Benefits and Compensation, HR Management & Compliance

Is It OK to Pay Similarly Situated Employees Different Rates?

Anyone who has dealt with payroll can probably attest to how easy it is to end up with similar employees who are paid different amounts. It can happen for lots of reasons. For example:

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  • Someone who has been there a long time may have started at a lower rate and the raises haven’t progressed as fast as the market rate.
  • Different hiring managers may not compare notes on their different policies on what to pay new employees, even if the roles are similar.
  • Employers may base starting pay on an employee’s previous pay rather than on a predetermined rate for the role.
  • Employees may have a similar-sounding role but have different experience or education levels.
  • Jobs may sound similar at first but actually have different, less obvious responsibilities that account for different pay rates.

If these differences in pay rates are discovered, it may appear unfair, despite whether there are good reasons for the differences or whether there was any ill intent behind them. Even if the reasons behind these disparities are entirely innocent, there may still be negative repercussions. For example:

  • Employee morale may be damaged if they learn the pay rates are not consistent.
  • It may appear as though there are favorites, which can lead to frustration and a decrease in employee morale.
  • It may appear discriminatory in nature, even if discrimination played no part in the situation. Be aware that discrimination claims may arise, even if the pay difference was for other (valid) reasons.
  • Employees who feel they’ve been underpaid may leave the organization—and they could be your best employees.
  • Employees may feel less motivated to perform their best if they feel they’re being treated unfairly, which could mean lost productivity.

Tips for Employers to Reduce the Chance of Pay Discrepancies

Here are some things employers can do to avoid this situation:

  • Base employee starting pay on a predesignated rate of pay that is assessed in advance and determined to be appropriate for the role. The assessment should take into account both internal and external pay rates to ensure it is in alignment.
  • Ensure that long-term employee pay remains aligned with market rates over time. This may mean conducting market pay assessments to get accurate data. It may also mean giving raises that are not necessarily merit-based.
  • Conduct regular pay audits to see if there are unexpected discrepancies between similarly situated individuals.
  • Take action to remedy the situation if you find someone’s pay has not kept up with the market rate or others performing at a similar level.
  • Consider being transparent about pay rates. This may result in a greater pay analysis but will also promote fairness. Include your rationale to explain why the disparities are reasonable and based on differences in skills, education, or experience. When there are good reasons for pay differences, having clear guidelines will go a long way toward explaining them.
  • Ensure job descriptions and responsibilities are clear and well-communicated. This alone can have an impact on how employees see their role compared with others.

What has your experience been? How have you handled pay discrepancies when they’ve been discovered?

Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.