The turbulence of 2020 has highlighted employee well-being and mental health (68%), along with diversity, equity, and inclusion (67%), as priority issues for HR.
When it comes to HR’s role in pay equity, delivering fair pay and abiding by pay equality laws are essential objectives.
The compensation offering is the first step in the bag of the human resources’ responsibilities to ensure pay equity.
The U.S. Department of Labor reports that across almost all industries and job titles, women regularly earn considerably less than their male counterparts in the same occupation. Other variables affecting the employee pay gap are age, race, industry, and geography.
Let’s understand pay equity in detail and how HR and leaders deal with the new rule.
Pay Equity – What Is It?
The legislation on pay equality states that all workers, regardless of race, gender, ethnicity, age, or religion, should be paid equally for work of similar value. Both male and female administrative assistants in a company should be paid equally unless there is a legitimate cause for the opposite. There may sometimes be good reasons for compensation differences, including skills, experience, qualifications, etc.
The overall gender pay gap worldwide in 2023 was 0.83, meaning that women made 0.83 times as much as men. Women’s pay was the main concern when the pay equity movement began, and it remains so now. Nevertheless, other forms of pay discrimination are covered by law in several areas.
Importance of Pay Equity
Pay equity is crucial because, without it, certain sections of people are paid less than their peers for unfair reasons. This practice impacts a person’s capacity to build wealth, borrow money, and advance social standing. You may draw in a diverse workforce and lower turnover by establishing a workplace that supports pay equity.
Equal compensation for equal effort may also assist you in increasing employee loyalty and your labor pool of candidates. Let’s dive into reasons why pay equity is important:
Builds a positive workplace culture
Pay equity must be instilled over time in your business culture. Regular evaluations can show how far your business has come in attaining pay equity. For your business to fulfill its objective of fostering equity within its culture, some areas must be modified, like hiring methods, promotion processes, and performance evaluation methodologies.
Employers who want to promote a pay equity culture inside their company should consider implementing HR strategies such as performance evaluation, strategies, and more that result in creating a supportive & positive workplace culture.
Ensures compliance with laws and regulations
A minimum pay requirement must be established by an organization per The Minimum Wages Act to protect workers from exploitation while promoting social justice. Moreover, the Equal Remuneration Act of 1976 mandates wage equity. SMBs (small and medium businesses) must follow local and state pay equality rules to prevent employee-driven lawsuits and fines by adhering to these laws.
Equity in compensation has many important advantages, one of which is that it increases organizational productivity and efficiency. Pay equity fosters a sense of value in employees, making them more engaged and productive. Additionally, it may improve workplace morale and foster a collaborative environment where staff members feel appreciated for their work.
Helps retain talented employees
Employees are less likely to remain in their positions for a long time when there is pay inequality in a company. However, when pay parity is created, it provides a foundation for loyalty and trust between an employee and employer. Businesses with strict pay equity practices typically have lower turnover. Retention enables them to cut down on the expense of recruiting and training new hires, improving their bottom line.
Ensures fair policies and practices
Acquiring pay equity boosts employee morale. It encourages equality and justice throughout the entire workforce. Pay equity ensures that all workers receive fair treatment and that their contributions to the company are appreciated equally. This promotes a more fair and equitable workplace.
Challenges Faced by HR & People Leaders for Pay Equity
Organizations must take into account the fact that men are more prone than women to negotiate greater compensation. This “ask gap” may initially lead to compensation disparities, which can grow over time. The challenging practical and psychological facets of pay transparency are beyond the capabilities of HR and people leaders.
Adjusting to pay transparency
Talking about pay and benefits can be unpleasant. A “don’t ask, don’t tell” approach has historically covered pay disparities and restricted transparency of workplace compensation. Greater transparency regarding compensation is a topic that particularly interests younger workers. 89% of Gen Zers feel comfortable discussing wages, compared to 53% of baby boomers.
Thus, managers must receive training on discussing pay equity, bonuses, raises, and other topics. Recruiters must be confident that their offers are fair to candidates and that they aren’t violating any rules before interacting with them.
External professionals help analyze a business better than the management working in the same company for years. Therefore, HR and people strategy leaders increasingly undertake pay equity audits within their companies to find potential pay gaps.
In these audits, salary information is examined to see whether there are any pay discrepancies between employees of various genders, races, or other characteristics. A more transparent and equitable compensation system is made possible by recognizing and eliminating such inequalities.
Getting rid of prejudice in hiring and promotion
Pay discrepancies over time result from prejudices in recruiting and promotion procedures. To eliminate this, HR executives use blind hiring practices, which involve removing identifying details from resumes during the first screening, such as names, genders, and nationalities. They do this to guarantee that candidates are only assessed based on their credentials and abilities.
Similarly, encouraging diversity and inclusion at all organizational levels can lessen biases and result in a more balanced workforce.
Meeting stakeholders’ expectations
HR directors must examine the current pay policies and procedures to look for biases and discriminatory behaviors. They must carefully collaborate with legal professionals to ensure pay practices comply with pertinent labor laws and regulations.
Meeting the varied expectations of regulators, employees, and stakeholders from the business ecosystem poses an ongoing challenge as companies become more actively involved in promoting pay parity.
Best Practices for Fair Pay
You must first acknowledge that pay injustice exists if you wish to prevent it in your company. Then, to eliminate such injustice, the best practices for fair pay are:
Engage in DEI (Diversity, Equity, and Inclusion) at work – A DEI strategy must include pay equity and transparency. DEI at work is greatly enhanced by eliminating the pay gap for historically underpaid groups.
Compare input and output – Review each employee’s pay yearly and compare it with how much they provide to the business. Make any necessary changes to boost equity.
Review the latest pay trends – Track industry standards to develop hiring and compensation procedures that adhere to industry norms.
Exercise transparency pay – Transparency means not keeping your employees’ salaries a secret. People who see how much their coworkers make feel encouraged to voice their concerns regarding unfair pay.
Set up pay scales – By using a wage band system, you can establish uniform pay scales based on the status of the positions held within your organization. With this tiered structure, salary can be more consistently determined by characteristics specific to the work rather than demographics.
Unlike state and local governments, which are now reviewing their rules to address the gender wage gap, federal pay equality regulations have been in effect for decades. Your company might avoid unfavorable litigation and ruined reputation by supporting the correct pay equity norms. You might even become a model of corporate accountability and leadership, which will help attract top talent to your company.
Thousands of enterprises rely on Engagedly to manage their most important resource: their employees. Engagedly’s individualized support and user-friendly, scalable technology simplify people management, giving our clients peace of mind to concentrate on what they do best.
Frequently Asked Questions
Q1. Why is pay equity so important?
Ans. Pay equity is essential for a business’s bottom line and social responsibility. Fair pay policies could allow employers to:
Avoid employees filing a discrimination lawsuit
Boost productivity and morale
Lower workforce churn
Attract new, skilled employees
Q2. What is the Equal Pay Act?
Ans. The Equal Pay Act for Equal Work Amendment prevents salary discrimination based on gender. It applies to men and women working for the same business with essentially equivalent positions and includes all forms of compensation.
Q3. Why should organizations address pay inequality?
Ans. Legislative obligations, board pressure, and competition for good talent are just a few reasons to address pay equity. Employers may boost efficiency, innovation, and production by ensuring employees are paid fairly. Doing so will help them recruit the finest talent, lower employee turnover, and promote employee engagement. This is a basic requirement of HR’s role in pay equity.
Q4. What isHR’s role in pay equity?
Ans. HR’s role in pay equity involves ensuring fair and unbiased compensation practices within an organization. This includes analyzing salary data, identifying and rectifying wage gaps, implementing non-discriminatory pay structures, and promoting transparency to achieve equal pay for all employees.
Srikant Chellappa is the Co-Founder and CEO at Engagedly and is a passionate entrepreneur and people leader. He is an author, producer/director of 6 feature films, a music album with his band Manchester Underground, and is the host of The People Strategy Leaders Podcast. He is currently working on his next book, Ikigai at the Workplace, which is slated for release in the fall of 2023.