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Compensation Sense: Can Your Company Avoid Compensation Discrimination Claims and DOL Audits?

April 14, 2017
Discrimination - Gold text on black background - 3D rendered stock picture.

Compensation discrimination can be costly – not just for victims of the practice, but also for organizations that must defend themselves against such claims. For example, Google recently found itself on the defensive after the U.S. Department of Labor (DOL) claimed the tech giant discriminated against female employees with “extreme” gender pay disparity. (Google refutes the charges.) And while Google might be well-fortified financially to deal with this situation, the costs of defending against compensation discrimination claims would destroy most smaller businesses.

What can your business do to avoid compensation discrimination claims and survive a DOL audit? Read on:

 

Bases of Compensation Discrimination Claims

Beyond gender-based pay inequity, there are other bases for compensation discrimination claims. These might include employee age and ethnicity, for example. And with recent broad rulings protecting LGBT workers against workplace discrimination, it’s reasonable to presume that compensation discrimination claims could become more common within that community as well. Even if certain employees are not part of a protected class within the workplace, the existence – or even the perception – of compensation discrimination at any level could cause considerable pain for the organization.

 

Rising Risks

In another post, I described escalating risks that could put an organization in the Department of Labor’s crosshairs. Chief among these factors is that the number of Fair Labor Standards Act (FLSA) cases filed against employers has risen steadily, with a nearly 33% increase since 2009/2010. Naturally, the DOL must investigate these claims. That means time and expense for your organization regardless of the merits of any allegations. And as I noted before, even if your compensation plan is fundamentally sound, your company could be found liable for violations if the plan’s implementation and administration are inconsistent.

 

Keeping Your Head Above Water

Admittedly, government regulations affecting employees and workplace fairness are plentiful and complex. The FLSA is just the tip of the iceberg when it comes to navigating icy regulatory waters regarding compensation and HR practices.

Perhaps your company’s best life preserver is your Employee Compensation Plan – IF the plan is fair, legally sound, well-documented, well-communicated, and current. Working within the law and following best practices for non-discrimination might make compensation discrimination claims and DOL audits less likely, but not impossible. Is your company on firm ground, or are you adrift in those swirling icy waters?

 

Beyond Your Compensation Plan

So, aside from reviewing and shoring up your Compensation Plan, what can you do to be better positioned against compensation discrimination claims and DOL audits? First, review your employee job classifications, paying particular attention to areas where there could be an imbalance regarding protected classes across those classifications.

Next, do a Discrimination Analysis. This is a review by job of all protected classes to uncover significant differences in compensation. This analysis can be done as a stand-alone review or in conjunction with an internal Equity Analysis. Use a spreadsheet to help uncover any significant differences in compensation for protected classes, including those based on age, gender, and race. Conduct the Discrimination Analysis at least annually to help uncover any potential discrimination issues you can correct.

Then perform an internal Equity Analysis to ensure employees in the same classification, job title, and/or pay grade are being paid equitably. Make sure any wide variations can be supported by mitigating factors such as education, previous related experience, time in job, and performance. Perform this analysis at least annually to identify any potential discrimination issues you can correct. The Equity Analysis is one where you continue to “peel back the onion” until you can document all mitigating factors for wide variations in compensation.

 

Bottom Line:

Compensation discrimination can develop even if it is not deliberate. Your Compensation Plan, Discrimination Analysis and Equity Analysis – if carefully crafted and current – can make you aware of possible issues so you can address them early. By doing that, you might just reduce the risks of discrimination charges and regulatory audits. If you are afraid that your organization might be vulnerable to compensation discrimination claims, contact Total Reward Solutions today at 317.589.8529. We can work with you so you can navigate these and other compensation issues with confidence.

Cassandra Faurote

 

About Total Reward Solutions:

Total Reward Solutions is your trusted partner for compensation and benefit services. Led by respected and professionally certified Human Resources expert Cassandra Faurote, Total Reward Solutions offers a broad range of compensation, benefits, performance management, and reward/recognition consulting services to help your organization attract top talent, motivate employees and retain top performers. We can partner with you on a project basis, on retainer, or as your total outsourced solutions provider for compensation services.

Call us today at 317.589.8529 to discuss how we can help your organization develop and implement competitive and effective compensation and total reward programs.

Posted Under: Compensation, Compliance, Regulations, Salary