Recent updates to equal pay and salary history legislation are presenting new challenges for business owners looking to establish competitive compensation packages or even interview potential employees. The new laws, which are very specific and carry steep penalties for mistakes, are still emerging in many markets and are somewhat nebulous even in those where they have already been established.
Equal Pay for Equal Work
The Equal Pay Act, which mandates “equal pay for equal work” by prohibiting employers from paying men and women different wages or benefits for performing jobs that require “equal skill, effort, and responsibility, and which are performed under similar working conditions,” was signed into law by President John F. Kennedy in 1963. In the years since this law was enacted, further measures – including the Educational Amendment of 1972 and the Pregnancy Discrimination Act of 1978 – have further sought to reduce wage gap discrepancies, while the Lilly Ledbetter Fair Pay Act of 2009 has simply made it easier to litigate against these issues by removing time limitations on complaints.
However, more than 50 years later, pay equality remains an issue for women in the United States. Annually, women earn just under 81 cents for every one dollar that a man makes, according to data from the Institute for Women’s Policy Research. Interestingly, Asian women come closest to earning what a white male would earn, making 93 cents on the dollar. Other minority women are worse off, especially Hispanic women, who are at the bottom of the pay scale, earning just 62 cents on the dollar compared to their white male counterparts.
So how is this still happening? At the root of it all, the original legislation is somewhat murky. The wording itself is vague – how should you measure the level of skill, effort and responsibility and determine equality, for example? Further, the law identifies situations under which it is permissible to provide unequal pay, such as in cases where there is merit, seniority, differences in quantity or quality of production between workers, and for other factors that are not tied specifically to gender, which gives employers an easy out if they are ever called out for their unequal pay practices.
In an effort to further level the playing field, a number of states are tackling the issue. The Diane B. Allen Equal Pay Act was passed in New Jersey in July 2018. The law protects workers from pay bias based on race, creed, color, national origin, nationality, marital status, sexual orientation, gender identity. and disability. Penalties for bias have been stiffened to three times the amount of pay differential for six years if a jury finds an employee has been discriminated against.
Meanwhile, Massachusetts equal pay law also went into effect on July 1 and states that gender cannot impact wages for comparable work. Exceptions include seniority, merit, sales, location, education and travel. Employers are liable for twice the amount of unpaid wages if found guilty.
Salary History Bans
Stemming from the equal pay movement, salary history bans also seek to take aim at discrepancies in wages based on the idea that wage gaps begin in the first jobs and only grow as women and/or marginalized populations move up the professional ladder.
Although the bans are still very much emerging, 11 states (as well as Puerto Rico) and nine localities have already acted to ban employers from being able to ask candidates about their salary history, and legislation in several others are currently pending. Some bans apply only to public employees, but most include both private and public workers.
For small business owners, this places them in a tricky position. First, you must keep up on the salary history question laws for your state and/or locality – and be prepared to check in frequently because this legislation is really gathering steam. The next thing you need to ask yourself is whether the information you gather from asking about salary history is useful. Asking about what a candidate made in a previous role is not only awkward but may also do you a disservice. If a candidate states a pay that is too high, you may pass on them thinking that you can’t afford to make them an offer instead of letting them decide. However, if they low-ball their wages, you may not see it as getting a bargain and may instead question their credentials or level of expertise for the role.
Now, if your business is located in areas where salary history is out of the question, as a small business owner you must have done the groundwork in advance to figure out what constitutes a competitive compensation package for the position that you are looking to fill. Whether your office is a revolving door of various employees or you haven’t looked for a new hire in years, analyzing your market and determining whether what you offer is up to snuff can be a huge, time-consuming undertaking.
How Can a PEO Help?
Here’s where outsourcing human resources to a Professional Employer Organization (PEO) can offer peace of mind. Most PEOs can offer you the most up-to-date information on how to stay compliant with the various laws and requirements in your area so you don’t have to worry about making a costly mistake. Further, a good PEO can help you develop a comprehensive compensation plan that takes into consideration your local laws, industry benchmarks, and even your businesses financial situation. Together, you can build an enticing salary/wage and benefit package, as well as guide conditions for employee bonuses, raises, incentives and ranges for salary growth over time.