This session was presented on November 17, 2022
The push for pay equity has been gaining steam and shows no signs of slowing down. The entire country is subject to the federal Equal Pay Act, which became more aggressive in the 9th circuit in 2018 due to a court ruling. More than half a dozen states have enhanced their own equal pay acts in the past few years, with many more considering such legislation in the future. In addition, numerous states and localities have created salary history inquiry bans and created additional protections for employees who want to discuss their wages. Even in states that don’t pass many of their own employment laws, the publicity around this topic is likely to lead to more federal claims.
This session will discuss these laws in depth and you will learn what steps you can take toward compliance.
Session Transcript:
Kara Govro: Hi everybody. Welcome. We’re going to get started in just a minute or two here. I’ll let people roll in. As you can see, we’re going to be talking pay equity today, presumably that’s why you’re here. And like I said, we’ll get started in just about a minute.
[00:00:30] All right. Hi everybody. We are here today to talk pay equity, what employers need to know. My name is Kara Govro. I am an attorney here, the Senior Legal Analyst [00:01:00] at Mineral and Pay Equity is one of my favorite topics. So we’ve got quite the lineup today. Probably more slides than I should have attempted to put into a single deck, but we’re going to see what we can do. So since we are tacking a lot in, we’ll just get started. A couple of housekeeping items. We will send you an email with the recording of this presentation as well as the deck itself within about 24 hours.
And [00:01:30] I know a bunch of you are going to keep asking that in the chat anyway, but I’ll at least say it once now. We will send you this whole thing so you will have access to it later. Don’t feel like you need to take notes. We’ve got a couple of polls. We’d love to see your answers. And then if you want to post questions to me, use the Q&A box, the question and answer box, not the chat box. I won’t be monitoring chat, but I will see the Q&A and I may be able to pick a couple of those off throughout the presentation. [00:02:00] So our agenda today, we’re going to talk first about the Federal Pay Equity Law, the Equal Pay Act, 1963. Then we’re going to talk about a couple of state pay equity laws. We’re going to talk about California and Oregon in particular.
And basically there’s sort of a sampling. If you look at California and Oregon, you’re going to get a sense of what pay equity laws might look like in your state as well if you’re operating in a state with a pay equity law. But Oregon and California are two of the most intense. [00:02:30] So it’ll also sort of show you like, I hate to say worst case scenario, but hardest case scenario in terms of pay equity laws. Then we’ll spend just a couple minutes talking about auditing, because to comply with state equity laws, pay equity laws, oftentimes an audit is going to be in order. So we’ll spend just a couple minutes looking at that. I’m not going to tell you how to do it, but I’ll show you the general steps and then we’ll spend some time talking best [00:03:00] practices for creating a culture of pay equity. All right, so let’s get started.
The Equal Pay Act of 1963, this is a federal law. It applies in all of the states, and it says that employees must be paid equally for equal work on jobs that require substantially equal skill, effort, and responsibility, and which are performed under similar working conditions in the same establishment. I do [00:03:30] apologize for reading the slide, but when it comes to some of these laws, I really want you to have the exact words because the exact words matter. So you’ll note here that the law uses equal over and over and over, and that is one of the reasons that the federal law is not very effective because it’s way too easy for an employer to say, “oh, these two jobs aren’t equal. They’re not exactly the same, therefore you can’t compare them.” [00:04:00] And that’s the reason a lot of states have started getting into the game.
They’re saying the federal law is ineffective. Nobody can successfully apply it. We need to go a little broader than equal, like substantially similar, comparable character, we’ll see that. The federal law applies to employers of all size. And what’s key here with all of these is that intent is not required. So you don’t have to have done this wrong on purpose. [00:04:30] The fact that it was done wrong at all is enough to get you in trouble and make you owe all the penalties and back pay and all the rest that’s involved. So when the federal law says equal work on jobs that require substantial equal skill, effort and responsibility, working conditions, and same establishment, what does that mean? Well, first off, we’ve got skill. So this is the skill that’s needed to do the job, [00:05:00] not necessarily all of the skills that the person has.
So we’re looking at experience, ability, education and training that’s required for this position to perform this job. So let’s say you’ve got two people working in accounting, doing the exact same work. One has a bachelor’s degree and the other also has a master’s degree, but you don’t need the master’s [00:05:30] degree to do the level of work that these two are doing. You shouldn’t be paying the person with the master’s degree more than the person with the bachelor’s degree because it’s not necessary for the job that’s being done. It’s basically an arbitrary choice to pay that person more. If the master’s degree means that they have more responsibility or they’re overseeing someone else’s work or they’re more efficient at the work, that might be a reason to pay them more. But if they’re doing the same work, [00:06:00] that master’s degree really isn’t required for the level of work, then we wouldn’t want to use that as a reason.
Effort is looking at the physical or mental exertion required. So the difference between someone who’s at the front desk answering phones versus let’s say an attorney who’s writing briefs all day and doing legal research, there’s a different amount of mental exertion there. And of course, physical exertion counts as well. [00:06:30] We’ll also look at the responsibility that the person has, the level of responsibility. So do they work without supervision? Do they themselves supervise other people? And does the employee’s job affect the employer’s business in special ways? So [00:07:00] let’s say you’ve got your grocery store and you’ve got cashiers, and then you’ve got the cashiers who are allowed to approve checks or a $100 bills. They have an extra level of responsibility.
It’s going to affect your bottom line in determining whether that’s a real a $100 bill or whether that check is legit. So they have a higher level of responsibility, even if 95% of their job is the same, [00:07:30] if that extra 5% requires a little extra training and a little extra thought, and of course they’d be in trouble if they did it wrong because it would cost you money, then that would make sense. We’ll also look at working conditions. This is really straightforward. This is physical surroundings. So heat, ventilation, hazards, is something going to fall on you. Are they working on an oil rig? Is it very, very hot or very, very cold? Things like that.
[00:08:00] And then establishment refers to the physical place of business. And generally establishments refer to each individual place of business. However, sometimes employees who are hired centrally and then distributed to different locations, say around a city or possibly even a state that might be considered a singular establishment, of [00:08:30] course, there could be other reasons to pay those people differently, maybe cost of living depending on where they’re spread out to. But for instance, if you’ve got a central hiring location and you’ve got 15 locations just within the city of Los Angeles and you’re distributing employees throughout Los Angeles, we could definitely call that one establishment that you’re hiring from. So you wouldn’t want to say, “oh, we can pay more to the people at the establishment [00:09:00] on 13th than the people on 9th, just because they’re different establishments,” that probably wouldn’t fly in this case.
So there are some acceptable reasons for a pay differential, even if all of those other things line up. And that would be a seniority system, a merit system, a system that measures earnings by quantity or quality or a differential based on any other factor other than sex. So [00:09:30] key word in those first three is system. So you’re not just saying, “oh, it’s seniority,” and then applying it sort of willy-nilly when it strikes your fancy or merit, but you don’t have performance reviews or any way of tracking merit. You just of feel like that person who’s done well, so you give them more money. That’s not really a system and it’s probably not going to hold up very well in court. And then of course, we can look at quantity or quality, [00:10:00] probably more likely to have a system for quantity at least, but quality could be tough. And then we’ve got this very wide catchall under the federal law, a differential based on any other factor other than sex. So again, that catchall sort of contributes to the federal law being a bit weak as well.
Just a few extra legal bits on that. A number of circuits like the Ninth Circuit Court [00:10:30] of Appeals have ruled that a bonafide factor other than sex must be job related, like experience, skill, abilities and education. So that significantly narrows the catchall. Job related doesn’t mean market factors, so “oh, I had to pay them more to get them in the door.” That is not job related. That’s a business necessity perhaps, or a business excuse or reason, but it’s not related to the job that person is [00:11:00] doing. So if you’re on the Ninth Circuit, it’s worth knowing that your catchall under the federal law is narrower. Of course, a lot of states in the Ninth Circuit also have their own laws. We’re going to look at two of them.
Another key point is that you can’t bring someone’s wages down to come into compliance with the law. So if you discover that you are paying one particular woman 60 grand, and she’s [00:11:30] doing the same work as some guys in the same department, it’s substantially equal, but they’re only making $50,000. You can’t bring pay down to $50,000 to bring her in line with the guys. I’m not entirely sure why they wrote the law that way, because it seems there probably are a lot of situations out there in the world where it’s sort of like one person is accidentally way overpaid because maybe [00:12:00] a manager got to choose what to offer them, and HR wasn’t involved, and the most logical thing would be to apologize and reduce their pay. But the law says you can’t do that. So you basically need to cap that person out where they are and do your best to get everybody else up to that level and perhaps just accept that there’s some free floating risk in the meantime.
All right, we’re going to hit our first poll question. So did [00:12:30] you know that the NLRA, that is the National Labor Relations Act, it’s an employment law firm, 1935. Did you know that it gives employees a right to discuss their wages? Basically an unfettered right. So you can’t have a policy that says no talking about your wages or wages are confidential. You shouldn’t really even have a policy that discourages discussion of wages. But certainly [00:13:00] if you outright tell people not to discuss their wages, that is going to be a violation of the National Labor Relations Act. So most of you are saying that you did know that, which is awesome. It’s my favorite soapbox. Well, I’ve got a couple favorite soapboxes, but it’s way, way up there. Because the NLRB, that’s the National Labor Relations Board, they enforce the National Labor Relations Act, and they’ve been saying for 40 years unequivocally [00:13:30] that employees can talk about their wages and employers can’t stop them from doing that.
But every time I give a webinar, every time I have a conversation with a group of clients, there’s at least one person who didn’t know this. So I’m just trying to share the news, and as more of you answered, it looks like maybe 73% of you, we can share these poll results now, 73% of you did know that, but about a quarter [00:14:00] of you did not know that. And then just a few of you very brave answer that the NLRA only applies to unions. Most of the NLRA is about unions. However, section seven, which is the section that protects employees rights to talk about the terms and conditions of their employment, that applies to all employees. So why does this matter? Well, it matters because [00:14:30] if we could stop all employees from talking about their wages, pay equity laws would not get very far. Nobody would know what anybody else made, and these laws would be useless or not a problem. But employees do have that right.
So it’s key to understand that you can’t prevent them from talking about their wages and shouldn’t try because that itself would be a violation of law. Okay, now let’s get into our state [00:15:00] laws. Like I said, we’re going to look at Oregon and California. So Oregon has an assortment of rules getting at pay equity. Oregon’s fundamental pay equity law prohibits employers from providing differing wages or other compensation. So you got to add everything up. We’re looking at PTO, we’re looking at medical [00:15:30] benefits, we’re looking at fringe benefits to employees who are part of a particular protected class when they do work of comparable character. Comparable character is way broader than equal work requiring equal a bunch of other stuff. So that’s key. Comparable character is really broad to start with, or fairly broad. It’s certainly broader than equal.
And another key thing about Oregon’s law is that it protects, [00:16:00] it provides this protection for pretty much all of its protected classes. So race, color, religion, sex, sexual orientation, gender identity, national origin, you get the idea here. Basically, if you shouldn’t discriminate on it in general in Oregon, then it could be your downfall in an equal pay claim. A lot of equal pay laws, including of course, the federal equal pay law, only deal with sexes. So it’s just men versus women. But Oregon says, if you can find an unfairness for an [00:16:30] employee who’s of a different religion or of a different sexual orientation than those other employees doing work of comparable character, that creates a pay equity claim. And again, intent is not required. It’s not that you did it on purpose because they’re Muslim or because they’re gay, it just happened that way. It could be a total accident or again, the manager just offering somebody something without running it by HR.
[00:17:00] So what is this comparable character mean? Like I said, it’s definitely broader than equal. It’s work that requires substantially similar knowledge, skill, effort, responsibility and working conditions. So same list as the federal law, but we’re with this substantially similar, not equal. Oregon does list reasons for an acceptable, excuse me, acceptable reasons for a pay difference, just [00:17:30] like the federal law. It’s actually a longer list, but it’s a much more specific list and it does not have that catchall. So again, we’ve got that seniority system, a merit system, education, training experience, location is thrown in there, travel if it’s necessary and regular or a combination of those things if they account for the entire discrepancy. But again, no catchall under Oregon law. [00:18:00] Oregon also has a salary history band, so you can’t ask an applicant, excuse me, I’m going to pause, mute this for one second so I can cough. I’ll be right back.
All right, sorry about that. You can’t ask an applicant or anyone else who has that information about their current or past salary history, so not just salary, so it could be their hourly rate or [00:18:30] something like that. So we cannot ask them about that, and we can’t ask third party recruiters to [inaudible 00:18:38] at that information either. That would also be a violation of the law. You also can’t screen applicants based on salary history. So if they volunteer the information, let’s say someone comes in and they say, “oh yeah, well I was making 150 grand in my last job, you’re only offering 70.” You can’t immediately say, “oh, put their resume in a round file. We don’t want to talk to them [00:19:00] again, no second interview,” just because they told you they used to make a lot of money. Likewise, if they tell you, “oh, I’m only making 40 grand right now, so I’m really looking to make more,” and you’re offering 85, and in the back of your mind you’re thinking, “oh, somebody who makes 40 couldn’t possibly be qualified for this job,” can’t do it.
You can look at their resume, you can talk to them, you can figure out what their skill set is, but you can’t rule somebody in or out based on their previous salary. [00:19:30] Salary history can be used for current employees if it’s based on bonafide factors. So this is generally going to be, you’re moving someone from a level two to a level three in their type of job. How much they were making as a level two could reasonably impact how much where you’re going to move them into the level three pay range, [00:20:00] and hopefully that’s already based on bonafide factors, but you’re going to want to double check it if you are in fact going to use their current level two salary to inform their level three salary. And of course, if an applicant does volunteer this information, you can’t use it to determine how much to pay them. And I know a lot of employers really rely on that. They say, “how much are you making now? We’ll offer you a 5% increase.” So they think, “oh, if we offer them 40% [00:20:30] more or 10 grand more or whatever, then that would make sense.”
And I get it, I understand the impetus to do that, but it would not be legal to use that information that way. One of you ask, can you ask an applicant what their compensation requirements would be? Yes. So you can still ask, what are your expectations or what are your requirements? I don’t love [00:21:00] the question personally because women in particular will lowball that, whereas men will more often come up with a higher number. And so if you’re using that number to inform your salary decision, you can be perpetuating discrimination basically. Also, what they told you their requirements are is not going to be a bonafide factor [00:21:30] or an allowable reason for a paid differential. So if you’re just using it as a screening tool, I suppose that’s okay, but again, I don’t love it. But if you’re using it because you’re going to take that information and inform the offer you make to that candidate, I wouldn’t do that because their requirements are not an acceptable reason under Oregon’s Pay Equity Law. [00:22:00] Good question.
Couple more good questions. So can you ask an external candidate if they have thoughts about a salary or benefits package they’re looking for in their next opportunity? I mean, yeah, again, it’s sort of like saying what are your requirements or expectations? You can certainly ask that question, but again, I would use it at most as a screening tool. If they’re [00:22:30] looking for something that’s just infinitely more than what you can offer, you can tell them that, say, “would you like to be removed from the running at this point because we don’t offer all of that.” But you wouldn’t want to use that information to determine how much to offer them. Cost of living is generally going to be an acceptable reason for a pay differential. That’s going to be one of those, for instance, Oregon puts it right in their travel. I think California has it in their law as well. Almost everybody [00:23:00] calls out location as an acceptable reason for a difference.
All right, well we’ve got a bunch of questions [inaudible 00:23:11] in. We’ll try to come back to some of these later, but we’ll keep moving for now. So Oregon also allows discussions about salary and inquiries about salary. Under the federal law, under the NLRA, this is allowed anyway, but a lot of states have decided [00:23:30] to get really specific about it. Also, technically, the NRLA, NLRA, words are hard today, doesn’t provide those protections for supervisors. Oregon’s law provides it for everyone. So employees can discuss their wages and the wages of other employees. They can ask about other people’s wages. You don’t have to answer them, but they’re allowed to ask. So you can’t punish them for asking. With all these laws, if you’ve got people [00:24:00] in HR or payroll and they have access to other people’s wages, they should not be talking about other people’s wages just based on what they’ve seen in the system.
If someone else shares with the HR person that they make 55,000 a year and the HR person shares what they make and some other person shares what they make, and this is all around the water cooler, then the HR person would be okay to repeat that $55,000 number, but they should not be just sharing all the information [00:24:30] they have from the system. So you can ask them to keep that confidential. Technically, it’s not like confidential or protected by law. If you wanted to post everybody’s wages on the bulletin board in the lunch lunchroom, that would be legal, but most employers don’t want to do that. So you can tell your HR payroll people to keep their lips zipped about other people’s salaries unless the other people wanted [00:25:00] to share. All right, let’s talk now about California’s law. So again, I’m giving you the words, they’re all a little different. California requires equal pay for those who do substantially similar work when viewed as a composite of skill, effort and responsibility under similar working [00:25:30] conditions. And their law applies to sex, race, and ethnicity. So not everything under the sun, but more than just sex.
California also provides reasons for a pay differential that are allowable and it’s functionally the same list as the federal law. So seniority, merit, a system that measures production or it’s not exactly the same, but it’s similar or a bonafide factor other than sex, race, or ethnicity. [00:26:00] And they explicitly exclude salary history. So salary history, you can’t use it in the Ninth Circuit anyway. Under most of these laws, it would not qualify as an acceptable reason for a difference. But sometimes the legislatures want to be just crystal clear. So when California said salary history is specifically excluded, it doesn’t mean in other states you can use salary history. It’s just for whatever reason, California decided they wanted to be really explicit [00:26:30] about that within their law.
All right, so those reasons for a pay differential, bonafide factors other than sex, race, or ethnicity, that last one, it reads a little bit like a catchall. Remember, Oregon doesn’t have a catchall, federal law has a big catchall, but California narrows [00:27:00] theirs quite a bit. So they give you some examples. They say that could be education, training or experience. However, you need to be able to show that it’s not derived from a factor based on sex, race, or ethnicity and that it’s job related and consistent with business necessity. So it has to be all of these things and job related makes it not much of a catchall at all because again, this rules out like market factors where you had to pay them more because it was really hard to get employees. [00:27:30] This has to be specific to the job they are doing. There’s got to be some reason within their set of tasks that you are paying them differently.
California specifically protects salary discussions like Oregon does. They can also inquire about other people’s wages, but you don’t have to tell them, again, like Oregon, all these laws have anti-retaliation permissions. So you [00:28:00] would not want to get someone in trouble for asking these questions even if the questions are bothersome to you. All right, so California also has a salary history ban. You can’t ask about past salary history, just like Oregon. You can’t decide whether to offer someone a job based on past salary. Again, like Oregon, you can’t use it as an explanation for differences in pay, again, [00:28:30] like Oregon and salary history can be used for current employees if based on bonafide factors. So this sounds a lot like Oregon and it is and other states have very similar laws. So salary history bans are pretty common. I want to say at least a dozen states have it. It could be way more than that and some localities do as well.
So we took salary history questions off of our template job application [00:29:00] years and years ago because I don’t think it’s a good question to ask. I think it perpetuates discrimination. It gets people paid inaccurately and unfairly. You’re going to end up overpaying some people and underpaying other people. It’s not really a fair screening tactic because you don’t know why someone was paid less before or paid more before. The company they worked [00:29:30] for previously might have had just a crazy approach to compensation or it might have been a lifestyle company or they give you lots of flexible PTO and other goofy benefits, but they don’t pay you very much. So I would strongly encourage you to take salary history questions off of your job applications if you still have it on there. Obviously you need to do that by law or to comply with a number of laws. But even if you were in a state that didn’t have a salary history ban, I would say get rid of it.
[00:30:00] All right. So somebody’s wanting to clarify. So if it’s market related, is it justified? No it’s not. If you’re paying someone more because you had to pay them more this year to get them in the door, that’s not going to be justified. What you really need to be doing is giving your other employees a raise up to that level that you think is now required. You may be able to find some other reasons [00:30:30] why that person would be paid more, but if you don’t, if you can’t find any legit reasons why that person would be paid more other than the fact that the market required it this year, that is very unlikely to fly if you end up in litigation.
Okay, so California, you may be aware, now has a pay range disclosure [00:31:00] law as well. So this is the cherry on top of their pay equity laws. Washington also has one of these taking effect on January 1st. Colorado has had one for the last couple of years and it’s very likely that New York State is going to have one of these sometime next year. Basically, they passed the law in their legislature. It’s been sitting on the governor’s desk for a while. [00:31:30] She hasn’t signed it yet, but we expect that she will. And then it will take effect 270 days after that. So probably sometime late-ish next year, New York State will also have a pay transparency law. Additionally, New York City has a pay transparency law that’s taking effect I think right about now, might have taken effect last week or might be taking effect today even. So by the end of 2023, about 25% of employers are going to have to [00:32:00] post pay ranges when they post job ads or job postings.
So if you are required to do this, do know that you’re in good company with about a quarter of the rest of the country just based on how many employees are in California, New York, Washington, and Colorado. So you’re not alone. But let’s take a look at California’s specific requirements. So January 1st, it applies to employers of 15 or more employees, if at least one of them is in California. [00:32:30] What they need to do is post pay scale for an open position in the job posting and pay scale is defined as a salary or hourly wage the employer reasonably expects to pay for the position. So reasonably expects to pay for that job, which means you shouldn’t advertise for a position and say you’re going to pay between 20,000 and $1 million per year. That is not going to be considered compliance [00:33:00] according to the state of California, at least I don’t think so.
Also, you’re welcome to post the exact amount of money you intend to pay for that position. It doesn’t necessarily have to be a range if there isn’t a range, if you’re hiring someone to make sub sandwiches and you’re going to pay 17.50 per hour, you can certainly say that you’re going to pay 17.50 per hour. A key element in California’s lot that I [00:33:30] have not seen in the others yet is that if someone asks about their own pay range or pay scale, you have to tell them. So that’s a super interesting plot twist to me. So I think a lot of people in California are going to be marching up to their managers or HR on January 1st and saying, “Hey, what’s my pay scale? What’s the least or the most I can make in this particular job I’m doing?” And I think employers really need to prepare to answer that question.
Because I think that could be tough, [00:34:00] particularly if you don’t have that set up already. So somebody asked if we’re a North Carolina employer, but we have one employee in California, are we required to post? If the job could be done in California, then yes, if you’re a North Carolina employer and you specifically want to hire someone to work in North Carolina, you don’t need to post the range. But if you’re posting for [00:34:30] a remote position that could be done anywhere, including the state of California, then you should be posting the range. What I’ve seen employers do, and I don’t think it’s illegal, is say at the very bottom of their ad, in California, this job will pay between X and Y. I think that’s compliant.
If you’re anticipating that you’d pay a lot more in California [00:35:00] than you would in North Carolina, you might want to make a note about that or say based on location or based on cost of living just to sort of [inaudible 00:35:13] if they’re going to get attached to that California number and then realize much later in the process that because they’re in a low cost of living area that you wouldn’t be paying them that much. All right, [00:35:30] so how does this relate to pay equity? Pay range posting and telling someone what their pay range is, does not automatically create some kind of pay equity problem or lawsuit? Well, I think this is going to get people talking. Also, if you post the ranges and the range is really big, people are going to wonder, first of all, if you post 20,000 to 1 million, they’re going to assume you’re not taking the law seriously and they might report you [00:36:00] to the state.
If you’re posting 40,000 to 100,000, an employee might instead wonder, “oh, who makes 40,000 for this or who makes a 100,000 for this?” If you’re bumping that number up to try to get more applicants, your people who are in the position already might be like, “oh, who the heck makes that much?” And that’s going to start conversation as well. If the ranges are reasonable [00:36:30] but there are people outside of those ranges, particularly below those ranges. You’re pretty much guaranteed to get some immediate feedback on that. And I think this is just going to cause more water cooler conversations where employees share their exact numbers and then start trying to figure out why Joe makes more than Bob or Sylvia makes more than everybody. And if they can’t figure out why, that could potentially lead to [00:37:00] ruffled feathers and potentially a pay equity claim as well.
So I sort of accidentally covered this slide ahead of time, but pay transparency is spreading. So California, Colorado, New York, Washington, it looks like Massachusetts and New Jersey are working fairly seriously on some pay transparency bills, but it’s not necessarily a bad thing. It does increase [00:37:30] applicants pretty considerably to that end, it can provide a tactical advantage over competitors. I’m one of those people who would not apply for a job unless you told me how much you’re paid, I just wouldn’t. It’s not worth my time because the industries I’ve been in and things I have wanted to do are the kind where someone might be paying ridiculously little money for that. So unless you tell me what the number is, I’m not going to spend time on it. Also, because just [00:38:00] the cover letter alone will take me two hours because I’m a little bit like a perfectionist, just a little bit.
So you’ve got to take that into consideration. It will save you an applicant’s time. It 100% will. You will not get as many applicants as you would otherwise who look really great who you spend a lot of time drooling over their resume, but you’re not paying nearly what they need or what they want. So [00:38:30] that’s going to save you time, it’s going to save them time as well. And also really helped you stick to your own pay systems. I think one of you asked early on, so can we just stick to paying what we said we pay in the ad? Yes, absolutely go for it. I mean, say that you pay 50,000 and there’s no negotiation and then pay 50,000 and there’s no negotiation. That’s really going to help you stick to your systems. Not negotiating will also save you time. Plus negotiation is [00:39:00] not going to be one of those bonafide acceptable factors for a pay differential. It’s not job related.
Okay, so let’s talk for a minute about auditing for compliance. So let’s say you can see this coming, you can see the problems coming. Maybe you’re in California or Washington or New York and you’re like, people are going to start seeing what the pay ranges are. They’re going to start asking about their own pay ranges. We have not [00:39:30] ironed this out. So you start ironing it out and it looks like you’ve got some discrepancies. You’re not sure why Susan is paid so much more than everyone else in her department. You can’t really justify it. You might be thinking that it’s time to do an audit. I would say an audit is always a good idea. However, okay, it’s almost always a good idea. It’s a good idea if you intend to do something about it. [00:40:00] If you know that management is not going to get behind any changes or any pay increases or anything else, don’t do the pay equity audit because it be a smoking gun that you’ve got issues and there’s just no point in having that lying around, having that documentation.
However, if you want to get this right, if you want to reduce your liability in the future, then an audit is a great idea. So [00:40:30] there are two basic ways to do an audit. One is a regression analysis. This is a high level statistical complicated mathy thing that you’re going to want to hire a professional for. It really works best for large employers who have a lot of people in similar positions. It probably will not work well for most employers who have fewer than a 100 employees, unless of course you’ve got maybe just a couple people sort of doing corporate type work [00:41:00] and then a whole bunch of people working on a manufacturing line or in a grocery store. You might be able to do regression analysis if you’re smaller, but again, it really requires that a lot of people are doing similar jobs. If that doesn’t work for you, then you’re going to do a cohort study, which is much more manual and it’s really going to be looking at small groups and then doing your own thoughtful qualitative analysis.
So to do [00:41:30] these either of them, you’re going to start by gathering a lot of data. So remember, and this is the 30,000 foot view guys. I’m not telling you how to do a pay equity audit here. I’m just giving you like the layout. Like if you wanted to hire somebody to do this, what would it sort of look like or to guide you through this? So step one, you’re going to gather a ton of data on these employees and it may not all be in one place. In fact, it almost certainly won’t be [00:42:00] in one place. Some of it might not be in any place. Hopefully you have job descriptions, but lots of times the job descriptions no longer match what a person is doing. Maybe it matched for the first six months, but five years into a job, there’s a good chance they’re doing things that aren’t on their job description. And if you haven’t updated it, that could be a problem. So anyhow, we’re going to gather a lot of data.
Then we’re going to form comparable character [00:42:30] groups. So in Oregon you call them a comparable character group. You could certainly call them that anywhere that’s functionally what they are. But you’re going to look at what the law requires. Maybe you will call them the substantially similar groups or substantially equal groups. But basically you’re going to put people together who do work of comparable character or work that’s substantially similar, whatever the law says. [00:43:00] And so you’re going to pile up their information and those people basically onto to one big Excel spreadsheet, right. You’re going to put them all in there together. You’re going to list all of those different qualifications that might explain why they make how much they make. And then you’re going to do the analysis.
So you might be hiring some statisticians to help you with this. You might have some lawyers involved. It’s actually always a good idea to have a lawyer involved in this and possibly even running the show because then you [00:43:30] get some attorney work product protections under the law, meaning that smoking gun may be protected if a lawyer is directing the work, or you might be doing this on your own, you’re using an internet tutorial, there are a bunch of them out there that explain how to do it on your own.
Then you’re going to see if you can explain the results. So you’re looking at the number. So you’re looking at all [00:44:00] that other data skills, experience, job responsibilities. Does it look right, does it add up or are there people who are outliers? And can you explain why they’re outliers for a reason that is allowed by the applicable laws? If you can’t, then you need to start making some adjustments. So smaller adjustments might be easy to sort of just fold into your usual [00:44:30] merit increases or end of year increases assuming you’ve got those going on. So if you notice that someone is underpaid by a couple thousand bucks might be easy to just give them that raise. However, again, back to my original example, let’s say you’ve got this one person in the department who’s making 20 grand more than everybody else. You have no idea why, clearly some manager went rogue when they were making an offer, you can’t afford to bring everybody up 20 grand.
So you might [00:45:00] have to start by bringing everybody up $2,000 and of course not having that person get any raises for a while. But if you are seeing these large discrepancies, there could be a fair bit of liability attached to that. So I would recommend working with an attorney if you can, to figure out how much risk there is there and what the best way to address that [00:45:30] is. Because of course when you start making changes like this, it’s possible that the fact that you’ve done a pay equity audit, it is going to get out and people in the company are going to be talking about it and getting a raise may tip them off that things have been done incorrectly in the past and they still have time to sue. Even if you fix someone’s salary today, if their salary was wrong for all of 2021 and most of 2022, [00:46:00] they can still sue over that.
The fact that you’ve corrected it now doesn’t mean that they can’t sue for what was wrong before. So that’s the kind of thing where you may want to speak with an attorney. All right, one more poll question. Have you done any kind of pay audit in the last five years? Did you do perhaps regression analysis? Because you’re large and fancy and you have a lot of money, they’re expensive, I’m told. We did a cohort analysis, [00:46:30] not formally, but we try to pay attention or pay equity has not been managed in the past and HR like any role in a company gets passed down, right? So if you were hired in the last five years, you don’t know about anybody who was hired before you, why they were paid that way unless you’ve dug into it. So I know HR practitioners inherit a lot of problems, so that may be where you’re at.
Like [00:47:00] you recognize the pay equity is important, but it just hasn’t been managed in the past and you haven’t gotten around to it yet. All right, we’ll end that poll now and share the results, it looks like most of you, about three quarters say that you have not done any formal audits, but you do pay attention to that, which is great. About 20% of you are probably a bit in alert right now because pay equity hasn’t been managed. And then [00:47:30] a few of you have done a regression analysis and a few of you had done a cohort analysis. So that’s super interesting. Thank you for sharing.
All right. Now we’ll come on to best practices here. So make sure HR is running the hiring show. I’ve mentioned a couple times, managers going rogue, I know it happens. And that can ruin a really good strong pay structure instantly. I said in matter of months here, but really it takes about one minute for the manager [00:48:00] to make a ridiculous offer and the applicant to accept it. And all of a sudden you’ve got pay equity issues. Do educate those involved in hiring as to why you need to keep compensation lockdown and you can’t make crazy offers. People tend to do better when they understand why they should or should not do something.
Be intentional with your pay structures. If you don’t have them already and you’re building them now, spend some time with them. And [00:48:30] I say get granular. So if you only have a few levels for a given job type, you might need to make more so you can better explain your salary structure or you might need to add more titles that are different, that are associated with different job descriptions. If you’ve just got two people that are in the assistant manager role and that’s all you got there, assistant manager [inaudible 00:48:55] the only title, and the pay range is 40 grand [00:49:00] to 120 grand and it’s just based on seniority. You might want to get a little narrower there just to help you explain should you find yourself in any trouble, what your systems are and how you arrived at those decisions.
I say post the pay range for open positions. Of course, this is now required again in a number of states. I think this will catch on [00:49:30] and probably within a few years, I would say at least half the country is going to have to do this, but really a quarter of the country by the end of next year. So if you want to stay competitive, I would strongly encourage you to post pay ranges. Like I said, it attracts more applicants and it really makes your job easier, particularly if you also eliminate negotiation. That’s not job related. It’s not an acceptable reason under the laws to pay people differently. [00:50:00] And do remember that all benefits count. I know a lot of people come in and they’re like applicants, and they’re going, “okay, well I can settle for 80 grand if you give me an extra three weeks of PTO or one extra week more than everybody else.” Well that PTO counts and their coworkers may certainly find out that they’ve got extra. So that could result in a pay equity claim as well.
And then finally I mentioned this once before, if you’re having to pay people more now [00:50:30] to get them in the door, you really should be giving current employees the same increase. I know that’s a lot to ask and that’s really not how it works a lot of the time, but it’s how it should work and technically under the law that’s really what needs to be happening. So I know in the last couple years a lot of employers have been giving hiring bonuses or sign on bonuses and sometimes they’re a $1000 and sometimes they’re a $100,000. But [00:51:00] let’s say you’re doing the $1000 hiring bonus, you should be giving a $1,000 retention bonus or loyalty bonus to other people in that position. Again, like market factors really not defensible under the way the laws are written and interpreted. So that’s something that you should be sort of factoring in to your math and your budget realistically.
All right, [00:51:30] so that’s the planned content. Looks like you guys have submitted some more questions. I’m going to go through some of these. Can we consider attendance company policy compliance when considering raises for comparable positions? So basically, does someone show up and do they follow your rules? Absolutely, yeah, that I would say is a merit. That would be a merit increase. But you want to write it down, right? You want to explain it that [00:52:00] way. So again, just document this stuff, put it down somewhere, and then make sure all the managers are following it and understanding it. Because if you’ve got one manager giving merit increases for attendance and following company policies while another manager is not doing that, it’s very possible that those two employees, the one getting the merit increase for attendance and the one not getting a merit increase, even though they have perfectly [00:52:30] good attendance, but because they’ve got a different manager who doesn’t work that way, it’s very possible that those two employees would be in a comparable character group and then the merit argument falls apart because really they both should have gotten that merit increase.
So that’s where you need a merit system and you need everybody to follow it. Someone asked, is there a certain timeframe to bring it up to equal pay? So I assume that question is about, let’s say we’ve got our employee making [00:53:00] 20 grand more than everybody else. You can’t afford to give everybody 20 grand this year, how long do you have, it’s not in the law. So Oregon for instance, has a safe harbor provision in its pay equity law that basically says if you’ve done a good pay equity audit in the last, I want to say three years, don’t quote me on that. I took the slide out because there was just too much. But if you’ve done a pay equity audit in Oregon within the last few years [00:53:30] and you made an effort to correct the changes, then you are excused from certain aspects of liability, not all liability, just certain aspects of it.
So it’s hard to say, first of all, there is no timeframe. No, I can answer that easily. Whether it helps you, yeah, that’s a tough one, that’s a tough one. Just do what you can. Again, [00:54:00] maybe talk to an attorney about it to gauge your risk of not fixing this ASAP. Because if it goes on and that pay inequity continues, you will quite possibly owe that difference to the employee who’s getting paid less. So if it’s like a $20,000 difference over the course of multiple years, that’s going to add up really fast. So I would talk to an attorney, maybe [00:54:30] see if there’s some way you can really dig deep to differentiate between the employees who are making more or less. I mean, you don’t want to fake it, right? Because faking it won’t get you out of trouble if you’re in litigation. We want legitimate reasons that they can be paid differently, but if you are seeing those significant differences, you probably want to talk to a lawyer about it.
Okay, last question I’ll take here and then I’ll let you all out of here. [00:55:00] When you say equal pay, is there some percent [inaudible 00:55:03] of a range that is acceptable? No. A plaintiff’s attorney is not likely to take a case if someone is only making $100 less per year than their counterpart who does a job of comparable character, possibly a job that’s perfectly equal. But they might because [inaudible 00:55:27] attorney’s fees to be made with these lawsuits. [00:55:30] So it’s possible that that $100 out of a $100,000 per year could kick off a lawsuit. I mean, theoretically somebody could sue over $5 a year. There is no minimum on these. It’s really whether an attorney is going to take the case and whether of course the employee thinks it’s worth it for five bucks because litigation is very stressful and most people do recognize that. So great closing question. Thank you for that. [00:56:00] Once again, we will send you a copy of the recording as well as the slide deck within about 24 hours. Thank you all for coming and we hope to see you again at a webinar in the future.
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