As a business owner, I have always believed in the philosophy of paying employees what I needed to hire the right person for the right job. I certainly could not afford to pay them more than they needed, or asked for, and every dollar saved would be reinvested into growing my business.
This seemed like a win-win. If I placed a job opening for a receptionist and published that the job paid $40,000, would I be shooting myself in the foot if the ideal candidate would have taken the job for $35,000?
In hindsight, this was the wrong approach. While every dollar saved and put to the bottom line is a rational and realistic way to grow and sustain a business, paying employees only what they request can, and will, lead to discriminatory hiring practices. Here’s why …
Many industries have published pay scales in place. For example, lawyers in medium-sized to large firms pay associates based on how many years they have been out of law school. First-years earn X while second-years earn Y.
In many cases, educators also earn salaries based on years of experience equalized across the district.
In a small or midsize business, it is much harder to have such regimented pay grades. Even with 75 employees, you may not have more than a few people doing the same job. And typically, those job responsibilities change frequently based on the growth of the business. In addition, the wide range of experience and skill may vary among those in similar positions.
Take an advertising agency for example: You may have two account managers who have similar job descriptions and do the same basic job functions each day, but one employee has 20 years of agency experience and another has five.
Both employees are successful at their jobs, but should they really earn the same wage? Also, do you have to change their job titles to justify paying the more experienced employee more to dissuade discrimination?
Thanks in part to public sentiment and media attention, some states are seeking to address these issues. Most recently, The Diane B. Allen Equal Pay Act went into effect July 1, 2018, for the state of New Jersey.
The new law entitles employees to an equal rate of pay and benefits for substantially similar work – defined as similar skill, effort and responsibility. An employer may scale pay if it can demonstrate that it is based on seniority, merit, or one or more bona fide legitimate factors.
So how do you adopt equitable employment practices when you operate a small business?
1. Course correct the way you recruit.
Identify the job need, the skills required and publish the pay scale. In my previous example, I could post a job for a receptionist with less than three years’ experience and say the salary range is $30,000 to $40,000 based on experience.
The common reservation for doing this is that all candidates will ask for the full $40,000 regardless of experience and decline if they are only offered $30,000.
2. Review your current workforce and compare titles and experience.
In the above agency example, changing the title of the 20-year veteran to senior account manager and adding to their job description that they serve as mentor, trainer or another role that they are likely already doing will clearly define the pay grade difference. On the flip side, if the jobs are truly equal, take the time to evaluate why they should be paid differently.
It is much harder to change the structure of current employees than new applicants. Putting an action plan in place to streamline the wages or job duties over a 12-month period will allow you to budget and plan for needed changes.
3. Continually monitor.
Studies show that adjusting to equality can’t be a one-time fix. In 2015, Marc Benioff, CEO of Salesforce, announced that the company had investigated the wage gap within its organization and would spend millions of dollars to bring the salaries of female employees to match that of their male counterparts in the same position.
However, a recent study revealed that once again, pay scales are completely out of balance in this same well-intended company. This is typically attributed to not publishing the salary scales by position and ensuring department hiring managers stick to them.
Protect Your Business
Pay equality is a hot topic, with new laws emerging to protect employees and high-profile companies making public changes to employment practices.
It’s important to understand how your organization stacks up against workforce pay equality. Consult with a payroll expert and a trusted human resource professional to address discrepancies head-on. Being proactive will help protect your business from possible exposure while fostering a healthy, productive work environment.