Examining the Next Steps Toward Pay Equity
Workspan Daily
January 25, 2022
Key Takeaways

  • On the way to fair pay? Some legislation introduced in 2021 suggests that more states are taking steps to ensure pay equity.
  • Pressing pause. Some states may be putting pay equity legislation on hold for now, but at least one expert says its likely that states will refocus efforts on pay equity issues when the pandemic subsides and the workplace returns to a semblance of normalcy.
  • Assess pay infrastructure. Evaluating the organization's compensation groundwork - job architecture, pay ranges, pay management guidelines – is key to staying ahead of evolve state and federal pay equity laws.
  • Ensure data accuracy. Employers can also begin to focus on ensuring they have robust data for use in pay equity analyses. Comprehensive and accurate data on an organization's array of jobs and employees allows for a more thorough and accurate pay equity assessment.

On the legislative front, 2021 saw some strides being made toward achieving pay equity in the American workplace.

On Jan. 1 of last year, for example, Colorado’s Equal Pay for Equal Work Act went into effect, aimed at prohibiting gender-based pay discrimination and imposing more stringent requirements concerning pay transparency.

The act obliges Colorado employers to provide formal notice to Colorado employees of promotional opportunities and to disclose pay rates or ranges in job postings for positions that will or could be based in Colorado, including remote opportunities.

The legislation has been heralded as “one of the toughest enhanced state pay equity laws to date,” and made the Centennial State the 10th to pass an equal pay law that is more demanding than federal law.

More recently, Oregon legislators passed HB 2818, which made a number of amendments to the state’s Equal Pay Act. For example, the bill temporarily exempts hiring bonuses offered to prospective employees and retention bonuses offered to existing employees from the definition of “compensation.” (This amendment is temporary and only effective until March 1, 2022.)

The legislation also permanently exempts vaccine incentives provided during a public health emergency from the definition of “compensation,” including both monetary and nonmonetary incentives, such as additional paid time off.

Under existing Oregon law, employers must ensure that employees performing “work of comparable character receive equal compensation, unless the difference can be justified by specific factors listed in the statute,” JD Supra reported.

By temporarily exempting hiring and retention bonuses and permanently exempting vaccine incentives from “compensation,” the legislature “gave Oregon employers more leeway to award bonuses in today’s challenging environment,” according to JD Supra.

2021 also saw the enaction of a California law that obliges certain employers to annually submit pay data to the state’s Department of Fair Employment and Housing (DFEH) and the Division of Labor Standards Enforcement (DLSE).

When it passed the legislation in September 2020, California became the first state to require such reporting. Under the new law, employers with at least 100 employees in California must provide compensation data for certain job categories by gender, race and ethnicity to the DFEH and the DLSE every year, starting on March 31, 2021.

Pay equity “is a hot topic at both the federal and state level,” said Justine Farris-Niehaus, a labor and employment attorney in the Indianapolis office of Barnes & Thornburg.

“President Biden has made clear that closing gender and racial pay gaps is a priority for his administration. However, getting traction at the federal level has proved difficult, evidenced by the blockage of The Paycheck Fairness Act by the U.S. Senate, for example.”

Accordingly, states have taken this issue into their own hands, said Farris-Niehaus, noting that a number of states have enacted salary history bans and pay transparency laws in recent years in an effort to combat the wage divide.

Current working conditions — staffing shortages and pay demands, for example — has likely put many states’ efforts to impose additional pay equity requirements on hold, she said.

Oregon’s amendments to its Equal Pay Act, for instance, “demonstrate the balance state lawmakers are trying to achieve in assuring equal pay for equal work while giving employers the necessary leeway to bring in talent and incentivize certain behaviors, especially during the pandemic,” Farris-Niehaus concluded.

“Once state legislators have more time to focus efforts on matters outside of the pandemic, and [once] the workforce normalizes, it is likely that states will refocus efforts on pay equity issues.”

In the meantime, companies everywhere can be taking steps to stay ahead of evolving pay equity laws, and to move their organization closer toward more equitable compensation, said Jim Hudner, a managing director at Pearl Meyer.

Assessing the organization’s compensation infrastructure — job architecture, pay ranges, pay management guidelines — is probably the most important step, he said.

“There is a significant relationship between an organization’s compensation infrastructure and pay equity issues. In short, if an organization has an up-to-date and sound compensation infrastructure, it is less likely to have pay equity issues. However, if the infrastructure needs attention, the probability of pay equity issues increases.”

With most legislation focusing on jobs performing comparable or equal work and pay differences that can be explained by permissible factors such as experience [and/or] performance, “it is critical that pay is managed within well-defined and applied structures and policies,” added Hudner.

He also recommends emphasizing ongoing reviews of internal pay equity, as opposed to conducting such assessments “every so often.”

In the current labor market, for example, employers are increasingly concerned with pay compression, which, as Hudner noted, can highlight the need to assess potential equity issues with the influx of new staff at more aggressive pay levels.

“Employers can also begin to focus on ensuring they have robust data for use in pay equity analyses,” he added. “A comprehensive and accurate set of data on an organization’s array of jobs and employees allows for a more thorough and accurate pay equity assessment.”

For instance, most organizations do not track directly related previous work experience, said Hudner. However, some are beginning to collect this information in an effort to better understand possible rationale for pay variations among employees in comparable jobs.

And, while he urges organizations to focus on issues that could affect pay equity, “they should also not lose sight of issues that can impact an organization’s pay gap, which is the median or average pay for females as compared to males, or of under-represented minorities compared to all others,” he concluded.

“While there are many factors that contribute to an employer’s pay gap, one of the more significant factors — over which employers have some control — is the percentage of women or under-represented minorities in executive and management roles. While this is not a new issue, it is one that deserves continued vigilance.”

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