Five Takeaways from the Federal Paycheck Fairness Act

Table of Contents:

Background
Key Outcomes of the Proposed Paycheck Fairness Act
Historical Precedence for the Paycheck Fairness Act
Assemble’s Five Takeaways from the Paycheck Fairness Act

1. Employers cannot ask an employee to disclose salary history.
2. Employees cannot face retaliation for discussing salary.
3. The EEOC will have the power to collect data to research the pay disparities among women and persons of color.
4. Federal funding can be allocated to educating the private sector on Negotiation Bias Training.
5. There will be a “National Award for Pay Equity.” 

Conclusion

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Background

On April 15th, 2021, the Paycheck Fairness Act (H.R. 7) passed through the House of Representatives for the third time in nearly 30 years. At the time of this writing, the bill has been introduced in the Senate and referred to a committee to be debated. Historically, this specific legislation has struggled to garner bipartisan support in the Senate, but lately there is renewed interest in seeing this amendment pass due to a new generation coming into the workforce and calling for closing the gender and racial pay gap.

Key Outcomes of the Proposed Paycheck Fairness Act

Key outcomes of the proposed legislation include:

• Employers with 100 or more employees would be required by law to report employee compensation data broken down by sex, race, and employee’s national origin yearly.
• It would be illegal to require prospective employees to disclose salary history.
• Employees would be protected from retaliation by their employer for discussing salaries with their colleagues.
  

Historical Precedence for the Paycheck Fairness Act

The proposed Paycheck Fairness Act (H.R. 7) builds upon other landmark legislation in United States history to combat pay discrimination and protect workers at the federal level. Specifically, H.R. 7 is an amendment to the Fair Labor Standards Act (FLSA) of 1938, and builds off other amendments to the FLSA: the Equal Pay Act of 1963 (EPA), Title VII of the Civil Rights Act of 1964 (CRA), and Lilly Ledbetter Fair Pay Act of 2009. 

To briefly summarizes these legislative acts:

• The FLSA established the minimum wage, set overtime pay laws, outlined requirements for safer work environments, and outlawed child labor. 
• The EPA prohibited unequal pay by gender. Its passing led employers to adopt job descriptions to define roles, job analysis to outline selection and promotions, and to establish measurements of employee performance. 
• The CRA prohibits discrimination based on race, color, religion, sex, and national origin.
• Lilly Ledbetter expanded an employee’s ability to file suit against an employer for pay discrimination by reseting the 180-day statute of limitations for filing an equal-pay lawsuit. The statute resets with each new paycheck affected by the discriminatory action from the employer.
  

Assemble’s 5 Takeaways from the Federal Paycheck Fairness Act

At Assemble, we hold two deep beliefs around building a stronger compensation practice: 

• First - Compensation is an organizational responsibility. This means that the full organization must align around the same intentions and system. While we understand that not all public policy can solve all the world’s ills, we interpret the intentions of this proposed law as a step in the right direction.  
• Second - Better compensation decisions are those that are fair, equitable, consistent, competitive, and explainable. Stronger legislation to protect employees from pay discrimination will lead employers to make decisions or create programs that will lead to greater equity among all employees at work.
  

Here are our five takeaways in understanding this proposed legislation.

1) Employers cannot ask an employee to disclose salary history.

Historically, many employers asked interview candidates to disclose their salary history during the interview process. One reason an employer might do this is to benchmark a potential employment offer for an employee based on what they were making previously. There are two reasons why this is problematic: 

1. First, if the employee was under-compensated at their previous employer(s), benchmarking a job offer to that under compensation perpetuates pay inequity, which disproportionately impacts women and minorities.
2. Second, benchmarking a prospective employee’s compensation to their previous earning history can create internal inequities where an employer may pay differently for equal work.
   

An employee’s salary history may be low due to:

• Pay discrimination experienced at prior employers.
• Living in a location where wages are lower.
• Working reduced hours or leaving the workforce entirely to care for a family member or child.
• And more.
  

If signed into law, H.R. 7 affords protections to the employee by making it illegal across all 50 states for an employer to ask about their salary history. The exception to this law is if an employee volunteers to disclose their salary history to the employer to support a higher wage offered by the employer. At this time, there are 29 states that have banned employers from asking about salary history to prospective and current employees. Early results from early adopters like California are promising.

On January 1st, 2018, California implemented a statewide salary history ban. According to a study by the National Bureau of Economic Research on measuring the effect of the salary history ban, researchers found:

• A one percent increase in the female to male earnings ratio in male dominated industries.
• Earnings in households with children over five years old and by workers over age 35 saw significant increases.

While H.R. 7 may have little-to-no effect on states who have already enacted salary history ban laws, employers within the other 21 states will have to comply with federal laws. We believe that employers should not wait for their state or for the federal government, and should instead choose to proactively avoid asking for historical salary information during interviews as a matter of company policy. 

To determine what to pay prospective candidates, we encourage companies to take action by adopting compensation practices that determine fair and competitive compensation for various roles, irrespective of which specific candidates are applying. Specifically: 

• A documented compensation philosophy that is accessible to your employees.
• A job architecture that outlines a hierarchy of jobs within each function in your organization.
• Compensation bands for each job within your organization specifying the acceptable pay ranges across each compensation type and location.
  

We’ve taken the liberty of creating a template of what your compensation philosophy might look like, so give it a look.

2) Employees cannot face retaliation for discussing salary.

Imagine working a job where you and your colleague work the same amount of hours and perform the same duties. Everything is the same until intentionally or through accidental disclosure, you learn that your colleague is making more than you. You go to your employer only to realize that they do not intend to raise you to par, but instead face punishment for inquiring about the discrepancy.

If signed, H.R. 7 protects employees who discuss and disclose their salaries from retaliation by allowing them to seek redress for unpaid and lost wages. It also bans employers from coercing employees to sign clauses and waivers banning employees from discussing their salary information. California and Colorado have passed laws that protect employees from retaliation for discussing salary with colleagues.

Organizations can be proactive about building trust with employees around compensation by ensuring their compensation policies are explainable. To build explainability into your compensation practice, start by deciding how transparent your organization wants to be with respect to compensation. Regardless of your organization’s transparency level, it’s important to establish business processes for employees to have regular conversations with their managers or HR around their compensation package, especially when any changes are made such as during adjustment cycles. 

3) The EEOC will have the power to collect data to research the pay disparities among women and persons of color.

The U.S. Equal Employment Opportunity Commission (EEOC) administers and enforces civil rights laws against workplace discrimination. The commission investigates discrimination complaints based on an individual's race, color, national origin, religion, sex, age, disability, sexual orientation, and gender identity. It also investigates retaliation complaints for reporting, participating in, and/or opposing a discriminatory practice. The EEOC also mediates, settles, and files lawsuits on behalf of employees against an employer. 

In addition to levying fines against companies who are not in compliance with section 6(d) of the Fair Labor Standards Act, the EEOC will have the power to mandate the collection of yearly data to research and understand pay disparities. Employers with 100 or more employees will be required to report yearly compensation data broken down by sex, race, and employee’s national origin. Additional information solicited can also include hiring, termination, and promotion data. 

The research will allow the EEOC to understand why unfair pay practices are occurring, develop education and tools to help employers recognize the problem, investigate, and prosecute employers who continue to violate the law. 

Companies can be proactive in how they develop and report this data, which can be automated with Assemble. Furthermore Assemble makes it easy to do meaningful real-time pay equity analyses.

4) Federal funding can be allocated to educating the private sector on Negotiation Bias Training.

Hired’s 2020 State of Wage Inequality Report found that only half the women who responded were able to successfully negotiate and receive a raise from an initial offer.

H.R. 7 seeks to educate employers by allocating money to state and local government, educational, and non-profit agencies to deliver Negotiation Bias Training. The proposed training takes research on pay disparities for women and people of color and provides actionable solutions for employers to make changes. Such changes include and are not limited to auditing their compensation practices, promotion and advancement processes, and recruiting diverse pools of talent. 

5) There will be a “National Award for Pay Equity” 

While the amendments to this legislation are mostly around closing loopholes that foster pay disparities, the Department of Labor is creating a National Award for Pay Equity in the Workplace. This grant would reward an employer who makes a “substantial effort” to eliminate gender-based pay disparities in the workplace.  

Conclusion

For now H.R. 7 is in the hands of the Senate, and we will have to wait to see if it passes. We encourage all organizations to do the right thing and take steps to combat pay inequity in their workplace regardless of present legislation. A good starting point is to document a compensation philosophy for your organization - download our Compensation Philosophy Example here.