Updating Your Hiring Processes to Accommodate Changing Pay Equity Laws

Pay equity in organizations is nothing new, and over the years there have been numerous federal and state laws passed in support of it. The road to pay equity began with the Equal Pay Act of 1963, which made it illegal to pay women lower wages than men for equal work. One year later, Title VII of the Civil Rights Act made it unlawful to discriminate in employment based on statuses such as gender, race, and age. Since then, pay equity has remained an important goal for organizations, reinforced by new state laws that keep the issue front and center when it comes to recruitment, selection, and ongoing talent management.

Recently, there has been a new and broader focus on improving pay equity, as the gender pay gap has not yet been closed. Depending on the location, studies show that women earn between 78 percent and 91 percent of what men earn. In an effort to narrow the gender pay gap, individual states have passed their own laws in support of pay equity, and more are anticipated. According to the Society for Human Resource Management (SHRM), some of the recent trends in pay equity laws include:

• A broader definition of comparable work: states now compel employers to compare individuals who perform "similar work" rather than equal work.
• Employers must have clear and verifiable reasons for pay disparities, such as education or tenure.
• Employers must be more transparent and provide more information about pay practices to candidates and employees.
• More and more states are instituting salary history bans, which prohibit employers from asking candidates about salary history during the interview process.

Given the new legislation, organizations must review hiring and talent management practices through a new lens, both to facilitate compliance and reduce hiring risks. In addition, given that candidates view pay equity as a key differentiator when assessing job opportunities, employers must also strive for pay equity in order to attract quality talent. 

Keeping up with Pay Equity Laws

Every state except Mississippi has an individual pay equity law. Not only are new laws being added each year, but existing laws are expanding as well. In 2019 alone, 11 states expanded or upgraded their pay equity laws. Some recent examples include:

• Oregon updated its pay equity law in January 2020, making it easier for individuals to file unfair wage claims, and harder for employers to justify pay differentials on the basis of seniority, merit, or production.
• New York expanded its pay equity law in October 2019, requiring equal pay for “substantially similar work,” rather than just equal work. 
• California, which already had one of the strongest pay equity laws in the country, amended its fair pay act in 2015, 2016, and again in 2018.

Salary History Bans

In an effort to bring more pay equity into the workplace, states are also passing salary history bans. Designed to prevent low compensation offers based on a candidate’s current compensation, these bans prevent employers from asking about candidate salary history. Each law is unique, but generally salary history bans don’t just preclude interviewers from asking candidates about their salary—the bans also have implications for job applications and background screening. In both scenarios, employers must refrain from including questions about a candidate’s current or past compensation until they have at least made an offer of employment that includes compensation. 

Salary history bans are becoming increasingly popular, not just in states but in counties and individual cities. So far, there are 18 state-wide and 20 local salary bans across the country. In Illinois, for example, the city of Chicago implemented salary history bans for city employees. The following year, the ban was expanded to include all employers across the state. Ohio, on the other hand, doesn’t currently have a state-wide salary history ban, but two of its largest cities, Cincinnati and Toledo, are implementing bans in 2020.

Evaluate and Mitigate Risk When Adhering to Pay Equity Laws

Pay equity laws present a number of challenges for organizations. Those that operate in multiple locations must be sure to comply with individual state laws, including those that may conflict with one another. In addition to introducing mechanisms that assure pay equity at the job offer stage, employers must also identify and address any issues of pay inequity that currently exist within the organization. Because of the legal complexities, for most organizations, achieving pay equity isn’t only the responsibility of HR and recruiting, but also legal and compliance departments. 

Adhering to pay equity laws can seem a daunting task, but there are specific actions you can take to evaluate and mitigate compliance risk. Taking the following steps will help to facilitate compliance and equity when it comes to compensation actions for both candidates and existing employees:

Evaluate onboarding practices.

Even after you’ve concluded the interview process and extended a conditional offer, it’s important to understand how pay equity laws affect other parts of the recruitment process. A good place to start in evaluating the compliance risks associated with pay equity laws is to conduct a review of your onboarding practices, including the background screening process. For example, in locations with salary history bans, background checks should likely exclude activities seeking candidate wage information. 

It’s important to remember that pay equity laws are changing continuously. While you may be aware of existing laws, you’ll need to be prepared to adjust current practices to meet new and evolving regulations. Working with a reputable background screening partner can help you understand the compliance landscape and how it impacts your organization and hiring practices. Your background screening provider can also keep you well-informed about legislative changes as they occur. 

Revisit existing practices to be sure they are compliant.

Instead of trying to have a different policy or practice to meet the requirements of individual state pay equity laws, it makes sense to devise universal hiring practices that can be used in any location. That way, you can achieve consistency throughout the entire organization, rather than leave room for pockets of the organization to fall out of compliance. A good example is prohibiting salary history questions in all candidate interviews, regardless of location.

Consider all elements of compensation offers. 

As laws continue to change, it’s important to consider new ways to look at employee compensation. In roles that offer incentive and non-cash compensation, it may also make sense to look beyond base pay when it comes to addressing pay equity. Other elements of total compensation, such as benefits and perks, should also be examined as levers for achieving pay equity. SAP, for example, expanded benefits eligibility for part-time employees as part of its pay equity strategy.

Other factors, such as the cost of living in various locations, might be a reason why two candidates receive different compensation offers. Some state laws allow this differential, while other states might not. Massachusetts recognizes the difference in geographic location as one of the six allowable reasons for different pay between men and women. Other states, such as California, New York, and New Jersey, require organizations to evaluate employee pay for equity across all locations, with no expressed exception for cost-of-living differences.

Compare compensation data for prospective and existing employees.

Salary bans are designed to address pay equity at the moment of hire. They presume that if employers can’t ask about a candidate’s salary history, there is less likelihood of perpetuating a lower salary with a new employer. To achieve pay equity at the point of hire, it can be helpful to use existing employee salaries as a point of reference. Before making a job offer for a particular position, you can examine existing compensation levels for individuals in comparable roles. Being more thoughtful and seeking pay equity during the hiring process can help to avoid audits, wage claims, and regulatory noncompliance issues down the road.

Educate hiring managers. 

Hiring managers are often on the frontlines of making salary decisions for new hires, and they also influence pay for employees after hire. Therefore, educating managers is an important step in making sure hiring practices adhere to pay equity laws. When hiring managers understand changing pay equity laws, and why it’s important to comply with those laws during the interview and hiring process, there’s a better chance of conducting  quality interviews and making improved hiring decisions. Training managers to avoid salary history questions during interviews and to consider pay equity issues within their team are important first steps in getting support from managers for pay equity within the organization.

Navigate Pay Equity Laws with Confidence

The trend of expanding pay equity laws is likely to continue, and organizations will need to continually reassess hiring and talent management practices accordingly. The pace of legislative developments shows no sign of letting up, but there are steps you can take to understand and manage compliance risks associated with pay equity. By evaluating background screening practices, benchmarking compensation for new and existing hires, and gaining the support of managers, you can navigate pay equity laws and stay in compliance.