Recently, the governor of California, Jerry Brown, signed the California Fair Pay Act (SB 358, Jackson), and changed the business wages landscape for all employers and employees covered by the jurisdiction of California.
The new law, effective from 1st January, 2016, makes it necessary for employers to pay equal wages to employees of different genders if they are engaged in ‘substantially similar work’, irrespective of their locations. ‘Substantially similar work’ implies a composite mix of efforts, skills, and responsibilities performed in similar work conditions. In 2014, the wage comparison of women to men stood at 84 cents to 1 dollar; the gap existed across all occupations in the state of California.
Some people believe this new regulation on California businesses, on top of the already mounting regulations pouring in from the nation’s capital, will just harm businesses even more. Will this just push more businesses out of California and to lower tax and more business friendly states? Well, that is another story. There is no doubt that anyone, regardless of gender, if they produce the same amount of work on a daily basis, should be paid the same.
The Basics of the New Law
Employers can justify wage differentials in their companies by clearly differentiating between the wage calculations of employees on the basis of factors other than their gender. Such factors include, but are not limited to:
- A well-defined and documented system of seniority
- A well-defined and documented procedure of merit
- A wage calculation system based on quantity or quality of production
- Bona fide factors such as experience, training background, and educational qualifications
Any employer depending on specific bona fide factors of wage differentiation will have the responsibility of proving that the factor itself is not derived from gender differentiation, and is directly related with the job and designation in question, and is a factor relevant to the business. Also, the factors cited by the employer must justify the entire wage differential, if any. Also, the new law makes it mandatory for employers to keep a record of wage rates, wages, terms and conditions of employment, job classifications, for 3 years.
Empowerment for Employees
Although the new Equal Pay Act does not make it mandatory for employers to disclose wages, it has provisions to empower employees to make the most of the act.
- Employers should not prohibit or reprimand their employers from disclosing their own wages, discussing wages of their colleagues, questioning about wages of other employees, or encouraging others to do the same.
- Employers should not discriminate or retaliate against employees based on actions taken by employees to invoke or take assistance from the extended Fair Pay Act.
Suggestions for Employers
The extended act will make employers more vulnerable to lawsuits from aggrieved employees, unless they proactively endorse the suggestions above to steer clear of trouble. Here are some steps that employers in California can take to be on the safe side of California’s new Equal Pay Act:
- Review job descriptions, job titles, compensation records, and identify potential situations of pay differentials for similar work. Since the new law looks beyond job titles, it’s important for employers to fine tune job descriptions to avoid overlaps and similarities of work in different job titles.
- Employers need to carefully examine perks and incentives such as stock options, commissions, over time, bonuses, and fringe benefits, because any investigations associated with Fair Pay Act lawsuits will consider such salary components.
- Update your compensation policies to clearly declare that as an employer, you do not endorse any gender based discrimination in pay structures, and are committed to the tenets of the extended Fair Pay Act. Train supervisors and leaders to understand and abide by the provisions of the law while designing performance appraisals and pay hikes.