All Eyes on Pay – Equity, Transparency and Accuracy in Pay Practices Are Under Scrutiny

Pay practices are coming under a lot of scrutiny. In recent years, there has been a lot of talk about the pay disparities between men and women. Since 1963, the Equal Pay Act (EPA) has required employers to pay male and female employees equal pay for equal work. Yet, according to recent Pew Research Center data, women are paid 82 cents for every one dollar paid to white men; that same data shows that the gap widens for Black and Hispanic women who are paid 70 cents and 65 cents, respectively, for every dollar paid to white men. Pay discrimination on the basis of sex and race, among other protected classes, is also prohibited under Title VII. Several states have also passed laws addressing equitable pay and other states have been increasingly introducing legislation to require pay transparency. Moreover, some state laws require disclosure about both pay and benefits. So far, pay transparency laws have been passed in California, Colorado, Connecticut, Illinois, Maryland, Nevada, New York, Rhode Island and Washington, along with some cities in these states also enacting pay transparency ordinances. Alabama, Delaware, the District of Columbia, Hawaii, Maine, Michigan New Jersey, North Carolina, Oregon, Pennsylvania, Vermont, and Virgina also all have variations of pay equity state laws. But the scrutiny doesn’t stop there; pay accuracy has been a long-standing requirement since 1938 under the Fair Labor Standards Act (FLSA), which is enforced by the U.S. Department of Labor (DOL) and requires proper calculations of wages, including overtime, along with recordkeeping requirements. With all of these laws putting lenses on equity, transparency and accuracy in pay, employers should be making compliance with pay practices a strategic business priority.

In 2022, regulators enforced and recovered substantial sums of money for workers. In the construction industry alone, DOL recovered $32.9 million in back wages. Another $32.5 million in back wages was recovered for healthcare workers and $27.1 million for food service workers. That’s just to name the top 3 industries where back wages were not accurately paid to workers in 2022; additional sums for workers in other industries were also recovered. Pay discrimination is another lens from which pay practices are being scrutinized where remedies are being pursued by the EEOC. In 2021, the EEOC reported that the top 3 issues in pay discrimination under both the EPA and Title VII were: (1) wages; (2) terms/conditions; and, (3) discharge. In the 5-year period covering 2017 to 2021, the EEOC recovered $65.3 million for EPA violations and another $159 million for Title VII violations related to pay discrimination. The data on violations of pay transparency has not yet been compiled due to the newness of the laws; however, there are fines and penalties associated with failures to report pay data as a matter of complying with transparency, although some states allow employers an opportunity to cure initial violations without assessing a penalty/fine. Nevertheless, taking action proactively to calibrate and balance pay scales has become a business necessity for employers to mitigate legal claims about their pay practices.

Whether the issue is transparency, equity or accuracy, employers should make compliance in pay practices a priority. As more states pass pay equity and pay transparency laws, the business necessity to stay compliant increases. Historically, there's been a tendency to merely check the box when it comes to complying with federal reporting requirements around discrimination in the workplace. With all eyes on pay, from federal regulators to state legislatures and from those most impacted - employees, there are now more boxes to proverbially check to stay ahead of compliance issues. It is now high time for employers to make compliance with pay practices a strategic business priority before more scrutiny takes shape in additional regulations and laws. For example, the EEOC has signaled that pay data reporting could be revived by requiring submissions of the EEO-1 Component 2 form, which was halted in 2018 due to the administrative burden imposed on employers. While this burden may have been real, the pay data collected in the form can provide valuable insights on how an employer is or is not fostering an equitable work environment through its pay practices. Without a mandate to provide this insightful pay data, employers could find themselves with exposure to an unmitigated liability. Therefore, taking proactive action by conducting a pay audit is a best practice. Regardless of whether there’s an EEOC requirement, employers should be keeping a pulse on pay data. Fostering a data-driven culture as a way of managing compliance in pay (and otherwise) is simply good for business. The alternative could be a payout that exceeds payroll.

TULIP Advisory Professionals LLC can help you design and implement a pay audit process. For more information, contact us at info@tulipadvisory.com.