Employers have been conducting pay equity audits for decades to identify disparities in compensation that may create unfairness, legal risk, or other compliance issues. Recently, however, we have seen a spate of new pay equity requirements at the federal, state, and even local levels. These new requirements create significant additional challenges for employers conducting pay equity audits. Therefore, mitigating risk under 2024 regulatory frameworks, employers need to adopt a more sophisticated approach to the pay equity audit process.
Over the last 10 years employers have seen many changes to the pay equity regulatory framework. States, municipalities, and counties have adopted (and amended) pay equity statutes, regulations, and ordinances. These statutory and regulatory changes not only impact legal risk, but also control the methods an employer uses to conduct pay equity audits. Key considerations now include the following:
- What protected classes should the employer analyze during the audit? Originally, pay equity audits focused only on gender. However, new statutes have identified additional protected classes. Employers should consider analyzing pay equity based on race, national origin, disability and a variety of other criteria based on their targeted state’s requirements.
- How should the employer group the employees for purposes of the analysis? An effective pay equity audit must group employees based on position and organizational/geographic scope. New regulatory frameworks have created additional challenges for employers in constructing those groups. New statutes have departed from the Equal Pay Act’s “same establishment” geographic limitation, forcing employers to consider multi-facility groups. Some statutes also relax the threshold for comparison of employees between positions, requiring employers to combine more positions in the pay equity analysis.
- What control variables should the employee consider in the analysis? The EPA allows an employer to explain disparities based on any factor other than gender; new statutes, however, strictly limit an employer’s possible defenses. The employer should consider only explanatory variables that would be acceptable in the states included in their audit.
- What analyses qualify under the “safe harbor” defenses of applicable statutes? Various states have adopted safe harbor provisions limiting employer liability for pay inequities, but each state has specific safe harbor requirements. Employers should ensure that they satisfy the requirements for the states in which they have employees.
Following these guidelines will improve the quality of the pay equity audit, allow the employer to better assess its legal risk, and to more effectively reduce that risk.
