Common Mistakes Employers Make in Pay Equity Audits

This article is part of an ongoing legal series designed to provide insight and practical guidance on current and emerging workplace compliance issues. These insights shared by lawyers are based on their interpretation of existing regulations and proposed changes, and intended for informational purposes, not to be regarded as legal advice.

Pay equity audits allow companies to identify and correct pay equity issues internally. When an employer completes a pay equity audit, it typically collects compensation data and compares that information across employees who complete similar work. By comparing compensation across employees with varying demographic information like race or sex, pay equity audits help employers to stay on the right side of state and federal anti-discrimination laws.

Unfortunately, many employers make avoidable mistakes during their pay equity audits. Those mistakes range from not understanding legal requirements to issues with the planning, execution, and results of the audit. This article explores these common mistakes and what employers can do to ensure effective and efficient pay equity audits.

Outsolve offers resources to help HR professionals get and stay organized when it comes to compensation. 

Not Following Legal Requirements

Employers must follow various anti-discrimination laws at the state and federal levels. Federal law requires that men and women receive equal pay for performing equal work under the Equal Pay Act (EPA). 

A handful of federal laws also prohibit discrimination in the terms or conditions of employment, a broad category that includes compensation, based on a person’s:

• Sex,
• Gender,
• Sexual orientation,
• Race,
• Religion,
• National origin,
• Disability, 
• Pregnancy,
• Age, and
• Genetic information.

These characteristics are protected, meaning an employer cannot discriminate against someone for having them. Groups defined by one or more of these traits are protected classes.

Employers may pay different amounts for different work and may compensate employees differently for the same work based on non-discriminatory, legitimate business reasons. Yet, determining what positions are comparable and separating permissible from impermissible justifications for different treatment can be complicated.

Comparators

Under the EPA, jobs must be substantially equal to require equal pay. Whether jobs are substantially equal depends not on job titles but on the substantive work the employee performs. That generally means comparing aspects of the job, like required:

• Skill,
• Effort, 
• Responsibility, and
• Working conditions.

Employers must classify employees based on job duties, not job titles. Employers who don’t understand the law may make mistakes by creating comparative groups that are too broad or too narrow or otherwise fail to reflect how the law treats similar positions. 

Compensation

Anti-discrimination law covers all types of compensation, including traditional and less-traditional compensation, such as:

• Salaries, wages, and bonuses;
• Benefits like health insurance, retirement plans, sick leave, and vacation days; and
• Perks, such as company cars, access to expense accounts, and office amenities.

Pay equity audits must account for all forms of compensation.

Legitimate Business Reasons

Employers may compensate employees differently based on legitimate business reasons. For example, a salary may vary based on:

• Experience,
• Seniority,
• Relevant education or qualifications, or
• Demonstrated skill.

Justifications for higher or lower pay must relate to actual job duties.

Employers should be vigilant in understanding that implicit or unconscious bias can also affect seemingly neutral decisions. Train decision makers on implicit bias. In your pay equity audit, affirmatively and nonjudgmentally address the possibility that someone may be biased without realizing it. 

State Law Variations

Different states also have varying laws, some of which may affect pay equity audits. For example, several states restrict employers’ right to ask about salary history during hiring. States also use different language to describe what positions are similar enough to require equal pay. Consult an employment attorney familiar with state-specific law to ensure your audit considers state law variations.

Download OutSolve’s State Pay Transparency Law Guide for a look into the requirements employers must follow for each state’s law. 

Setting Unclear Parameters, Gathering Incomplete Data on Pay Equity Issues

Another common mistake employers make is not setting clear parameters. When you design a pay equity audit, define:

• A clear job classification system based on job duties and responsibilities;
• Which employees or groups you’ll audit;
• The specific data you’ll collect and what you’ll do with it;
• A schedule and timeline for performing the audit; and
• Your next post-audit steps.

The audit shouldn’t leave any steps to guesswork.

Data to Collect

Failing to create clear parameters can also result in collecting incomplete information. When you complete a pay equity audit, you need information like each employee’s: 

• Name, age, race, gender, and other demographic information;
• Compensation, including benefits and perks; 
• Work history, like hiring date, pay increases, and performance evaluations;
• Credentials, work experience, education, and other qualifications; and
• Job title, duties, and responsibilities.

A company may inadvertently overlook or miss serious pay equity issues by failing to gather complete information.

Communication and Roles Involved

Before you begin a pay equity audit, you should also create a plan addressing:

• Who will participate,
• Who you’ll inform about the audit, and
• How and when you’ll communicate audit results.

Some information in a pay equity audit may be sensitive, so address data protection directly and ensure those involved know exactly who should be involved and how they should handle information. 

Misunderstanding Attorney-Client Privilege

When you work with an employment lawyer to complete a pay equity audit, some portions of the audit may appropriate for attorney-client privilege. You may have the right to keep certain information confidential and choose if, when, and how to disclose it. Work with your attorney to understand what information the attorney-client privilege may protect. 

Failing to Plan a Pay Equity Report Response

Once you have a pay equity report, you need to do something with it. Create a plan for handling the results before you start the audit. That plan should address the next steps, like:

• The process for creating and implementing a remediation plan to correct pay equity issues;
• Monitoring systems and scheduling for future audits; and
• Your plans for communications to employees, leadership, and the public.

Having a plan that defines the steps you’ll take based on what you discover often proves crucial to remaining organized and accountable and allows you to properly follow through.

Addressing Pay Equity Questions 

Pay equity audits are a powerful tool for employers to stay on the right side of anti-discrimination laws. More than that, they can help employers to minimize biases and compensate employees fairly. 

Employers with specific pay equity questions can consult an HR Consulting firm like OutSolve or an employment attorney versed in the laws of the state or states where they operate. Outsolve also offers resources to help businesses and individuals navigate the complex weave of state and federal employment laws in the U.S.