Why now is the time for pay equity audits

Pay parity is an elusive goal in the business world. Although pay discrimination is illegal, identifying and addressing pay equity problems within a company can be a difficult hurdle. There’s never been a better time for HR pros to make sure they’re actively aware of how pay shakes out in their workplace and strive toward parity.

“The two biggest factors why we haven’t made pay equity in the last 30 years are the fact that women have babies and the cultural perception in our relationships and society that men are the breadwinners,” said employment attorney Heather Bussing, who literally co-wrote the book on pay equity.

But the tides are turning. Bussing told HR Brew that it’s more important now than ever for companies to figure out how pay equity factors into their decision-making through an audit, especially as the compliance winds shift towards more reporting and more accountability.

Making pay (in)equity history

Although addressing pay equity has been a legal requirement of companies for decades, measuring and enforcing pay equity has remained an elusive goal.

“It started back with Title VII [of the Civil Rights Act] in the 1960s when discrimination became illegal, and pay discrimination is one of the most common,” Bussing said. “It’s one of the places that’s easiest to see bias, and a lot of times it’s not even personal bias, it’s cultural bias.”

The federal government attempted to bar employers from discriminating based on protected classes like race and gender via the Civil Rights Act of 1964, and the Equal Pay Act of 1963 prevented employers from pay discrimination based on gender. There have been few federal legislative efforts in the intervening years, like the Lilly Ledbetter Fair Pay Act of 2009, which closed some loopholes in previous legislation.

“There hasn’t been much, unfortunately, movement since the ’60s when it comes to shifts in organizations when it comes to pay,” Katie Stukowski, Salary.com’s VP for solutions consulting, said at this year’s HR Tech conference in Las Vegas. “But it’s only going to become more and more important that you are prepared to be able to understand where you have gaps, why those gaps occur, can you defend those gaps, and do you have the right data to soundly understand how you're paying people to start making steps to remediate or correct.”

Despite these legislative efforts, the gender wage gap has largely remained the same since the 1990s. In fact, each March, advocates raise the issue on “Equal Pay Day” by marking the day on the next calendar year when women would have secured the same amount as men did the previous year. This disparity—by the way—is even starker for women of color.

Efforts to change that

A flurry of recent state laws have put issues of pay equity to the forefront of lawmakers and regulators, as well as the HR and TA pros who work on compensation every day.

In 2018 the California Equal Pay Act was amended to prohibit salary history requirements. Others followed and made it harder for prospective employers to further pay discrimination as employees move from job to job.

Then came the pay transparency laws, which Bussing said helped build a public understanding of what work is worth what pay. These laws are foundational to building up the momentum for pay equity auditing.

“We’re starting to get a better picture, and the great thing about requiring pay data reporting, is it forces employers to do the pay equity audits, so that they know the data that they’re going to report,” she said.

Why now?

Bussing said there’s a confluence of multiple factors that have catalyzed a renewed emphasis on auditing for pay equity. First, the aforementioned comp-related laws and regulations in many states across the country, plus the European Union (EU) pay equity reporting requirements, have set the stage for stronger data reporting legislation in the US.

The legislation across the pond requires detailed reporting on pay with a lens for equity. Bussing said the work by the EU is helpful to lawmakers here in the US looking for a legal framework and language on how to regulate pay equity.

“We’re already seeing US states pull tools and legal provisions from what the EU is doing with artificial intelligence…I expect we’ll see more pay data reporting,” she said.

In addition to the changing tide in the compliance landscape, big data in payroll, ATS, and other HR software is making it easier to collect information on pay equity and perform audits.

Bussing also pointed out that software exists to collect necessary data and help HR pros tackle audits.

“You used to have to do the analysis on an Excel spreadsheet, which is brutal, and nobody really loves that,” she said. “Most people in HR are not statisticians, and even the people in payroll…this is not their jam, but computers can do multivariate regression analysis like nobody’s business.”

On the horizon

No compliance conversation is complete without mentioning the impact of the 2024 presidential election. Bussing pointed out that the Equal Employment Opportunity Commission (EEOC) intends to begin requiring pay data from businesses on its EEO-1 form, reviving an Obama-era effort that was halted by former President Trump in 2017.

“Collecting pay data through the EEO-1 would enable the EEOC and the OFCCP to better focus their limited resources on combating pay discrimination. With these data, the EEOC and the OFCCP [Office of Federal Contract Compliance Programs] could more successfully identify patterns of pay discrimination and occupational segregation within particular firms, industries, and localities,” wrote the Center for American Progress’s Isabela Salas-Betsch and Lauren Hoffman following the confirmation of EEOC commissioner Kalpana Kotagal last year.

Should Vice President Kamala Harris succeed President Biden, the commissions will likely revive efforts to propose a rule requiring salary data from employers with more than 100 employees and federal contractors with more than 50 employees in the new year.

Additionally, California and Illinois already require employers to collect and report this information, and Massachusetts will begin enforcing its new legislation next summer. Bussing noted that lawmakers in New York, New Jersey, and Colorado are eyeing new reporting legislation. Since this legislation is relatively simple to enact, Bussing expects more to come, bolstering the legal landscape in favor of pay equity.

Pay equity safe harbor

What’s helping? Many of these legislative and regulatory efforts aim to solve the problem rather than punish infractions, according to Bussing.

“This is one of those situations where all the legal incentives are to solve the problem rather than create fines or penalties for people who violate the law,” Bussing said.

Rather than looking to penalize companies for noncompliance, these audits would help HR understand how pay equity plays out in the workplace. It’s easier for regulators to flag areas of concern and work with them to address the inequity in their comp process, and these pay equity safe harbors offer legal cover for employers looking to do the right thing.

“We don’t want to spend a lot of time and resources in litigation over this stuff. We want to solve the problem, and here’s a way that we can do that with law as one of the tools,” she said.

What’s HR to do?

“We can’t ignore it, and the legal standard has always been what employers know or reasonably should know, not just what they actually know,” Bussing said. “So you can’t just stick your head in the sand if you’ve got your people analytics program that can benchmark and do your pay equity analysis.”

If you’re not a people professional who got into HR to be elbows deep in numbers and data (you’re not, right?), it’s going to be okay. Payroll, TA, and HR tech are making pay auditing easier and more manageable, which has the added benefit of delivering a comp strategy that is both legally compliant and morally apt.

“There are tools that can help you do that and help you design and think that through and come up with job descriptions that are easy to compare,” she said. “So computers are really great at matching and pattern finding and there’s technology that can help.”

Pay equity advocates want HR pros to know the audit is a tool to help address pay discrimination at work. While pay parity is obviously the goal, it can be hard to achieve. An audit can help uncover issues so you can focus on remediating problems.

“The goal is to make sure that if you have any pay discrimination, you’ve uncovered it, you’re making steps to correct it, but it’s actually bigger than that,” Stukowski said. “The goal of the audit is actually about making sure you’re investing fairly and investing wisely in your people, and your people truly believe and understand why they’re making what they’re making for the work that you’re expecting them to do within your organization.”