Hillary Massey and Barry Miller, Seyfarth Shaw LLP, share insights on whether your company should consider conducting a pay audit.
The amendments to the Massachusetts Equal Pay Act (“MEPA”) have been in effect for more than one year, since July 1, 2018. Many employers have already adapted to some of the changes brought about by the amendments, including the salary history ban (prohibiting employers from asking about prior compensation) and wage transparency provision (prohibiting employers from banning employee discussions about pay).
Employers that have been hoping for guidance from the courts about the more subjective requirements of the law, including how to determine which employees are “comparable,” have not received it. So far, there has been minimal litigation under MEPA. Cases have been filed against two high-profile Boston institutions, the Boston Symphony Orchestra and Boston Public Schools. But the first settled confidentially, and there has been no notable progress on the public docket of the latter.
"Under those circumstances, one of the most effective things that employers can do to insulate against pay equity liability remains to conduct a pay audit."
For employers that have considered conducting an audit but have not yet had the budget or other resources to do so, this article addresses whether to prioritize this task and what data issues to consider.
Should Employers Conduct A Pay Audit?
Conducting a proactive pay equity analysis is often the first and best step employers can take to ensure fair pay and diminish legal risk. Taking this step, however, should be approached with forethought and caution. Employers should make an informed decision about whether and when to conduct an audit.
A proactive pay equity audit is a valuable exercise when performed properly. It allows employers to identify and reduce risks, and can be aligned with organizational efforts to ensure equal pay in their workforces.
It can also be used to substantiate an affirmative defense under some state-level pay equity laws. For example, MEPA creates an affirmative defense to wage discrimination claims for an employer that has (1) completed a self-evaluation of its pay practices that is “reasonable in detail and scope in light of the size of the employer” within the three years prior to commencement of a law suit; and (2) made “reasonable progress” toward eliminating pay differentials uncovered by the evaluation. The Attorney General’s guidance describes “reasonable progress” as taking “meaningful steps” in a “reasonable amount of time” that will be evaluated based on “how much time has passed, the nature and degree of its progress as compared to the scope of the disparities identified, and the size and resources of the employer.” To be eligible for the affirmative defense, employers do not have to pay employees retroactively for historic disparities.
However, there are some key risks to be considered. If not adequately protected, an audit might be used against an employer in litigation under the federal Equal Pay Act or Title VII, which do not provide a similar affirmative defense. Thus, employers should work with counsel in order to protect the assessment process and results with the attorney-client privilege. Without these protections, a self-evaluation (and any wage differentials identified by it) may be discoverable in the event of a lawsuit. Employers should protect the audit at the outset and make an informed decision as to whether to waive the privilege in subsequent litigation. Counsel with experience and expertise in pay equity matters can also play a valuable role in shaping the scope and procedure for an audit to maximize its utility in identifying disparities that may become legal disputes and to ensure that the work product generated by the audit will make for effective evidence, if it is ever needed for use in court.
What Is The Typical Audit Process?
The key steps in a typical audit are: 1) selecting the internal and external team, including attorneys and labor economists; 2) collecting the data needed; 3) conducting the initial analysis; 4) collecting additional data and revising the analysis to address unexplained differentials; and 5) considering remediation and revisions to policies and/or practices. After an employer gathers the initial data and a labor economist performs the initial statistical analysis, the team typically identifies employees whose pay is not explained by the factors considered in the initial model, e.g., their pay appears too low or too high. The team may then review personnel records and other data about the flagged employees in order to determine whether there is a non-gender based explanation for the differential that has not been incorporated into the model. This iterative process may continue until the employer fully explains the apparent wage differential or concludes there is a problem area and determines whether and how to remediate it.
Do You Track the Data You Need For A Pay Audit?
Employers will, of course, need pay and demographic data to conduct an audit. This is typically readily available in HR information and payroll systems.
Other data points that may help to explain differences in pay under the applicable federal and state equal pay laws are often not fully captured in employers’ information systems. This includes details about employees’ education, certifications and training, and prior relevant experience.
For example, MEPA requires the employers provide equal pay to employees of different genders who perform jobs that require substantially similar skill, effort and responsibility. Employers sometimes do not have readily accessible data needed to fully determine which jobs should be compared because of the “skill, effort and responsibility” involved. For example, “responsibility” may be measured by data not typically tracked in electronic information systems, such as amount of budget managed, the authority to execute legal documents, or the number of direct reports.
Employers also may not have compiled data needed to fully determine, within each comparable group, whether one employee may be paid more than another due to relevant experience. Electronic information systems often do not track pre-company relevant experience or level of educational degree. Depending on the number of employees, obtaining that data from resumes may not be feasible. While it is essential to consider these data gaps, a proactive pay equity analysis can still be extremely beneficial to identify employees whose pay should be further evaluated.
Even employers without perfect data -- and this is almost all employers -- can still benefit from a proactive pay assessment.
Employers that have not yet conducted a MEPA audit should consider working with employment counsel to do so, beginning with identifying any gaps in their data that may delay the process. While employers who end up in litigation may decide not to assert the affirmative defense due to the risks identified above, employers who conduct privileged audits are in the best position to make that determination if faced with litigation.
About the authors
Hillary Massey is an associate in the Labor & Employment department of Seyfarth Shaw LLP. Ms. Massey represents management in a range of employment-related matters, with a focus on complex wage and hour litigation and equal pay counseling.
As a partner in the Labor & Employment Department of Seyfarth Shaw LLP, Mr. Miller defends employers in state and federal courts and before administrative agencies.