How to Comply With California's Fair Pay Act

Author: Beth P. Zoller, XpertHR Legal Editor

California's amended equal pay law, the Fair Pay Act, is effective on January 1, 2016. The amended equal pay law, among the strongest in the US, prohibits wage discrimination throughout an employer's operation when two individuals perform substantially similar work. The law also prohibits an employer from retaliating against employees for discussing or disclosing their wages with co-workers and enhances recordkeeping requirements. Based on these changes, a prudent employer should take the following steps to ensure compliance.

Step 1: Audit and Review All Pay Practices

An employer should begin by auditing its pay practices for its organization as a whole rather than just at a single location and rooting out any wage differentials based on sex, race or ethnicity. An employer should review pay policies, job descriptions and salaries of all current employees in the same job title with the same duties and responsibilities, but also as compared to other job titles where employees are performing substantially similar work in terms of effort, skill and responsibilities. An employer should compare compensation including base salary, bonuses, equity, benefits and other forms of compensation. An employer must then re-adjust for any differences in pay unless those differences can be explained by a seniority system, a merit system, a system measuring earning by quantity or quality of production or a bona fide factor other than sex, race or ethnicity such as education, training or experience.

An employer may only rely on a bona fide factor only if the employer can show that the factor is not based on or derived from a sex-based, race-based or ethnicity-based differential in compensation, is job-related with respect to the position and is consistent with business necessity. Business necessity means an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve. If an alternative business practice serves the same purpose and meets the employer's business needs without producing the wage differential and inequality in pay, the employer must adjust the compensation and cure the disparity in pay. A prior salary earned by an employee shall not by itself justify any disparity in compensation under the defense that an employer relied on a bona fide factor to justify the pay differential.

If an employer discovers wage differentials during the audit, the employer should modify compensation systems and change job titles, descriptions or functions if need be to correct disparities. On a going forward basis, an employer should be sure to continually monitor this and establish clear compensation guidelines including guideline regarding bonuses and increases. An employer should make sure to use to use this criteria consistently. If there is a deviation, an employer should document the good faith basis for the decision.

For example, an employer cannot pay one employee more because that employee lives in a location with a higher cost of living or because one employee more aggressively negotiates salary or because one employee came from a position where the employee was making more than others are in the employer's organization.

Step 2: Update Workplace Policies

It is crucial for an employer to update its workplace policies to comply with the law. Specifically, an employer should develop, implement and enforce policies prohibiting wage discrimination based on sex, race and ethnicity when the individuals perform substantially similar work. An employer should make sure that it identifies an adequate internal complaint procedure which will allow employees to bring any issues or complaints regarding wage differentials to management's attention. Further, an employer should make sure that its workplace policies do not prohibit employees from freely discussing or disclosing their wages and compensation. Lastly, the policies should prohibit retaliation against employees who seek to enforce their rights under equal pay laws or discuss or disclose their wages.

Step 3: Revise Training for Supervisors and Managers

An employer should be sure to update its training for supervisors and managers as well as for employees so that the training reflects the requirements of the amended law. Supervisors and managers and those with the authority to affect compensation decisions should be trained on the requirements of the amended law and on which appropriate job-related factors compensation decisions may be based. Further, employees should be advised of their right to bring wage discrimination complaints and their right to freely discuss compensation with co-workers.

Step 4: Maintain Proper Records

An employer should revise its recordkeeping policies and procedures so that it now retains wage records for three years. The recordkeeping provisions extend to not only wage records, but also records of job classifications and other terms and conditions of employment. Also, an employer should keep in mind that if it receives an inquiry from an employee about another employee's salary information, it may not prevent the employee from making such an inquiry, but it may decline to disclose the salary of any of its employees as the employer may face potential liability for invasion of privacy.