By law, you need to pay all employees a fair and equitable salary. In other words, you must offer equal pay to employees who perform the same duties as one another, regardless of gender, race or any other personal defining characteristics.
What are pay disparities?
Pay disparities are wage discrepancies. Essentially, a pay disparity is at play when different groups of people earn dissimilar amounts of money despite performing similar tasks and filling almost identical roles. These differences in pay are often influenced by factors such as race, gender and education level.
And unfortunately, even though we have made a lot of progress toward achieving equality over the years, pay disparities still exist. Let’s take a look at this example of pay disparities from the Economic Policy Institute.
According to the institute, back in 2019, Black workers earned only 80% of what white workers with similar education levels made. To this day, many workforces continue to favor white workers above all others.
Likewise, women continue to face low-paying job offers more often than men, no matter their education and experience. And for women of color, the wages are often the lowest.
How to determine whether pay disparities are present
A pay equity analysis can help you determine whether there are any unjustifiable differences in pay. When you perform a statistical analysis of your payroll data, you can pinpoint instances of wage discrepancies and adjust them accordingly. Not only will this keep matters fair across the board for your employees, but it can also ensure that you avoid potential discrimination lawsuits.
Meanwhile, a workplace that prioritizes fair wages is far more likely to attract and retain top talent. This is because you’ll be able to offer competitive rates while emphasizing your company’s active commitment to fairness of all kinds, including monetary.
Sometimes factors like unconscious bias or institutional discrimination are at play, leading to an unintentional pay gap. Make sure you analyze your business and find a way to look at matters objectively, even if you have to hire a third-party source to help. If it will help you make sure you are paying everyone fairly, it’s worth the effort.
How to create an equitable compensation strategy in the workplace
You can create an equitable compensation strategy with ease by conducting a pay equity analysis and gathering data from your findings. Make sure you identify the main goal of your analysis.
For instance, is compliance your main priority? Are you aiming to promote diversity, equity and inclusion above all else? Or maybe your intention is to respond to the demands of shareholders. Either way, identify your goal to ensure that your methodology is effective.
Here are some data points you should gather and consider in your analysis:
- Job titles and descriptions
- Departments, levels, roles and responsibilities
- Protected class identifiers such as age, gender and race
- Educational levels and experiences
- Seniority levels
- Hours worked
- Starting salaries
- Promotions
- Bonuses and benefits
- Frequency and rate of pay increases
- Business practices
- Market data
When collecting data, remember that the more information you gather, the better the conclusions you’ll be able to draw from your analysis. Design a template or use a pay equity analysis spreadsheet to help you with the process. As part of your analysis, make sure you compare roles — and their respective salaries — across departments. The intention here is to make sure everyone in similar positions is being paid similar wages.
What if you find pay differences during your analysis?
If you end up identifying instances where pay disparities are in place, adopt a regression analysis model to understand where they stem from. Take a look at the extent to which the pay differences are influenced by the gender of your employees.
Maybe one factor — such as gender — is not the only variable affecting the compensation you offer your employees. Instead, it could end up being a range of variables impacting your decisions, and a regression analysis model can help you identify them.
The most important part of this process is this: Once you figure out why certain employees make less than others, take action immediately. If there are pay gaps that you can’t legally or reasonably justify, correct them as soon as possible.
Please note that you cannot legally reduce an employee’s salary without certain reasons, so adjustments will usually need to be made by increasing the lower salaries, not decreasing the higher salaries.
What is the best way to maintain internal pay equity?
The best way to maintain internal pay equity is to implement a regular audit schedule. That way, you’ll be able to maintain equal pay throughout the workplace.
If you identify instances of pay inequity, consider the following factors to see whether you can spot a trend or a specific variable involved in the discrepancies.
- Work history
- Experience qualifications
- Geographic locations
- Current title or role
- Seniority or level in the business
- Performance ratings