Equal Pay: Massive Lawsuit Highlights Need for Smart Pay Practices; An 8-Point Audit Checklist to Keep You In Compliance With Equal Pay Laws

A lawsuit charging Wal-Mart with discrimination against 1.6 million female employees has been certified as a class action by a federal district court judge in San Francisco. A key allegation in the litigation—being called the largest civil rights action in United States history—is that Wal-Mart violated state and federal equal-pay laws by paying female employees less than male counterparts for comparable work. The case could end up costing Wal-Mart more than a billion dollars in damages.

It’s too early to predict the outcome of the case, although Wal-Mart has already appealed the ruling certifying the suit as a class action. But while the case is being sorted out, it’s a good time to review your pay practices to ensure compliance with the law. Equal-pay violations—even more isolated ones—can be costly, carrying hefty awards of double back-pay, attorney’s fees, and criminal penalties of up to $10,000 and six months in jail. And legislation pending in Sacramento and Washington, D.C., would further boost your damages.

We’ll explain your equal-pay obligations and provide a checklist you can use to help audit your pay practices for compliance.

The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.

Equal Pay Rules

Under state and federal equal pay laws, you must provide equal wages to men and women whose jobs require substantially equal skill, effort, and responsibility and are performed in the same workplace under similar working conditions. Other laws prohibit compensation bias based on age, race, national origin, religion, disability, sexual orientation, and other protected characteristics.

When Pay Differentials Are Permitted

You can compensate men and women differently if you do so based on seniority, a merit system, or a policy that measures earnings by quantity or quality of production. Also, a pay differential is legal if it’s tied to legitimate factors other than sex, such as education, experience, work shifts, or prior salary.

Self-Audit Checklist

Here’s an eight-step checklist to help evaluate your compensation practices. Use it for a quick mental review rather than as a form to fill out and keep in a file. In this way, you’ll avoid having to disclose your responses if you are sued. Alternatively, you can conduct this review under an attorney’s guidance to help ensure your review is privileged.

1. Evaluate your compensation system for internal equity.
   • Do you ensure consistent pay for workers with similar levels of experience and education in positions involving comparable degrees of skill, effort, responsibility, and working conditions, even though the job titles may be different?
   • Do you have defined procedures for determining salaries and benefits?
   • Do you use job descriptions?
   • Do you solicit employee/union input and develop a consensus for job descriptions?
   • Do you have a consistent system to evaluate jobs to determine their worth (such as scoring jobs or assigning grade levels)?
   • Do you use the same standards to evaluate positions in which women and minorities tend to work as you use for jobs men or nonminorities tend to hold?

    

2. Examine your compensation system for industry competitiveness.
   • Do you have a method for determining the market rate for a particular job, such as the use of salary surveys?
   • Do you pay the market rate consistently to men, women, and minorities?

    

3. Compare job grades.
   • Is pay comparable for positions with similar grades/job descriptions?
   • On average, do women and minorities receive similar compensation to men and nonminorities within the same job grade? If disparities exist, are there legitimate reasons?
   • Do women and minorities stay within job grades longer than men or nonminority workers do before moving up? Do they have the same opportunities to advance?

    

4. Review recruiting practices.
   • Do you take identifiable actions to increase diversity in applicants for available positions?

    

5. Review new-employee data.
   • Are men, women, and minorities paid similarly for typical entry-level work?
   • If entry-level salaries are commonly negotiated, do men, women, and minorities negotiate similar starting salaries?
   • Are there differences by gender or race as to whether new hires are paid more or less than those already working at the company in the same job grades or positions?

    

6. Assess bonus and commission practices.
   • Are the same standards consistently used for assigning men, women, and minorities to projects or customers with high commission potential?
   • Are men, women, and minorities with similar performance levels awarded bonuses on a consistent basis, and do they receive bonuses of similar value?

    

7. Assess how raises are awarded.
   • Are the same criteria used to evaluate the performance of men, women, and minorities?
   • Do members of each group receive raises based on similar performance standards? If the bonus amounts differ, are there objective reasons?

    

8. Evaluate employee training, development, and promotion opportunities.
   • Are women and minorities selected for training opportunities or special projects that lead to advancement on the same basis as men and non-minorities?