Equal Pay Act and Pay Equity: What You Need To Know
- Human Resources
6 min. Read
Last Updated: 12/10/2021
Table of Contents
Efforts, including legislation such as the Equal Pay Act of 1963 and observation of Equal Pay Day that began in 1996, have raised awareness and encouraged businesses to develop more equitable pay practices. However, pay inequity remains an issue in the United States. According to the U.S. Department of Labor (U.S. DOL), women consistently earn less than their male counterparts in the same position across nearly all industries and job titles.
The amount of the wage gap between women and men varies by age, race, industry, and geographic location, but women across all categories earned only 82.3% annually of earnings made by men in 2020. Data visualization tools produced by U.S. DOL show that men out earn women in nearly all the 350 industries tracked by the organization, and women in some racial groups and industries can make up to 35% less than males in the same positions and with the same level of education.
While employee compensation and discussions about pay equity can be a particularly sensitive subject, transparency can be crucial for helping to close the wage gap and work toward pay equity in all areas.
The Importance of Pay Equity — Closing the Wage Gap
A commitment to and transparency of a company's stance on pay equity can help attract top talent. Recently, many large companies have adopted branding campaigns and are promoting their commitments to pay equity. Others have made high-level overviews of their practices available to the public, such as internal audits and past-salary blind compensation analyses.
What's the advantage? At a high level, a commitment to pay equity can build stronger employee branding. Talented workers are more likely to go where they'll be paid fairly for their labor, and employees who are equality-minded are more inclined to seek out and accept positions with companies that have pay equity policies already in place.
Pay equity isn't just an advantage in hiring talent; it also plays a critical role in retaining top workers. Consider how an employee is likely to react if they learn they are being paid unfairly. Not only does this put the company at potential legal risk, but it can erode trust between the employer and employee. Unequitable pay practices increase the chances of losing your best talent. Some employers are choosing to consult their legal counsel and conduct a pay equity analysis to help ensure their compliance with applicable federal and state equal pay laws.
Communication and Compensation
Establishing an open environment for compensation discussions can drive efforts toward positive changes in compensation practices. The U.S. Bureau of Labor Statistics (BLS) has tracked earnings by sex and wage disparities since 1979, when women's earnings were approximately 62% of men's earnings for full-time positions in the same year. Women only made 57 cents per dollar earned by men in 1973 when this Department of Labor PSA was made. Since then, progress toward pay equity has stalled, and we're still far from closing the pay gap. For 2019 (the most recent year for which this data is available), BLS reports the following trends:
- Women in full-time positions had median earnings that were 82% of earnings for men in full-time positions.
- Most of the progress in closing the sex wage gap from 1979 numbers occurred in the 1980s and 1990s; women's weekly earnings have remained between 80-83% of men's earnings since 2004.
These trends underscore the fact that corporations have made some progress in closing the wage gap, but this progress has stagnated in recent years. Most recently, the COVID-19 pandemic has actually reversed the trend and led to a decline in pay equity for women. To continue to drive change in this area, business leaders should consider creating a safe environment for discussing compensation with all employees. Employers can reap the benefits of these open conversations and work toward pay equity by:
- Providing resources to both managers and employees
- Conducting surveys
- Fostering an environment where employees feel empowered to discuss compensation
Employers should also be aware that The National Labor Relations Act (NLRA) prohibits employers from limiting employees' concerted activities for the purpose of "collective bargaining or other mutual aid or protection." According to the National Labor Relations Board, employees discussing compensation is generally viewed as a concerted activity and therefore protected under the NLRA. Some states have also enacted laws prohibiting employers from limiting wage discussions, creating multiple legal precedents for employers to encourage open communication about fair compensation.
Equal Pay Laws
In addition to legislation protecting employees' rights to discuss pay, the federal Equal Pay Act of 1963 aimed to abolish wage disparities based on sex. Since its enactment, many states and localities have developed laws aimed at supporting or expanding the protection of pay equity.
Equal Pay Act of 1963
The Equal Pay Act of 1963 was originally developed as an amendment to the Fair Labor Standards Act of 1938. In the original U.S. law code for the Equal Pay Act, Congress explained the need for such a law by citing that sex-based wage differentials:
- depress wages and living standards;
- prevent the maximum utilization of available labor resources;
- cause labor disputes that obstruct the free-flow of goods; and
- represent an unfair method of competition.
Congress then used this justification and its power to regulate free commerce among states to make it illegal to pay men and women differently for equal work.
Title VII of the Civil Rights Act of 1964
Title VII of the Civil Rights Act of 1964 expands the definitions of wage discrimination to include race, color, religion, sex, and national origin. More specifically, this provision of the Civil Rights Act specifically outlaws:
- Refusing to hire or otherwise discriminating against an individual with respect to compensation, terms, conditions, or benefits of employment on the basis of race, color, religion, sex, or nationality.
- Segregating or classifying employees on the basis of race, color, religion, sex, nationality or in any other way that would adversely affect their status as an employee.
EEO-1 Wage Reporting
An amendment to Title VII of the Civil Rights Act of 1964 implemented a requirement for eligible employers to complete an annual report that outlines certain demographic workforce data. All private-sector employers with 100 or more employees or federal contractors with 50 or more employees that meet certain criteria must submit a completed EEO-1 wage reporting form to the Equal Employment Opportunity Commission each year. Employers are required to report the number of employees by sex, race, ethnicity, and job category as well as summary pay data and aggregate work hours. Employers should also review their obligations under existing state and local laws related to pay equity.
Strategies for Pay Equity
In addition to mitigating risk related to legal ramifications, businesses have other productivity and retention motivations for creating strategies that ensure equal pay as defined under applicable laws for their employees. By taking proactive steps to review current pay policies, working with legal counsel to collect and analyze data, and comparing your individual pay data to the current laws, you can reduce negative repercussions that correlate with significant pay disparities for your employees.
Review Your Pay Policies
Utilizing standard pay policies can help minimize bias or subjective discretion when setting compensation levels for employees when these standard policies are created in accordance with applicable laws. While some discretion may be allowed to account for experience or special skill sets, compensation levels should generally fall within predetermined ranges based on skills and tasks required for the position. When setting pay ranges and outlining any compensation policies for your organization, a coordinated review of any applicable laws can help to ensure that all equitable pay terms are clearly defined and are in compliance with any laws that apply to your organization. By reviewing your current policies, you can identify areas where additional written guidance may be needed to help managers set pay scales consistently and fairly across your organization to help minimize any potential wage gaps.
Collect and Analyze Data
One way to evaluate the impact of your pay policies is by collecting concrete data. While both employees and managers may have strong opinions about pay scales and compensation strategies, data will provide an accurate picture of how your employees are currently compensated. Employers should consider consulting their legal counsel when collecting and analyzing their data.
Once you have the data, compare pay scales for various subsets to identify any wage gaps across employee groups. Your comparisons should include more than women vs men — also compare subsets by race, job title, or location to ensure you are using equitable pay scales that comply with any applicable laws that govern compensation practices.
Once you have organized data on various pay groups within your company, compare this information to applicable laws. If you find pay disparities, you can work to remedy them. Remember that your business may have federal, state, and local legislation to comply with, and failure to comply with applicable laws that govern fair compensation practices could result in fines and legal fees for your business.
For HR leaders, it's important to understand the continued focus on pay equity and confirm that the business's policies follow applicable laws and best practices. Employers and employees benefit most when there is a safe environment for discussing compensation guidelines, and managers should frequently evaluate pay scales to eliminate bias and potential discrimination. Utilizing expertise from HR consulting services can be a great way to help your business develop effective equal pay strategies.