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It's the Best Time of the Year...For a Pay Equity Audit

As 2022 draws to a close, employers are preparing for holiday parties, analyzing their staffing, and assessing compensation for the coming year in light of significant inflationary pressures and historically low unemployment rates. One item employers should consider is pay equity and the potential need for a pay equity audit. There are many reasons why a pay equity audit is particularly important for employers at this time.

More Legislation = More Litigation

Most obviously, employers are facing more pay equity regulations and litigation pressure, which are likely to increase in 2023. States such as California, Washington, and New York are revising their pay equity and/or pay transparency statutes to encourage employees to raise pay equity concerns and make it easier for employees to bring and prevail in pay equity litigation. Illinois and California also require employers to disclose compensation data to state regulatory entities so as to allow those entities to audit the employer’s compensation. These trends are likely to accelerate in 2023, given the 2022 mid-terms. Democrats made substantial gains in many state legislative offices and now have full control over legislation in several new states, including Minnesota and Michigan. The Democrats will likely pass new pay equity and pay transparency legislation in some or all of these states.

EEOC Directed Investigations

Employers are facing pay equity pressure at the federal level. The EEOC has already pivoted to Democratic pay equity initiatives under the Biden Administration. This trend will only accelerate as the Commission comes under greater Democratic control in 2023. The EEOC has the authority to commence Equal Pay Act audits without any evidence that the employer has an underlying pay inequity. The Obama Administration EEOC began numerous pay equity directed investigations, and it would be unsurprising to see a similar set of investigations coming out of the Biden EEOC over the next 24 months.

Economic Climate

Compensation issues have been particularly challenging for employers over the last couple of years. Unemployment levels have remained historically low over the previous 12 months, and inflation is higher than it has been in a generation. These pressures are forcing employers to adjust compensation more than they have in decades. As a result, employers are making compensation decisions that could either give rise to additional pay inequities or be used to close existing gaps. A successful pay equity audit can identify existing disparities and help an employer make compensation adjustments that protect employers on a going-forward basis. Pay equity audits can be particularly effective if done prior to annual compensation adjustments, so those compensation adjustments can be used to eliminate any inequities in the employer’s workforce. Because many employers make adjustments in the spring, now is the best time to do audits in advance of those adjustments.

Employers are facing a number of employment-related challenges as 2022 draws to a close. Conducting a pay equity audit can help ring in a more equitable – and less litigious – 2023.

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