What is Pay Equity and Why is it Important?

Both employees and employers benefit in many ways when pay equity is prioritized.

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For many years, there has been talk about the gender pay gap and more recently, about the ethnic wage gap. As a result, we have seen an explosion of new equal pay laws enacted across the country and an attempt to pass the Paycheck Fairness Act again at the federal level. Many employers are also working on the concept of pay equity in their pay structures.

Employees care a lot about what they get paid to do their job. They also want to know that they are being compensated fairly and in line with what other employees with similar roles and experience are being paid. When employers use the concept of pay equity to determine wages, they are showing their employees that they value them and their efforts, regardless of personal characteristics that have traditionally led to lower pay. Employers also benefit in many ways when they commit to the concept of pay equity.

What is Pay Equity?

Pay equity is the concept of compensating employees who contribute to the organization through similar job functions with comparably equal pay, without discriminating based on personal characteristics such as gender, ethnicity, or other status. Employers who practice pay equity do account for other factors such as years of experience, education, job performance, and tenure with the employer when calculating pay but there is a focus on paying every employee fairly based on what they contribute to the organization.

What is Pay Equality?

The terms pay equality and pay equity sound very similar but there are some important differences between them.

Pay equality is the requirement that two workers doing the same or similar job are paid the same wage, including the bonus and commission structure. Pay equality is built on the concept that employers may not offer two workers different pay based on any of the following protected characteristics:

  • Sex
  • Gender identity
  • Religion
  • Age (for anyone over 40)
  • Pregnancy status
  • Color
  • Gender Identity
  • Sexual orientation
  • Disability,
  • National origin
  • Genetic information

These groups are covered under the following acts:

Why is Pay Equity Important?

When employers address pay equity, it has a positive impact on creating pay structure, salary ranges for positions, and a sound compensation program that directly affects the employees. Pay equity creates a better workplace with happier workers who feel valued by their employer.

How Do Employers Benefit from Pay Equity?

In addition to being the right thing to do, pay equity is important for businesses and organizations because it attracts a diverse workforce and reduces turnover. Fair pay policies also benefit the business in many other ways, including:

  • More loyal and motivated employees
  • Comply with equal pay regulations
  • Prevent discrimination lawsuits

How is Pay Equity Related to Employee Loyalty and Motivation?

One of the top predictors of job satisfaction is whether an employee feels they are being paid fairly. When employees believe that they are being underpaid for the value they are contributing to a business or organization, they may become resentful – especially if others are making more while contributing less. This resentment can quickly turn into a lack of loyalty and decreased motivation. As motivation dwindles, they may start contributing less because they figure they already have to work harder just to earn as much as someone else.

What Can Employers Do to Ensure Pay Equity?

If you’re ready to make a commitment to pay equity, here are some steps you can take:

  1. Commit to Diversity, Equity, & Inclusion (DEI) in your workplace. Pay equity and transparency are integral parts of a DEI strategy. Closing the pay gap for traditionally underpaid groups goes a long way to improving DEI in the workplace.
  2. Annual pay audits. Each year, review what each employee is making and compare it to how much they are contributing to the company. Make adjustments to improve equity as needed.
  3. Review pay metrics based on personal characteristics. It’s important to not create metrics based on items that are subjective because studies have shown that subjective measures suffer from many systematic biases. Look for patterns of pay among certain groups such as women or a specific race. Also look at which groups are holding the top, high paying jobs and evaluate whether bias has led to certain groups being promoted into those positions.
  4. Be transparent about how pay is calculated. Most employees believe they are being underpaid so the best way to overcome this is to be transparent about how pay is calculated at the organization and how workers can increase their pay.

Partnering with Makai HR

Have more questions about equal pay and pay equity? We’ve got you covered through HR outsourcing! When you partner with Makai HR you can get on with the business you are trying to grow while we take care of your employee needs from payroll to taxes, health insurance/benefits and worker’s compensation. You also gain peace of mind that you are compliant with all of Hawaii’s employer laws (if you’ve ever looked you know that the list is very long and changes happen). When choosing a PEO to partner with, there are many things to consider including cost, services, and technology solutions. 

With the cost of doing business in Hawaii at record highs, we know how important it is to keep labor costs in line with revenue. Our plans are priced competitively and include value-added services like time-in/time-out systems. Our customized PEO solutions are tailored to the size of your business and specific needs. We offer a 100% paperless solution which means that your employees can manage their needs through a computer, tablet, or phone. We can truly improve your employees’ work benefits while freeing you up to operate your business.

What are you waiting for? Companies that partner with a PEO benefit from 7-9% faster growth, 10-14% lower employee turnover; and they are 50% less likely to go out of business. Contact us today to get started!

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