Pay Discrimination | What Small Businesses Need to Know

By Blake Johnson

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Pay discrimination is an important issue in the American economy. Despite a long history of federal and state action, pay discrimination continues to be a problem long after many would have expected it to have faded away. Today, we see a renewed concern with discriminatory compensation practices, particularly regarding gender equity.

Earlier this year, the House passed the Paycheck Fairness Act, a new bill designed to remedy the shortcomings of previous pay discrimination legislation. It’s still in the process of passing through Congress, and it’ll most likely see renewed action in 2020.

“Equal pay for equal work” has been a rallying cry for women’s movements of the 1960s and the 2010s alike. Why does it seem like relatively little progress has been made in the area of equal pay in all that time? 

And what do small businesses and employers need to know to do their part and to stay compliant with equal pay regulations?

With new developments in process, employers of all shapes and sizes need to stay on top of these changes. And it starts with understanding the basics! Here’s what we’ll cover:

  • The Basics of Pay Discrimination Law
  • How Pay Discrimination Creeps In
  • Creating Compliant Infrastructures

For growing organizations, compliance issues can be major hurdles, significantly impeding or even outright derailing your progress. Plus, no business wants a reputation as a discriminatory employer. It’s ultimately up to you to remain compliant and knowledgeable. Let’s get started.

The Basics of Pay Discrimination Law

Here’s the most important thing to remember: pay discrimination (even when it occurs inadvertently) is illegal. Multiple federal, state and local laws prohibit discriminatory or unequal compensation practices based on sex, race, age, disability, national origin, and religion. 

Also, discrimination law does not fall under the category of civil law. This means that a discriminatory employer isn’t simply in violation of the law but is rather found guilty of discriminatory practices. In other words, these regulations assume guilt, so organizations must actively prove that there was no discrimination in their pay systems if they’re accused of discriminatory practices.

Multiple states have passed their varying packages of discrimination laws, so it’s up to your business to understand the particular context that you’re operating in. At the federal level, though, American employers are held to the regulations outlined in these laws:

  • Equal Pay Act
  • Title VII of the Civil Rights Act (1964)
  • Age Discrimination in Employment Act
  • Americans with Disabilities Act
  • Lilly Ledbetter Fair Pay Act

The Paycheck Fairness Act mentioned above would also apply across the board once passed. We recommend exploring the equal pay and compensation discrimination guide from the US Equal Employment Opportunity Commission if you want to learn more.

Besides these blanket protections, many states and localities have enacted more proactive ‘gender equity’ legislation. These laws require organizations to provide annual evidence that their pay systems do not discriminate against employees based on gender. This is a much more active approach to enforcing compliance, and more states are looking into passing similar legislation in the coming years.

But where does inadvertent pay discrimination come from? Many experts point to the use of salary history in the recruitment process as a lingering root of the issue. This has become a new focus for anti-discrimination legislation, with state and municipal governments prohibiting its use during recruitment and hiring. The Paycheck Fairness Act would ban the use of salary history in hiring at the federal level. 

But how does the use of salary history fuel pay discrimination? Let’s take a closer look.

How Pay Discrimination Creeps In

If an employee is subjected to pay discrimination, it’s very often traceable back to the use of candidates’ salary histories in the recruitment process to determine offers. Why?

The idea is that if someone was discriminated against in their pay in a previous job, that lower salary will carry forward to their new employer and throughout their career. In this way, discriminatory practices can linger and spread, usually inadvertently. For women and minority groups who have historically been subjected to systemic discriminatory pay practices, it can be difficult to escape these loops that have been essentially ‘baked into’ the economy.

Then, once discriminatory compensation gets locked into an organization’s processes through recruitment, it can easily snowball. 

This is especially true for larger organizations that might take a more closed-doors or hands-off approach to discuss compensation. However, that doesn’t mean that smaller employers who are more directly involved in all parts of their business can’t also fall prey to inadvertently implementing discriminatory practices. The systemic and somewhat invisible nature of this type of discrimination is what has allowed it to remain a problem even after decades of regulations.

This concept also applies to internal promotions and performance-based pay decisions. When questions about salary history (or other unconscious biases) have potentially skewed an organization’s compensation and employee development strategies from the very start, discriminatory practices can be unintentionally perpetuated over the long run.

So how do you fight discrimination in your own small business and ensure that it can’t creep in? Start by creating more compliant infrastructures and processes.

Creating Compliant Infrastructures

There are a few steps you can take to protect your business and employees from discriminatory compensation practices:

  • First of all, do not ask for a candidate’s salary history during the recruitment process. Even if your state and local governments don’t yet prohibit it, the safer move is to simply avoid it altogether. If you haven’t updated or reviewed your hiring process and application forms in a while, now may be a good time to do so. Implementing new ways to measure the quality of hires and candidates can give your business an edge without jeopardizing your compliance or reputation. 
  • At a more foundational level, your human resources and compensation strategies might need some attention and updates, too. Specifically, solid pay grades and salary ranges will be essential for growing businesses to stay in line with their compensation strategies. Working with HR consultants can help get you started, and dedicated talent management software with compensation administration tools will keep you on track. 
  • Take an open approach to communication, especially around compensation. It’s an easy way to build an internal culture that is more naturally resistant to discriminatory pay practices creeping in. Of course, this doesn’t mean publicly discussing everyone’s personal compensation information. Rather, it means that employees should understand why they’re paid what they’re paid, and they should feel comfortable asking any and all questions about their compensation.
  • For a deeper dive or check-up, work with human resources or compensation consultant who has experience with small businesses. They can conduct advanced statistical analyses of your pay rates to identify any inadvertent discrimination and then give you a roadmap for rooting it out. 

The main idea is to be proactive. Few employers today consciously put discriminatory compensation practices in place at their businesses, but the systemic nature of these issues means that they can creep in, particularly through salary history and the recruitment process.

It all starts with educating yourself! The world of discrimination regulations can certainly be confusing, and there are plenty of misconceptions floating around, too. With new gender equity laws on the horizon, it’s more important than ever that your business understands pay discrimination.

After all, preventing discrimination isn’t just about contributing to a more equitable society. It also directly protects your business and your employees from disruptive compliance issues. If you have any questions about these topics, we recommend continuing your research online with official government resources.

 

About the Author:

Astron Solutions' expertise is in compensation strategy and human resources.  If you have specific questions about analyzing your existing systems for embedded issues, we’re happy to help any we can! However, please note that we at Astron Solutions cannot provide legal advice around these issues, refer any potential discrimination issues or concerns to your in-house or external counsel for review.

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