How to Achieve Equitable Pay for EmployeesCompensation System

Under the federal Equal Pay Act, all employees regardless of gender must be paid an equal amount for jobs of “equal skill, effort and responsibility” and performed under similar working conditions. Exceptions to this requirement can be based on a seniority system, a merit system, a system that measures earnings by quality or quantity of production, or “a differential based on any other factor than sex”. (Equal Pay Act, 1963)

While the Equal Pay Act has been around for 57 years, compliance activities are increasing and failure to achieve Pay Equity is becoming visible.

Multiple steps are required to set up a compliant compensation system to govern pay in your organization.

In last week’s To the Point feature, we asked about a variety of factors often used by employers to determine pay rates and application to individual employees’ pay. Many of the practices listed were illegal; others are ill-advised or should be pursued with caution.

If you use any of the following to determine pay rates for your employees, beware:

  • Area pay for similar work: Avoid grabbing a rate from local data and establishing this as your job rate of pay; the data you find may reflect gender bias, questionable sources, or be outdated. If you find and use the data without change in your system, you will be bringing gender bias or other concerns directly into your pay rates.
    • It is better to evaluate jobs, group those of similar weight, and check on the most common jobs in the group.
  • Applicant’s salary history or salary requested during interview: Requiring an applicant to provide a history of past pay is now illegal in a number of states, and ill-advised because this brings past employers’ pay practices and potential bias directly into your pay administration if used as the basis for the new hire offer.
    • Asking a candidate to share what he or she would like to earn in the new position is acceptable; this looks ahead and is not based solely on previous employers’ practices.
    • Be careful to ensure that the requested amount brings the employee’s initial pay to the appropriate place in your range according to your guidelines. If you don’t use your own guidelines to determine the pay you should offer the candidate, it is difficult to make up for these errors later with merit raises of 3% annually. Start the pay wrong, and you will likely not be paying the employee equitably.
  • Paying a budgeted rate or according to predecessor or co-worker pay: Administer pay for the new hire according to the job group, range and guidelines for administration of the range. If not, you run the risk of duplicating a pay error you’ve made previously. Start each offer from a fresh look at candidate qualifications and range administration guidelines.
    • Correct coworker pay with an equity increase if necessary; never lower any employee’s pay to correct a pay inequity.
  • Determining pay based on relationships, financial need, marital, parental or financial status, gender or head of household status: These practices are illegal and inequitable. Follow the guidelines and ranges you’ve established for employees. Exceptions to equal pay must be based on an allowable exception, such as merit or quality/quantity of work, not who knows who or financial need.
  • Pay based on employee performance and position in pay range: This is how we pay employees equitably. If your initial pay offers are correct, performance ratings are based on job duties and results, and these are applied consistently regardless of gender or other unrelated protected characteristics, this is how a pay range should be applied and new pay rate determined.

HPISolutions and its Alliance Partner, McMinn HR™, can create Compensation Systems and conduct Pay Equity Audits for our clients. Call us at 623-866-8400 to explore these options.

1 Comment

Comments are closed.