The push for pay equity has been gaining steam and shows no signs of slowing down. One of the hottest HR topics for 2019 following a ground-breaking 9th Circuit Court ruling last year, this issue should be front-of-mind for all US employers.
The Equal Pay Act
Established in 1963 under the Fair Labor Standards Act (FLSA), the Equal Pay Act affects all US businesses, regardless of size. But although it’s been in place for about 60 years, the act is not particularly toothy. Enforced by the Equal Employment Opportunity Commission (EEOC), the Equal Pay Act explicitly prohibits sex-based discrimination. However, this does not extend to other protected classes on a federal level.
Specifically, the act says that employees must be paid equally for equal work on jobs that require substantially equal…
- Skill – The experience, ability, education, and training required to do the job. (Not the same as skills possessed!)
- Effort – The physical or mental exertion required to do the job.
- Responsibility – The degree of accountability required in doing the job.
- Working Conditions – The physical surroundings. (Heat, ventilation, fumes, hazards, etc.), and
- Establishment – The physical place of business.
Top Tip: Regarding the Establishment requirement, sometimes physically different locations can still be considered a single establishment. This is the case when a central office oversees all of the business’ hiring and then assigns job locations in a smaller geographic area.
A Lack of Pay Equity
So if the Federal Pay Equity Act has been in place since the 60s, how come we still don’t have pay equity? In the event that all of the above requirements are “substantially equal”, the Equal Pay Act allows for four acceptable reasons for a pay differential.
- A seniority system;
- A merit system;
- A system which measures earnings by quantity or quality of production; or
- A differential based on any other factor other than sex.
This last reason is basically a “catch-all” for employers. In practice, courts have interpreted this “any other factor” reason very broadly, encompassing market conditions, negotiation, style, pay history, etc. Not only that, but courts have also historically found very strict interpretations of which jobs are “the same” per the equal work standards above. Whereas the original intent of the Equal Pay Act was to align pay for “similar” jobs, in practice the act has usually only been used to align pay for “identical” jobs.
All of this came to a head last year when a 9th Circuit Court ruled that under the Federal Equal Pay Act, those extra factors in reason #4 above still have to be job-related. That means based on experience, skills, abilities, or education required for the job. Further, it does not include past salary history, negotiation (unless required for the job), or market factors.
The Legal Stuff
So what does all this mean? Well, if your business is in the 9th Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington), then the Federal Equal Pay Act just got stricter for you. And if you’re in one of these states (or just looking to get ahead of the curve!), you’ll want to take action soon.
Outliers will be your biggest concern. That one employee who has a Ph.D or was making much more at their last job, or who was hired when the market took a nosedive – and who is now making much more than everyone else. Unfortunately, you won’t be able to just reduce their wages to come into compliance with the law. Instead, you’ll have to work with your other employees to bring their salaries up.
Although some states have found that freezing these outliers’ salaries is an acceptable course of action while incrementally bringing up other employees’ pay, keeping an eye on future cases that may arise will be imperative as courts further interpret these laws.
What do you think?
Now that we’ve covered the Federal Equal Pay Act, are you looking to learn more about state-specific laws? (Hint: They can get much stricter!) Or even how to conduct your own pay equity audit? Check out our free online training on Pay Equity to learn how!
Need a little extra help? Ask us about our full suite of HR services and how SDP can help you with anything from a quick one-off project like updating your employee handbook or putting together a new hire packet, all the way to more extensive projects like a complete HR audit. And as always, don’t forget to check us out on Facebook, Twitter, and LinkedIn for even more HR tips & tricks!