Every worker has the right to equal pay for equal work regardless of gender, race, religion, national origin, age, or physical or mental abilities. There have been several laws enacted to protect pay equity at both the state and federal level including the new California law SB 973 which creates significant reporting requirements for employers. At the federal level, pay equity is protected by the Equal Pay Act of 1963, Title VII of the Civil Rights Act, and the Lilly Ledbetter Fair Pay Act of 2009.

As part of Title VII of the Civil Rights Act, the Equal Employment Opportunity Commission (EEOC) collects EEO-1 Component 1 data which includes information about employee job categories, race, ethnicity, and gender in order to prevent employment discrimination.

In 2016, a new requirement to submit Component 2 data was enacted for employers to provide compensation data with their annual EEO-1 reports. Component 2 refers to pay compensation data including W-2 information by gender, race, and job category as well as data about hours worked. This information was intended to help the EEOC identify pay discrimination and better promote equitable pay. However, the only data ever collected under Component 2 was for 2017 and 2018. Under the Trump administration, the EEOC discontinued Component 2 citing the significant costs and burden to both collect and analyze the data. However, many experts believe that the EEO-1 Component 2 reporting requirement will be reinstated under President-elect Joe Biden’s administration.

With many states also enacting broader laws covering fair pay, now is a great time to examine your organization’s compensation policies and see if your business has work to do in the area of pay equity and gender discrimination. 

What is pay equity?

Pay equity means providing the same compensation to employees when they perform the same or similar job duties while accounting for compensable factors like tenure, experience, and job performance. Noncompensable, or unjustified, factors include gender and race. However, according to a 2020 Payscale study, women earn a median wage of 81 cents for every dollar that men earn. This illustrates the fact that despite the existence of state and federal legislation, there are still lingering wage gaps.

In fact, reports of gender pay gaps have “caught the attention” of government investigators, the media, and shareholders. That’s why many companies are proactively conducting pay audits in order to identify pay differences, understand why they exist, and fix any problems before fines are levied or lawsuits are filed. 

California’s pay data reporting law

Beginning in 2021, California employers with 100 or more employees that must file an EEO-1 report under federal law will be required to submit annual information on their employees’ pay data by gender, race, and ethnicity to the state’s Department of Fair Employment and Housing (DFEH). Specifically, the DFEH report must include the number of employees and hours they worked:

  • By race, ethnicity, and sex.

  • Including each job category included in the federal EEO-1 report.

  • And whose annual earnings fall within the US Bureau of Labor Statistics’ pay bands in the Occupational Employment Statistics Survey.

According to DFEH, the state of California already prohibits pay discrimination. It is the department’s hope that this reporting system will encourage employers to self-assess pay disparities within their workforce and make necessary corrections on their own. However, DFEH will enforce equal pay and anti-discrimination laws when appropriate.

How employers can promote pay equity

Federal and state legislation encourages all businesses to voluntarily comply with pay equity rules. That’s why many businesses engage in proactive pay equity analysis to ensure equal pay between employees in similar roles is a reality. According to the Payscale Compensation Best Practices Report, nearly 40% of businesses planned to conduct some type of pay equity analysis in 2020. Conducting a pay audit within your business helps you see where things stand now in terms of how pay decisions are made and ensures any pay disparities are documented with valid reasons.

Once an audit is complete, it’s important to enforce and maintain consistent standards. For example, the Small Business section of the Houston Chronicle recommends:

“When conducting a job analysis and developing a description, you establish the abilities, duties and responsibilities required for a position that earns a certain amount of pay. If one employee clearly falls short of the standards and production of colleagues, you have more tangible justification for a demotion or termination. By paying fairly, you limit the worker’s ability to claim unfair treatment or lack of motivation for poor performance.”

In addition to creating transparent and consistent pay policies, Cheryl Pinarchick, an attorney with Fisher Phillips shares these best practices with SHRM:

  • Build trust within your organization by ensuring regular communication with employees about performance metrics and progress.

  • Train managers and other decision makers about your compensation policies and practices, including how to document decisions properly.

  • Create and follow standard pay ranges or consider implementing the pay bands that you’ll be required to follow for government reporting requirements.

  • Maintain accurate job descriptions and a list of required skills to help better evaluate starting pay, merit increases, promotions, and more.

Support for compensation planning and pay equity compliance

If you want to ensure your policies regarding pay equity are up to date, Asure can help. Asure provides software and expert HR services to help your business build a great team, support the people
in your organization, and ensure compliance.

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