With legislators in states and cities across the United States increasingly focusing their attention on pay equity, small businesses need to be mindful of keeping up with compliance requirements that may extend beyond federal law. Many states and cities have already passed laws adding teeth and broadening the scope to their equal pay acts, or added more novel measures such as salary inquiry bans and wage transparency requirements.
As an employer, it is important to make sure that, in addition to complying with the laws that already apply to your workforce, you also understand the overall legal landscape and whether these trends may be coming to states where you have employees.
What is Pay Equity?
Pay equity generally refers to the concept that equal pay should be given for equal work, regardless of protected characteristics such as sex or gender, race, or religion, or any other factor not related to a person’s work responsibilities or performance. Pay equity itself is an ideal that any employer should strive towards, regardless of your legal obligations.
While some of the oldest pay equity laws in the United States specifically target the gender-wage gap, pay equity as a concept applies more broadly. There are also other federal, state, and local laws that prohibit wage discrimination on the basis of other protected characteristics, such as race and religion. Read on for more information about the legal landscape around pay equity laws in the United States.
The Legal Landscape
Federal Anti-Discrimination and Equal Pay Laws
Most employers are probably aware that state and federal laws, such as Title VII of the 1964 Civil Rights Act, prohibit intentional employment discrimination (including wage discrimination) based on certain protected characteristics, such as race, religion, national origin, and sex. However, some employers may not be aware that there is a separate federal law, the Equal Pay Act of 1963 (“EPA”), which specifically targets sex-based wage discrimination, or that many states have their own equal pay laws that mirror and often expand upon the EPA.
The federal EPA requires equal pay in the workplace independent of sex for employees in the same establishment that are performing jobs that require substantially equal skill, effort and responsibility under similar working conditions.
The EPA and Title VII are different in a couple of key ways. First, the scope of the EPA is limited to sex-based wage discrimination, whereas Title VII prohibits other forms of discrimination and covers additional protected characteristics, such as race and religion.
Second, while broader anti-discrimination laws generally target intentional discrimination (as well as facially neutral policies that may have a discriminatory impact on protected groups), the EPA prohibits wage discrimination without regard to an employer’s intent. This means that an employer defending an EPA claim must affirmatively justify a pay disparity. Under the EPA, acceptable justifications for a pay disparity include seniority, merit, quality or quantity of production, and “any reason other than sex”.
Critics have long contested that this final justification under the EPA–any reason other than sex–is so expansive that it undermines the intent of the law. A long-proposed amendment known as the Paycheck Fairness Act, addresses this criticism but has never been enacted into law. Others have criticized the EPA for being limited to sex-based discrimination, or as ineffective in addressing the root causes of wage disparity.
State Laws and the Equal Pay Act
Following passage of the EPA in 1963, many states authored mirror laws closely tracking the EPA. In recent years, absent change at the federal level, several states have made changes to their own state-level equal pay acts to address perceived shortcomings of the law.
For example, New Jersey, among several other states, has sought to close the “any reason other than sex” loophole, now requiring a “bona fide” reason to justify pay disparities. Under New Jersey’s EPA, a bona fide reason can be considered any reason that is related to conducting business. Examples of this include education, training, or experience.
New York has made similar changes and has also expanded its EPA by prohibiting wage disparities based on any one or more of the protected classes under the New York Human Rights Law, among other expanded protections.
Other states, like Rhode Island, have also extended their EPA protections to other protected characteristics.
Salary Inquiry Bans
In recent years, many states and cities have turned their attention toward addressing root causes of wage disparities. For example, in the past decade, several states and cities have passed laws prohibiting employers from asking candidates about current or prior compensation during the recruitment process, or from relying on information about prior pay when making wage determinations. As an employer, these are important considerations during the recruitment process which set the tone in promoting pay equity.
Pay Transparency Laws
More recently, several states and cities have passed wage transparency laws. In 2022, New York City passed a salary transparency law requiring all New York City employers to include a salary range in all internal and external job postings and advertisements. Colorado, Washington, and California are other examples of states that have adopted similar measures. Most of these jurisdictions take the position that their laws apply to any position that could be performed in the applicable state or city. So if you’re advertising remote roles, you may already be covered by a wage transparency law, even if you don’t have employees in a state or city where such a law is in effect.
Several other states have adopted “light versions” of pay transparency laws, which require employers to provide salary information to employees and/or candidates upon request. Such states include Connecticut and Maryland, where employers are required to provide a pay range to candidates who ask for it after an initial interview is completed and in some cases, prior to that if the candidate requests.
Whatever the current regulatory environment in your company’s state, there are steps all employers should take to ensure compliance and promote equitable pay practices in the workplace.
1. Understand the laws and regulations that exist in your employees’ states
As more states pass laws to promote pay equity, it is important to stay aware of how these new laws might make impactful changes in your relevant employee states. Even if these laws might not yet be in effect, they may be on the horizon in states where you have or will soon hire employees. Employers are encouraged to monitor pay updates in your relevant states and consult with your legal counsel to ensure compliance.
2. Be proactive, rather than reactive
Don’t wait for a wage transparency law to take effect in your state to make sure that you have a compensation structure in place that is coherent, consistent, and competitive. This is a best practice for attracting and retaining the best talent and promoting equity in your workplace. Plus, complying with wage transparency requirements is a much more straightforward process when your house is already in order.
3. Get into the data
Consider whether to conduct a pay equity analysis for your company to root out and address pay disparities. Work with employment counsel experienced in pay equity to determine how to properly analyze your company, given considerations like the size and maturity of your company, leveraging experienced data consultants as applicable.
Resources & Notes
- Littler Pay Equity Laws Map
- Fisher Phillips Pay Equity Map
- EEOC: Who is Protected under Employment Discrimination?
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.