Question: To help ensure our wages don’t balloon beyond what the market requires, we set a limit on new hires’ salaries of no more than five percent over what they were making in their prior job. Any problems with this?
Answer: Yes, such a practice may perpetuate existing discrimination in wages. The U.S. Department of Labor has made pay equity one of its top enforcement priorities. Under the slogan, “Equal Pay for Equal Work,” the agency has established a pay equity web page highlighting statistics that women earn 78 cents on the dollar compared to men, with wider gaps for women of color. Using prior salary as a benchmark for setting a new employee’s salary is a controversial topic in the equal employment opportunity (EEO) field. In 1982, the U.S. Ninth Circuit Court of Appeals ruled that considering prior salary as one factor in setting wages isn’t prohibited by the Equal Pay Act (EPA), as long as the policy is applied reasonably. Recently, however, a federal district court in California was presented with a case in which a female teacher complained that her employer violated the EPA by using prior salary as the sole factor in setting new hires’ starting salaries. The employer tried to argue that the policy was neutral, but the court took official notice of federal statistics on the pay gap between male and female teachers, and said the teacher can take her case to a jury (Rizo v. Yovino, ED Cal, Dec 2015).
If you take prior salary into account, we recommend you consider other factors as well, such as years of experience or level of education. You should document these factors and periodically review your salary decisions to ensure that the criteria are being applied uniformly. If your starting salaries are affected by market forces, then it also may be wise to document any relevant statistics, such as the unemployment rate in your area. When employers analyze existing workers’ pay for potential discrimination, starting salary is often the biggest driving force, so it’s important to get it right and avoid violations of equal pay laws. If you would like further counsel, our employment law attorneys are always ready to provide legal counsel to employers.
This website presents general information in nontechnical language. This information is not legal advice. Before applying this information to a specific management decision, consult legal counsel.