each job
  • Salary structure, pay grades and bonus plans – Ensure objective criteria are used and aligned with job categories

Be on the lookout for positions that are essentially the same, but are paid differently. Be aware that even if these positions have different titles, if the employees are doing fundamentally the same work, they usually shouldn’t be in different pay grades. Jobs that require substantially similar skills, background or experience, responsibilities and working conditions should typically be in similar pay grades, regardless of title.

For example, an administrative assistant and office coordinator may perform the same essential duties, so all other factors being equal, their pay would likely be similar.

4. Document and communicate

 Make sure pay decisions are consistently made on criteria you have established for your pay practices and record how all pay decisions are made. For example, document why each pay raise is given and why employees are offered their specific starting pay.

Of course, it’s good practice to openly communicate with your employees about your organization’s compensation philosophy and pay policies.

If employees don’t feel that you are being transparent, they’re more likely to bring forward action against your company. Ensure you have an open door policy for employees to bring forward concerns for discussion and resolution.

5. Be proactive about fair pay

 If your employees aren’t complaining, it can be tempting to assume that there are no pay equity concerns. But you could be setting up your business for problems, for lack of awareness is not a defense.

It’s to your advantage to be proactive when it comes to equal pay issues. Many fair pay laws are mandated at the national level, and state regulations are increasing and changing quickly.

Avoid other HR pitfalls that are common when running a business by downloading our e-book, 7 Most Frequent HR Mistakes and How to Avoid Them, now.

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