Pay Equity: A Work In Progress

A gender differential between men’s and women’s wages has persisted for decades, and even widened during the pandemic. But more states, cities, and employers are taking steps to close the gap. Find out the state of pay equity today and what your company can do to support equal pay for all. 

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Women in the labor force earned an average of 53 cents for every dollar made by a man back in 1963, when the Equal Pay Act passed, prohibiting wage discrimination on the basis of sex. What’s changed in the nearly 60 years since? Not as much as women might hope. Although estimates vary depending on the source, the most recent Census Bureau data shows women currently earn an average of 82 cents for every dollar earned by men. For women of color, the news is even worse. Black women earn an average of 62 cents and Hispanic women earn an average of 55 cents for every dollar earned by white, non-Hispanic men. 

At this rate, women in general won’t achieve pay equity until 2059, The Institute for Women’s Policy Research estimates. Black women won’t attain equal pay until 2133, and Hispanic women will have to wait until 2206. 

The gender pay gap persists regardless of industry, occupation, or educational level. Overall, gender pay inequity costs US women over $956 billion annually, estimates the National Partnership for Women and Families—money that could help boost the economy. Pay inequality even follows women into retirement: Because they earn less during their working lives, they also receive less from their retirement funds, pensions, and Social Security.

Laws Governing Gender Equality

Federal Laws

Many federal laws prohibiting gender-based employment discrimination relate to pay equity. The Equal Pay Act forbids discrimination based on sex in all forms of compensation, including bonuses, benefits, and more.

Title VII of the Civil Rights Act of 1964 went further. It prohibits discrimination in many areas of employment (such as hiring and firing), not just pay. It also added protected classes, including race, sex, religion, and national origin.. Title VII distinguishes between disparate treatment (intentional discrimination) and disparate impact (actions that have an unintentional negative impact on a protected class).  

Acknowledging the pay equity problem isn’t limited to the gender wage gap. The Age Discrimination in Employment Act of 1967 prohibits discrimination in any area of employment—including pay—against people age 40 and older. Title I of the Americans with Disabilities Act provides the same protection for people with mental or physical disabilities.

In 2009, the Lilly Ledbetter Fair Pay Act amended Title VII of the Civil Rights Act to give employees 180 days after receiving a discriminatory paycheck to file an unfair pay complaint. The 180 days resets after every discriminatory paycheck. Prior to this legislation, women might discover they had been underpaid years after the deadline to file a complaint had lapsed. The new law gave workers more time to act after discovering pay inequity. 

Finally, there’s the Paycheck Fairness Act. First introduced in 1997, it has passed the House several times—most recently in April 2021—but hasn’t made it to the Senate.  Key elements of this proposed legislation include:

• Prohibiting retaliation against employees who disclose their wages to co-workers
• Forbidding screening job candidates based on salary history or requiring salary history information as part of the hiring process
• Tightening loopholes employers use to claim a pay difference is based on other factors besides sex
• Making it easier to file class action lawsuits under the Equal Pay Act 
• Increasing the damages that may be awarded to individuals filing sex-based claims of pay discrimination under the Equal Pay Act 

State Laws

Although every state has some version of an equal pay law, an increasing number of states and cities are passing new legislation to further support equal pay. Such laws are helping to close the gender pay gap, with 50 metropolitan US cities offering female income above the national average. 

Many of these laws require pay transparency, which could include disclosing a job’s pay range to applicants, allowing employees to openly discuss salaries, or restricting employers from considering previous salary when setting a new hire’s wages. Additional laws have expanded definitions of equal or comparable work, and several states have enacted pay data auditing. Here are some notable state laws passed in recent years:

• California: SB 973 requires private companies with 100 or more employees (at least one employee in California) to submit data about pay and hours worked to the Department of Fair Employment and Housing (DFEH) each year by April 1. Information must be sorted by establishment, job category, sex, race, and ethnicity. 
• Colorado: The Equal Pay for Equal Work Act requires all Colorado employers (or employers outside the state with employees in Colorado) to conduct a self-audit of their pay practices. Wage disparities for the same or similar work are prohibited unless the employer can prove the difference is due to seniority; merit; location; quantity/quality of production; education, training, or experience; or travel as a condition of employment. Employers cannot ask applicants about salary history, must take reasonable steps to inform employees of opportunities for promotion, and must disclose compensation or a range of compensation in job postings. 
• Illinois: The Illinois Equal Pay Act prohibits employers with four or more employees from paying men and women, or Black and non-Black employees unequal wages for the same or similar work. Exceptions may apply if the difference is based on seniority, merit, quantity/quality of production, or factors other than gender or race (such as education, training, and experience). Employers who file a federal EEO-1 report and have at least 100 employees in Illinois must get an “equal pay registration certificate” from the Illinois Department of Labor (IDOL) before March 24th, 2024 and recertify every two years thereafter.
• Massachusetts: The Massachusetts Equal Pay Act prohibits employers from discriminating against employees based on gender. Factors that can legitimately account for pay disparity for same or similar work include seniority; merit; quality or quantity of production; education, training, and experience; geographic location; and travel. The law provides a defense for employers who have conducted a good faith self-audit of their pay practices within the past three years and can demonstrate progress toward closing any pay gaps discovered. Employers cannot forbid employees from discussing or disclosing their pay and cannot ask job applicants for salary history.
• Minnesota: The Women’s Economic Security Act requires companies with state contracts over $500,000 and more than 40 employees to get an Equal Pay Certificate from the Minnesota Department of Human Rights. The Certificate requires paying men and women the same for equal work. Companies must conduct a pay equity audit following state requirements before applying for the Certificate, which is valid for four years.
• New Jersey: The Diane B. Allen Equal Pay Act prohibits paying employees in certain protected classes less than employees doing “substantially similar work” unless there is a legitimate business reason. The law applies to both in-state and out-of-state companies that have at least one employee in New Jersey. Some public contractors may also be required to report wage and hour data sorted by gender, race, ethnicity, and job category to the state.
• Oregon: The Oregon Equal Pay Act prohibits employers with at least one employee in Oregon from paying employees less than employees doing the same or similar work based on race, color, religion, sex, sexual orientation, national origin, marital status, veteran status, disability or age. Legitimate reasons for pay discrepancies include seniority; merit; quality or quantity of production; education, training, and experience; geographic location; and travel. Companies that have a state contract for $500,000 or more and 50 or more employees must take pay equity training classes and submit a certificate to the state.
• Washington: The Washington Equal Pay and Opportunities Act prohibits gender pay discrimination between employees who are “similarly employed.” Legitimate reasons for a pay discrepancy include seniority; merit; quality or quantity of production; education, training, and experience; differences in local minimum wages; and regional variations in compensation. Employers cannot ask job applicants for wage or salary history. Employers with 15 or more employees must tell applicants the minimum compensation for a position, if requested, after they have made a job offer. Starting January 1, 2023, employers are also required to include compensation ranges in job postings.

“The Great Reshuffle”

The issue of gender pay equity gained attention as the pandemic prompted many workers to rethink what they want from their jobs. COVID-19 disproportionately impacted women workers–nearly 2.3 million women left their jobs between February 2020 and February 2021. Some had to quit work or reduce their hours to manage personal demands like home schooling or caring for ill family members. Others were laid off during shutdowns or cutbacks in industries such as hospitality and retail. In 2021, the wage gap actually widened for Black and Hispanic women. 

A record 47.9 million Americans quit their jobs in 2021, according to Labor Department statistics. As women and other employees begin to return to the workforce, they’re no longer satisfied with the status quo. Work-life balance has become the number-one priority for jobseekers, a LinkedIn study reports, but compensation and benefits are close behind, cited by 60% as a top priority. 

Jobseekers and employees today have many ways to find out about compensation. Pay transparency has become more important to job candidates as sites like Glassdoor enable employees to share salaries and other information about an employer. Some 70% of Generation Z employees would consider switching jobs in return for greater pay transparency, a 2021 study found.  Employers who don’t disclose wage information may find themselves struggling to hire or losing valuable employees to companies that are open about pay. 

How Employers Can Support Equal Pay

In a tight labor market, a pay equity policy that upholds equal pay for all types of workers can give your organization a competitive advantage. Providing equal pay helps your business:

• Demonstrate its core values to employees and customers
• Attract and retain top talent
• Enhance employee motivation and engagement
• Align actions with corporate social responsibility goals 

Two-thirds of employers report they are planning or conducting a pay equity survey in their organizations this year, Payscale reports. As you develop a pay equity policy at your company, be sure to follow federal laws and any applicable state or local laws. Pay equity applies to both job candidates and existing employees, so there are some key steps you can take both pre- and post-hire to strive for pay equity.

Pre-hire: 

• Don’t ask candidates for their salary history. Even if legal in your area, this can perpetuate pay gaps a candidate experienced in past jobs.
• Set salary ranges based on objective criteria. Job leveling (see below) can help with this. 

Post-hire: 

• Conduct pay equity audits using payroll data to compare wages of employees doing the same or comparable work. Identify areas where pay gaps can’t be justified by differences such as job responsibilities or seniority. Keep in mind, in accordance with the Equal Pay Act, to rectify pay gaps, you cannot adjust higher-paid employees’ wages downward—you must raise wages for lower-paid workers.
• Use job leveling to set pay scales. Job leveling classifies jobs within an organization based on objective criteria such as the knowledge required, the job’s complexity, and its physical demands. This creates a hierarchy, with employee pay rising at a consistent, predetermined level as they advance up the pay scale. The Bureau of Labor Statistics has a guide that can help employers with job leveling. 

Failing to take pay equity seriously could put your organization at risk. The Equal Employment Opportunity Commission (EEOC) is prioritizing pay equity and actively pursuing companies who violate equal pay laws. Offenders have had to pay back wages and damages of millions of dollars, adjust workers’ pay and retirement funds going forward, develop pay equity policies, and more. 

Taking a proactive approach to pay equity not only helps mitigate risk, but also puts your organization firmly on the side of fairness, while giving you a competitive advantage in a job seeker’s market–a great place to be!

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