This article is part of a larger series on How to Do Payroll.
Pay equity is the concept of making sure all employees are paid equally when they perform similar jobs. This includes base compensation and promotions, bonuses, overtime, and other employee benefits.
Although relevant pay considerations such as location, experience, and work quality should be taken into account, pay equity is intended to correct pay discrepancies based on race, gender, national origin, and sexual orientation and prevent wage discrimination. Ensuring your company has equitable compensation is not only the right thing to do but also required by law.
Did you know?
- Women earn 82 cents for every dollar a man makes and earn less at every level of education attained.
- Women of color start further behind in pay at the beginning of their careers, worsening with career progression.
- Black men earn 87 cents for every dollar a white man makes, followed by Native American and Hispanic men (both at 91 cents).
Pay Equity Laws
Fair Pay Best Practices for Small & Midsize Businesses
- Do not ask for salary history. Even if your state allows you to request salary history for job applicants, it is not a good idea to ask for this information because the applicant may have not been paid appropriately at their previous jobs. Having an established compensation plan for your jobs will help ensure that you have pay equity among all of your employees. Using the market-level salaries along with your projected revenue compared to your competitors is a good place to start.
- Decide on salary negotiation. You should decide whether you want applicants to negotiate on their job offer. If so, then you, as the employer, should bring it up in the interview process. Studies show that women and minorities are less likely to negotiate salaries, contributing to their wage gap.
- Publish salaries or salary ranges in job posts. Establishing a salary band at the beginning sets up an open communication line between prospective employer and employee. Not only will that ensure employees with the same job are paid equitably, but it also helps you avoid applicants with higher expectations and puts new hires at ease that they are comparable to their peers.
- Do an internal review. You should periodically compare your employees’ salaries by protected class (if possible) to ensure that unconscious biases are not at play for raises, promotions, and bonuses. You should also keep performance reviews over a period of years and review the decisions made by your performance managers to ensure there is adequate justification for any difference in pay.
Pay equity is an important concept for your business. Not only is it required by law, but sound and fair compensation can help retain employees, boost employee morale, and encourage workplace diversity. Having honest conversations about wages, establishing a compensation plan, and reviewing your employees’ salaries will go a long way in ensuring people are paid fairly.