Managing Pay Equity Across State Lines

by Employers Council Staff

Compensation,  Pay Equity

How do you know if you’re paying your employees equitably? Pay equity is an important part of compensation planning for organizations of all sizes, and a common concern of Employers Council members. As organizations expand their operations to cover multiple states—whether through remote, hybrid or fully on-site workplaces—pay equity can become increasingly difficult.  

Pay equity is governed at the federal level by the Equal Pay Act of 1963 and Title VII of the Civil Rights Act in 1964. The Equal Pay Act ensures men and women are paid equally, while Title VII prohibits discrimination (in many parts of employment, not just wages) for “race, religion, color, or sex.” Some states and cities have additional pay equity laws that go beyond these federal statutes. Complications can arise when an organization must follow regulations in multiple locations. 

But multi-state pay equity isn’t only a compliance issue. Ensuring employees are paid fairly across all locations can improve workplace morale, attract top talent, and prevent costly turnover. Employers Council offers a wide variety of multi-states pay equity services. To determine what level of pay equity help your organization might need, ask yourself the following four questions.  

Question 1: Where are you operating? 

All state-level employment laws—not just ones governing pay equity—hinge on the site where work is performed (technically the situs of the work). This applies to both physical work locations and remote workers operating out of different locations. In order to fully understand your business’s pay equity practices, you need to know the laws where your employees are located. Businesses with a large number of remote or hybrid employees need to be especially careful when keeping track of employee locations. Again, application of state-level pay equity laws are based where the work is done, not where the organization is headquartered.  

Question 2: What are the pay equity laws in your locations? 

The federal Equal Pay Act demands equal pay for equal work—and equal work is defined relatively narrowly and requires that employees are engaging in almost identical work. Some states, like Colorado, expand on the federal mandate to include comparison of “substantially similar work,” or work that is similar in skill, effort and responsibility, not literally equal work. Typically, it is more likely that positions at the top of an organizational pyramid may be considered  “substantially similar” regardless of division or department, than those at the bottom. A director of marketing and a director of HR, for example, assuming their departments and budgets are close to the same size, would have roles that require substantially similar levels of skill, effort and responsibility. Their direct reports, on the other hand, might have vastly different positions that couldn’t be defined as “substantially similar.” 

Look into the pay equity rules for every location you are operating in—or expect to operate in the near future. Be aware of the rules: Don’t put yourself into a position where you could be surprised by being out of compliance. Be aware not only of how pay equity is defined, but whether states have pay transparency and posting requirements that you need to follow. 

Some organizations decide to tailor their pay equity practices to the location with the most stringent laws. (Colorado has the strongest pay equity laws in the nation right now, for example, so some organizations base their pay equity plan on its laws.) Others operate on a state-by-state basis. Others even decide not to operate in—or hire remote workers who work from—states with more stringent pay equity laws than those they are already complying with. 

Question 3: Do you have a compensation plan? 

In some states (like Colorado, for example) having a documented compensation plan can protect an organization from some additional fines in a pay equity dispute and may provide evidence of an organization’s  “good faith” effort toward establishing equitable pay. 

The first step toward establishing fair compensation is to have a plan: You have to know why and how you set compensation levels before you can analyze whether you are doing so fairly. Organizations without a detailed, written-down compensation plan should create one, either internally or by seeking out third-party compensation planning services

Question 4: Do you need to do a pay equity audit? 

You know where you’re operating. You know the pay equity laws in all of those locations. You have a compensation plan. What next? If you are already able to organize and analyze your own pay equity data and are managing any trouble spots—great job, you’re doing what you need to be doing. However, you may still want to consider a full pay equity audit performed by a third-party. Some laws allow for additional legal protections for employers that have completed full audits. 

If multi-state pay equity is a potential blind spot for your organization, you may need to conduct a pay equity audit. Qualified employment law consultants can help companies determine if you are paying employees fairly and/or open to possible pay equity conflicts. Audits usually take around 90 days, and can help protect organizations from being blindsided by unexpected complaints or suits.  

A pay equity audit: 

  • Gathers information about employee roles and positions in all locations
  • Groups jobs into categories based on education required, skills needed, minimum requirements, supervisory responsibilities, and other key data 
  • Divides those roles into groups that are broadly equal 
  • Looks at the individuals currently holding those positions and their pay to find any statistically significant differences
  • Analyzes differences to see if there are justifiable reasons for the pay discrepancy based on multi-state locations. In Colorado, for example, there is a narrow list of reasons companies can legally justify differences in pay, including: seniority, production levels, merit, location and level of education or training. Federal and other states’ laws are much broader. 
  • Flag any discrepancies that are immediately actionable and advise clients to address them first. 
  • Point out any emergent patterns and/or discrepancies that are right on the line, so organizations can take action, no matter where their employees are located. 

Employers Council provides a wide range of legal services around pay equity from providing advice and counsel on specific multi-state issues to conducting full pay equity audits across all of an organization’s locations. 

Ready to tackle your organization’s multi-state pay equity challenges? Let’s talk.

About the author
Employers Council Staff