The gender pay gap has been a long-standing issue in the United States and abroad. While there was a lot of progress in the 1980s and 1990s, the progress in recent years has remained stable. “In 2022, women earned an average of 82% of what men earned, according to a new Pew Research Center analysis of median hourly earnings of both full- and part-time workers,” which is similar to the pay gap in 2002. Interestingly, the wage gap for younger workers is smaller. “In 2022, women ages 25 to 34 earned an average of 92 cents for every dollar earned by a man in the same age group – an 8-cent gap. By comparison, the gender pay gap among workers of all ages that year was 18 cents.”
In this article we will discuss the latest in pay equity legislation – pay transparency, risks associated with unintended pay gaps and best practices that can be implemented to minimize exposure to those risks.
Pay equity legislation has evolved over the years. The latest changes at the state level have been pay transparency laws. In 2021, Colorado became the first state to require the disclosure of pay ranges in job postings. Currently 9 states and 6 cities have some form of pay range disclosure for job seekers and/or employees. Below we will highlight the laws in California, New York City and Washington.
In California, employers are now required to post pay ranges in all job advertisements if the position may ever be filled in California either in-person or remotely (SB 1162). The most significant change is the new pay data reporting requirements in CA. Essentially, the reports must provide “[w]ithin each job category, for each combination of race, ethnicity, and sex, the median and mean hourly rate.” This will require employers to provide direct comparison of pay rates between different race/ethnicity and gender groups. In addition, employers must provide this report regardless of if they file an EEO-1 report and EEO-1 reports can no longer be used to satisfy CA reporting obligations.
In New York City, employers are also now required to post the expected salary range for all job postings. This applies to employers with 4 or more workers (including independent contractors). In stating the minimum and maximum salary for a position, the range may extend from the lowest to the highest salary the employer in good faith believes at the time of the posting it would pay for the advertised job, promotion or transfer opportunity. Penalties will not be imposed for a first-time violation if the error is fixed within 30 days of receiving the complaint, but further violations may carry a penalty.
Finally, in Washington, the requirements differ for internal and external postings. For internal postings, the information only has to be provided upon request, whereas, for external postings the information must be provided in the job posting. In each job posting employers must provide wage scale or salary range, and a general description of all benefits and other compensation to be offered to the hired applicant. This applies to job postings for Washington positions and for remote work that could be performed by a Washington employee.
Increased general awareness and pay transparency laws have made pay equity more than just a compliance issue. What are the risks associated with unintended pay gaps?
Potential class action litigation is at the top of the list. Litigation is costly – both from a settlement perspective, and a defense cost perspective. Recently, a large tech giant settled with a class of approximately 15,500 employees for $118 million. A large financial institution settled a long-standing gender discrimination suit, with an approved settlement of $215 million for a class of 2,800.
Employers are not only at risk for potential liability from discrimination claims brought by employees, but also run the risk of enforcement actions from various agencies – both at the federal and state level. At the federal level, the EEOC, DOL, OFCCP investigate violations. One of the EEOC’s priorities in its Strategic Enforcement Plan continues to be a focus on compensation systems and practices that discriminate based on sex under the Equal Pay Act and Title VII. They have stressed that they will also focus not just on gender, but all protected classes, such as, race, ethnicity, age, etc.
As previously discussed, some states, counties and cities have enacted their own laws to address pay equity by way of pay transparency and have enlisted agencies to enforce these pay transparency protections. In New York, aggrieved parties can file a complaint with the New York City Commission on Human Rights, or the state’s department of labor for an investigation, as appropriate based on location. In California, there is the California Labor Commissioner’s Office leading the charge.
Some jurisdictions may allow for corrective actions, otherwise a fine is imposed. The fines can be quite costly. For example, in California, pay scale posting violations carry a penalty of $100 - $10,000 per violation, and pay reporting violations carry a penalty of $100 per employee for initial failure to file, and $200 per employee for subsequent failures.
Depending on the jurisdiction, employees/aggrieved parties may also be able to bring suit directly against the employer for pay transparency violations. While jurisdictions like Colorado and New York (excluding NYC) do not allow for a private right of action, California and Washington do. In California, an aggrieved party can bring suit for injunctive relief, and in Washington a civil action may be brought for actual damages, statutory damages equal to the actual damages or $5,000, whichever is greater, interest of one percent per month on all compensation owed, and costs and reasonable attorney’s fees.
Pay equity/transparency risks are not always directly monetary, though arguably the “non-monetary” risks eventually will affect a company’s bottom line. The world’s leading organizations are increasingly focusing on employee experience (EX). WTW conducted research to develop an evidence-based model of EX, which identifies the factors that matter the most; and second, establish whether EX is predictive of business performance. The research showed that the fundamentals of EX are: Purpose, Work, People and Reward. EX is essentially about connecting with people and organizational purpose and contributing to work and being rewarded accordingly. The research further showed that fair pay is viewed as an “essential” by employees. As such, if an employer is not properly paying its employees – something that most employees view as an essential and something all companies should be doing well, they may find it difficult to attract and retain talent. There are also reputational risks with litigation/investigation publicity.
To mitigate these risks, employers should take a two-pronged approach.
First, employers should be taking a proactive approach, examining current practices and making proactive changes – starting with examining job and pay structures as well as pay management and talent practices. Employers should conduct pay equity analyses in partnership with their legal counsel, to identify and understand the potential underlying causes of any pay gaps.
Not only is it important for employers to know their policies, but it is equally important to ensure these policies are communicated thoroughly to employees and hiring managers alike. Employees need to understand how the job posting ranges relate to their current position, and managers should be able to talk effectively on pay and how pay decisions are made. It is important that everyone knows and feels their pay is set thoughtfully, intentionally, and objectively.
The most important takeaway is to not get complacent. Pay equity needs to be assessed regularly at both the organizational and individual employee level, and talent and pay practices must be examined to ensure they are not causing unintended pay gaps to occur.
Second, employers should consider risk transfer solutions, such as, Employment Practices Liability (“EPL”) insurance. EPL insurance provides coverage for claims alleging employment practice violations, such as wrongful termination, discrimination, or harassment, against the company, its employees and directors and officers. It also provides third party liability coverage for discrimination and harassment claims brought against the employer or its employees by a third party. The policy will provide coverage for defense costs, settlements, judgments, and awards associated with responding to employment-related lawsuits.
This issue is top of mind for many insurers. Clients should be prepared to discuss with EPL underwriters the efforts they have taken as an organization to pay their employees properly, remain compliant with evolving pay equity and transparency laws and proactive measures they have taken. Some insurers will provide a retention credit for a pay equity claim if the client can show that they engaged with a qualified third-party to conduct a pay audit and review of their policies and practices to ensure legal compliance and no pay disparities.
With ever-changing laws and increased scrutiny, it is imperative that your organization is taking a close look at this and taking the necessary steps to place you in the best position from a legal and risk standpoint.
Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
