What is the Pay Equity Act and How Will It Impact My HR Process?

February 26, 2018

Pay equity, also known as “equal pay for equal work,” has long been a rallying cry for historically disadvantaged groups. We probably don’t have to go into detail about why it’s important, right? Equality matters in all areas of work and life. Instead, we’ll break down the basic rules around pay equity that apply to your HR processes.

With the large number of federal, state, and local laws governing pay standards and related labor issues, it can be tough for HR professionals to know how to maintain compliance when it comes to equal pay talks. What make things even more complicated too is that several states (including Massachusetts, the home of kununu’s U.S. headquarters) have recently passed new pay equity acts, while the U.S. Congress has it’s own federal Fair Pay Act.

Here’s a quick overview to get you caught up with the federal and state pay equity acts, followed by some thoughts on how they affect your HR process.

About the Federal Pay Equity Act

On the federal level, pay concerns are governed by the Fair Labor Standards Act of 1938 (FLSA), which provides legal guidelines for minimum wage, overtime requirements, and equal pay. The Equal Pay Act of 1963, an amendment to the FLSA, explicitly forbade pay discrimination on the basis of sex. However, this act only applies to employees in the same job; if the job titles are the same, two employees could be paid the same amount despite one having significantly greater responsibility, effort, and work history. Although Representative Eleanor Holmes Norton introduced a federal Pay Equity for All Act (H.R. 6030), which would prohibit employers from seeking previous wage information from applicants, this bill has not yet been passed into law.

Understanding State Pay Equity Acts

Several states passed pay equity acts in 2016 and 2017. These have had reverberating effects across the country, with many additional states considering similar legislation. Following are the state pay equity acts that are expected to have the greatest impact on HR processes:

  • California. Signed into law in October 2017, California’s Fair Pay Act is the most sweeping of such recent state laws. It allows the comparison of employees who do not hold “substantially equal” jobs as long as they perform “substantially similar” work. Employers must justify pay differentials and may not prohibit employees from discussing wages with one another. Additionally, employers must keep records of wages for three years, rather than the two years previously required.
  • New York. Under New York’s new pay equity act, employers must justify pay differentials; the burden of proof for differences in pay is placed on employers. The provision also makes it easier for employees to pursue gender-based pay equity claims.
  • Massachusetts passed an Equal Pay Act that makes it the first state to ban employers from seeking information from job applicants about their prior compensation history. Like other states, Massachusetts’ law makes it illegal for employers to prohibit employees from disclosing their wages.
  • Maryland. Maryland’s new pay equity law prohibits wage discrimination based on sex or on gender identity. It also moves beyond just wages to explicitly prohibit employers from providing “less favorable employment opportunities” based on sex or gender identity. This might include limiting promotions or leadership opportunities.

How Pay Equity Acts Affect Your HR Process

For HR professionals, this dizzying array of federal and state laws can make it challenging to understand how to recruit, retain, and fairly compensate top notch employees.

Whether you work in one of the states with new pay equity acts or not, the following steps can help you improve your HR process to comply with these laws:

  • Conduct a self evaluation. Do you know if your company pays men and women differently? Conduct a voluntary self-assessment in consultation with a lawyer to ensure any findings remain confidential. Identify specific areas where your organization could improve its pay equity.
  • Develop a formal policy for establishing starting salaries. If you base salary offers on applicants’ compensation history, it may be wise to change your practices. Document applicants’ skills and experience as justifications for starting salary rather than their salary history.
  • Update your retaliation policy. An increasing number of states prohibit retaliation against employees for seeking salary information from colleagues or filing a pay equity claim against an employer. Ensure your HR policies comply with these regulations.
  • Document, document, document. Understand your company’s obligations for record retention to ensure you comply with state and federal laws.

For more info on attracting, engaging and retaining great employees, check out our free resources.

Linda Le Phan
Content Marketing Manager

Back to posts