How Employers Can Ensure They're Paying All Employees Fairly

A group of smiling employees sit around a conference table for a meeting. — (Image credit: Getty Images)

If you were to ask just any business owner if their employees should receive equal pay for equal work or if they could be paid differently based on gender, ethnicity, race, religion and national origin, I’m certain that most would reply, “What are you talking about? Equal pay for equal work is the law.”

It sure is, and likely that same employer would say, “If I respect this concept of equal pay for equal work, I’m good, right?”

Well, not so fast. Employers today are facing pay concepts that could upset the applecart at many organizations.

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Pay transparency vs pay equity

At one time, employees could not discuss or inquire what others were being paid. But recently, several states enacted pay transparency laws that require companies to be open about compensation for current and prospective employees. I wrote about this late last year in the article Yes, You Can Discuss Your Salary With Your Co-Workers.

Without violating antitrust laws, companies may share compensation information, including how salaries are determined, ranges and even the pay of individual employees. But they must not “fix” salaries by conspiring with other companies in the same field to keep wages low.

“Pay transparency legislation was a major step to bring about much more fairness in the way employees are compensated,” says Northern California employment attorney and author Heather Bussing. “Today, a lot more has been added to the concept of equal pay for equal work that, if not understood by employers, can lead to an unpleasant work environment at the least and potentially expensive litigation at worst.”

She and co-author Kent Plunkett, in their book Get Pay Right: How to Achieve Pay Equity That Works, provide employers with an easily accessible approach to meeting today’s requirements on employee compensation. The concept is known as pay equity. It goes beyond equal pay for equal work — the law since 1963 — and is getting a lot of attention in addressing common pay issues.

In a nutshell, pay equity is the principle that individuals are compensated fairly and impartially for their work regardless of factors such as gender, race, ethnicity or other characteristics unrelated to job performance. Sounds simple. Right?

A variant of teacher's pet

“A worrisome issue labor lawyers often find is the employer who pays (certain) people more (just) because they like them and not based on their work or the value they bring to the organization,” Bussing points out.

“When others who aren’t ‘teacher’s pets,’ realize this — even while working hard, doing exactly what they’ve been asked to do, and maybe even better, but they're not paid fairly for it — bad stuff often starts to happen.”

Bussing adds, “They grumble. There is unrest. No employee wants to be treated unfairly, and so they focus on how they're being treated at the workplace rather than on their work. Productivity suffers, your customers suffer, and as time goes on, you lose employees. And then you’re out of business. So, it is in a business owner’s best interest to pay all employees fairly.”

But what does that mean? How do you determine that?

The economic value of work

“Something now being discussed is the relative importance of the work — the value employees contribute to an organization and its success,” Bussing says. “For example, salespeople are some of the highest paid, having the most direct connection to revenue. (But companies also) need (the) people who create the products, marketing colleagues who make customers aware of the products and administrative assistants who keep everything going in the organization. Often, we overlook the value of the work brought to the organization by employees in their individual capacities — the value of each and their work in the chain of creation.”

How can an employer know if compensation is fair to everyone and avoid being sued for discriminatory pay practices? Get Pay Right gives us a by-the-numbers approach. “It's a lot like trying to figure out how to compare houses,” Bussing notes, “but instead of bedrooms, bathrooms and square feet, we look at skills, effort, responsibility and working conditions.”

What companies should do

She recommends that employers should value the work, not the people doing it. To help figure out where they stand, employers should:

Establish each worker’s expected skills, their level of effort required, responsibilities and working conditions.
Study the market and learn what people in related jobs are making.

At this point, the authors write, “Group comparable jobs and run a statistical analysis to see where pay gaps are and whether they correlate to race or gender — whether women and people of color are making less for the same work.”

With pay gaps identified, they write, “Determine … if there is a business reason for why those people make less than others doing similar work, such as having less experience or tenure. Sometimes the person making more has special skills that justify the additional pay.”

Doing such an audit on pay equity, they note, will tell business owners where the outliers on pay are and whether there is a statistical correlation to race or gender.

Concluding our interview, Bussing says, “Pay equity laws apply to all employers regardless of size. Companies with at least 100 employees should do regular pay audits, which can be accomplished with specialized software.”

Bussing is a lawyer who has never given up on her goal of changing the world for the better. She is all about fairness. Get Pay Right shows employers how to achieve pay equity — and potentially keep themselves out of trouble.

Dennis Beaver practices law in Bakersfield, Calif., and welcomes comments and questions from readers, which may be faxed to (661) 323-7993, or e-mailed to Lagombeaver1@gmail.com. And be sure to visit dennisbeaver.com.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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After attending Loyola University School of Law, H. Dennis Beaver joined California's Kern County District Attorney's Office, where he established a Consumer Fraud section. He is in the general practice of law and writes a syndicated newspaper column, You and the Law. Through his column, he offers readers in need of down-to-earth advice his help free of charge. "I know it sounds corny, but I just love to be able to use my education and experience to help, simply to help. When a reader contacts me, it is a gift."