Take a Proactive Approach to Changing Pay Practices to Avoid Gender-Based Discrimination
How can gender-based pay discrimination — intentional or not — be squelched? Lawmakers have been working on this issue for decades. Perhaps the most important recent development is the enactment of state laws that make it mandatory for employers to include pay and benefit information when they post new job openings. That trend follows a proliferation in jurisdictions that ban employers from requiring job applicants to provide their salary history.
Review Your Pay Practices
Roughly 19 states and 21 cities currently have such laws, which seek to correct the disadvantage that many women experience when they try to reenter the workforce after taking a break from work due to childcare responsibilities. If their pay before the gap in work history was well below the market rates when they return, they may suffer in salary negotiations. Here is a list of each state’s equal pay laws.
Two states — Colorado and Washington — have taken the lead on reinforcing the laws against pay practices that lead to gender-based discrimination. The state of Washington acknowledges that point in the preamble to their Equal Pay and Opportunities Act, which says, "The long-held business practice of inquiring about salary history has contributed to persistent earning inequalities."
If your state doesn't yet have such laws on the books today, that could change. It's important to have a response plan to respond if the laws change, as well as to consider the merits of adopting such policies even if you're not legally required to. Either way, you're on the hook if you're found to have a pattern of gender-based pay discrimination.
Equal Pay Laws: Colorado
Employers in Colorado recently tried to block a new state law along these lines that took effect at the beginning of 2021. Those employers were rebuffed by a federal district court (though the ruling might be appealed). Among other things, the state's Equal Pay for Equal Work Act requires employers to:
Announce promotion and advancement opportunities,
Maintain records of employees' wage rate history and job descriptions, and
Disclose the pay and benefits associated with each job opening.
Any employer based outside Colorado that has at least one employee in Colorado is subject to the law as it pertains to job opportunities in that state. If the promotion opportunity is potentially available to that company's Colorado employees, the disclosure information must be made available to the employees currently based in Colorado. That's true even for employees that would have to move to another state to take the job.
The effort by employers to block the Colorado law was based on the premise that widespread harm in job markets would result from it. However, the judge found that reasoning to be "extraordinarily broad" and lacking in specific evidence, so the argument was rejected.
As for specificity, however, the law itself doesn't require Colorado employers to provide a single precise pay amount for posted jobs. The regulations allow employers to post a compensation range, if that range represents a good faith estimate on the employer's part of the minimum and maximum it would offer for the position.
Legitimate Pay Variations: Washington State
Washington's 2019 Equal Pay and Opportunities Act, like many other such laws, recognizes as nondiscriminatory a variety of factors that might result in various people being paid different rates for the same job. Those factors include:
Work performance,
Differences in training,
Seniority, and
Regional variations in pay scales.
The law also prohibits employers from punishing employees who openly discuss their pay among their colleagues. Here is more info on the act.
Even when not obligated to disclose a salary range in a job posting, some employers have opted to do so, anticipating several benefits. Those include:
Posting a pay range may allow you to avoid wasting time interviewing people who wouldn't take the job even at the top limit of your pay range.
Negotiating pay after an offer is on the table may move faster when the pay range in question is narrower.
Keeping the issue of pay in proper perspective (compared to the candidate's suitability for the job) will be easier if the applicants know ahead of time the pay range you'll offer.
Seeing the pay ranges for new hires may help assure existing employees that they're paid fairly.
Potential Pitfalls
There are also potential downsides to posting salaries. For example, you might not want your competition to know what you're paying to avoid getting in a bidding war for talent. Or if the market for the kind of talent you need today has tightened recently, you might have to offer higher compensation than you currently pay for similar positions to recruit the employees you need. That can lead to resentment from current employees and put pressure on you to raise their pay.
But such pay differences are often unavoidable. If a discrepancy is found, scrutinize it to ensure that the pay differentials aren't based on gender or any other demographic categories that could be viewed as illegal discrimination. Even if the difference only appears to be discriminatory, be sure you can document the reasons for pay differentials if you're challenged.
Final Thoughts
If your state appears to be following the lead of Colorado and Washington, requiring big procedural changes on your part, map out your compliance strategy. And, if feasible, get ahead of the curve by phasing in compensation adjustments to avoid possible problems if the law forces you to change your pay practices.
Our outsourced CFO’s and Business Coaches can help you strategize your compensation plan and advise you in the best way forward for your small business. Contact us to learn more!