Understanding and Avoiding Pay Discrimination: How to Uncover Discriminatory Pay Practices in Your Organization

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For organizations of all shapes and sizes, understanding and avoiding pay discrimination should be top of mind for 2020. Not only will this help keep your organization fully compliant in a changing regulatory landscape, but you’ll also safeguard your organization’s brand and standing with consumers and constituents.

It’s important to note that pay discrimination, like other kinds of discrimination, rarely occurs intentionally these days. For example, employers can inadvertently commit age discrimination by customizing the age settings of their targeted online job ads. Pay discrimination can arise under similar circumstances, and regardless of intent, it can have far-reaching consequences for organizations.

No company wants to be branded as a discriminatory employer, and smaller employers simply can’t afford to be noncompliant, given the hefty penalties they could face. Protecting yourself starts with learning more — so let’s dive in.

Understanding Pay Discrimination

The first and most important thing to remember is that pay discrimination based on sex, age, race, disability, nationality, religion, or another protected class assumes guilt and requires proactive compliance. In other words, it’s not a matter of violating regulatory protections, but rather of committing the crime of operating with discriminatory compensation practices. Employers charged with discrimination must actively prove their compliance in order to avoid fines and further legal action.

Pay discrimination is illegal under multiple federal laws. In 2018, the total monetary benefits paid out in relation to violations of the Equal Pay Act (EPA) was $10.5 million, up more than a million dollars over the previous year.

US employers are held to the whole range of discrimination regulations, including the EPA, Title VII of the 1964 Civil Rights Act, the Americans With Disabilities Act (ADA), the Age Discrimination in Employment Act (ADEA), and the more recent Lilly Ledbetter Fair Pay Act. The Paycheck Fairness Act, which passed the US House of representatives in 2019 and will likely see new action in the coming year, would impose additional regulations that relate directly to the recruiting process.

In addition, the legal landscape varies greatly at the state and local levels across the US. Clearly, it pays to stay on top of new developments in the field and to stay fully aware of each level of regulation (federal, state, and local) your organization is subject to.

How Does Pay Discrimination Happen?

It’s hard to imagine modern employers actively putting discriminatory compensation practices into play. In most cases, discriminatory pay is historically and inadvertently perpetuated within the organization rather than implemented consciously.

But people are more aware of these issues and much more likely to speak up than they were just a few decades ago, so why exactly does discrimination continue? Many believe outdated hiring practices are generally to blame — specifically, the practice of asking for candidates’ salary histories.

Imagine a candidate was paid a discriminatory wage in a previous position, and that information is used to determine their pay at a new position. Because the candidate’s previous wage was lower than it should have been, their new wage will also be lower than it should be. In this way, discriminatory pay practices can quickly snowball without any single individual making a consciously discriminatory decision.

For more expert HR insights, check out the latest issue of Recruiter.com Magazine:

Testing for Pay Discrimination in Your Organization

How can your organization analyze its own historic compensation structures to uncover potentially discriminatory practices? While we at Astron Solutions are not legal experts and cannot provide specific legal advice for your organization, we are HR and compensation strategy experts. We’ve seen how these issues play out for organizations and can recommend some broad steps to help you create more compliant infrastructures:

1. Dig Into Your Jobs Data

Analyzing your organization’s pay rates is essential to identifying potential issues and inadvertent discrimination within your structures. Get started by reviewing your company’s historical pay data, conducting internal surveys of employees, and purchasing industry benchmarking datasets. For larger and growing organizations, it may be easier to handle these tasks in house, especially if you’ve been using dedicated talented management software and have centralized, digital records on hand.

2. Work With a Compensation Expert

For access to some resources (like salary benchmark reports for your industry) and complete, impartial statistical analyses of your organization’s compensation structures, working with a consultant may be a smart move. Compensation consultants specialize in a wide variety of sectors and services, so take your time researching your options before choosing a partner.

3. Update Your General Approach to Compensation

Taking a more open and transparent approach to compensation can go a long way toward building a culture that is more resistant to discrimination. Essentially, employees need to understand why they’re paid what they’re paid, and your organization needs to know why, too. Everyone on your team should feel comfortable discussing and asking questions about their compensation.

This is something any organization can get started with today. High levels of pay transparency are expected to become the new norm in the 2020s, and you don’t want your organization to get left behind or branded as unnecessarily opaque.

What It All Means for Recruiters

If there’s one major takeaway for recruiters, it’s a simple but powerful one: Do not ask candidates for their salary histories.

Some states and localities already have bans in place preventing employers from asking about salary history during the hiring process, and the aforementioned Paycheck Fairness Act would ban it at the federal level. As more regulations are rolled out across the country, employers and recruiters would do well to keep up with the latest updates. Understanding your organization’s particular regulatory context is essential, but to be absolutely compliant and ethical going forward, simply avoid salary histories altogether.

Remember that a candidate’s first impressions of your organization are critical to their long-term engagement and eventual hire. Position yourself as a modern, ethical employer, and candidates will be more enthusiastic about the prospect of working for you.

Jennifer C. Loftus is a founding partner of and national director for Astron Solutions.

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Jennifer C. Loftus, MBA, SPHR, PHRca, GPHR, SHRM-SCP, CCP, CBP, GR, is a founding partner of and national director for Astron Solutions, a compensation consulting firm. Jennifer has 23 years of experience garnered at organizations including the Hay Group, Parsons Brinckerhoff, Eagle Electric Manufacturing Company, and Harcourt General. She has held volunteer leadership roles with SHRM, New York City SHRM, and WorldatWork. She serves as a subject matter expert to the SHRM Learning System and as a SHRM instructor. Jennifer is a sought-after speaker for local and national conferences and media outlets. She has an MBA in human resource management with highest honors from Pace University and a BS in accounting summa cum laude from Rutgers University. Jennifer holds adjunct professor roles with Pace University, Long Island University, and LIM College. Jennifer received the 2014 Gotham Comedy Foundation's Lifetime Ambassador of Laughter Award.