Equal Pay Act of 1963: Guide for HR and employers

As an employer or HR manager, there are a number of federal, state, and local employment laws that you must comply with. These laws ensure that your employees are treated and compensated fairly. One such law is the Equal Pay Act of 1963. This law ensures that workers are paid equal pay for equal work. Aside from ensuring pay equity, the EPA also protects employees from other forms of potential discrimination.  

In order to avoid claims of unfair compensation practices, it’s important to make sure you are up to date with all your responsibilities and obligations as a business. In this post, we will discuss what the Equal Pay Act is, and the criteria you need to follow to ensure compliance. We will also share a few tips to help you design and implement a fair and equitable compensation policy.

What is the Equal Pay Act (EPA)? 

The Equal Pay Act (EPA) is an employment regulation that was passed by Congress in 1963 and signed into law by President Kennedy later that same year. Essentially, the provisions of the act have been designed to ensure that all employees receive equal pay for equal work. Enforced by the Equal Employment Opportunity Commission and the Department of Labor, the EPA serves as an amendment to the Fair Labor Standards Act of 1938. This is a United States labor law that creates the right to a minimum wage, and “time-and-a-half” overtime pay when people work over forty hours a week. It also prohibits the employment of minors in “oppressive child labor”.

According to the Equal Pay Act, all employees have a right to pay equity and protection against sex-based compensation discrimination. This means that if multiple individuals are performing substantially equal jobs that require similar levels of skill, effort, and responsibility, and under similar working conditions, then you must pay them the same wage or salary, regardless of gender. All forms of pay are covered by this law, including salary, overtime pay, bonuses, stock options, profit sharing and bonus plans, life insurance, vacation and holiday pay, cleaning or gasoline allowances, hotel accommodations, reimbursement for travel expenses, and additional fringe benefits. If there is an inequality in compensation between men and women, employers may not reduce the wages of either sex to equalize their pay.

Employer requirements under Equal Pay Act 

Under the provisions of the Equal Pay Act of 1963, you have a responsibility as an employer to ensure that all your employees receive equal pay for equal work.

As we just mentioned, equal work relates to roles that require similar:

• Skills
• Efforts
• Responsibility
• Qualifications and experience
• Working conditions

According to the Equal Pay Act, jobs do not have to be identical to be considered equal. It is enough for them to be viewed as substantially equal. This doesn’t mean that you have to pay all employees working substantially equal jobs the exact same wage or salary. However, it does mean that if there are any discrepancies then you need to be able to justify higher salaries and prove that they have not been awarded on the basis of sex or gender. For instance, you might justify paying an employee a higher salary than one of their colleagues if they have a higher level of education or training, if they have substantially more experience working in the field, or if they have a higher level of responsibility.  

The best way to ensure you meet the requirements of the Equal Pay Act is to:

• Conduct a regular pay equity analysis and consistently correct any identified pay inequalities.
• Ensure you have a defined seniority system in place.
• Design and implement a merit system.
• Measure the quantity and quality of performance and include the results in employee earnings or wage incentive plans.
• Define a clear compensation policy that justifies your salary ranges and protects you from potential claims of sex-based compensation discrimination.

Types of pay and compensation covered 

According to the Equal Pay Act of 1963, equal pay refers to an employee’s salary or wages. However, pay equity also takes into account any other form of compensation that you might offer. 

This includes:

• Overtime pay
• Bonus plans
• Profit sharing options
• Stock options
• Life insurance and health insurance benefits
• Cleaning or gasoline allowances
• Reimbursement for travel expenses
• Vacation and holiday pay
• Any other employment benefits or perks.

If, during a pay equity analysis, you identify any discrepancies in the compensation or benefits that you offer employees performing substantially equal work then you must correct these discrepancies. According to the EPA, this means that you must raise compensation or benefits to equalize pay. You cannot, by law, reduce the salary or benefits that a higher-earning employee might be receiving. 

Equal Pay Act claim criteria 

Let’s take a look now at the claim criteria for the Equal Pay Act in a bit more detail. 

If an employee believes that they are receiving a lower salary as a result of sex-based compensation discrimination, then they can file a claim with the Equal Employment Opportunity Commission (EEOC). According to the provisions of the Equal Pay Act of 1963, this claim needs to be filed within two years (or, in the case of a willful violation, within three years). Employees can also file a lawsuit directly through the courts without first filing a charge with the EEOC. 

The EEOC will consider any EPA claim that meets the following criteria:

• Skill. The jobs require substantially equal levels of skill. Measured by factors including the experience, ability, education, and training required for a job.
• Effort. The jobs require substantially equal levels of effort. Understood as the amount of physical or mental exertion needed to perform a job.
• Responsibility. The jobs require substantially equal levels of responsibility. Understood as the degree of accountability required to perform the job.
• Working conditions. The jobs must be performed under similar working conditions. Includes the physical conditions of the working environment (temperature, fumes, ventilation, etc.). Also includes any hazards that might be present in the working environment.  
• Establishment. The jobs must be performed within the same establishment. Understood as a distinct physical place of business rather than an entire business or enterprise consisting of several places of business.

If an employee files an Equal Pay for Equal Work claim, they are automatically protected against unlawful retaliation by their employer. Unlawful retaliation is defined as an adverse employment action by the employer, such as demotion or termination.

Tips for Employers 

We are now going to share a few tips to help you promote pay equity in your business and ensure compliance with the Equal Pay Act.

Conduct a pay equity analysis  

A pay equity analysis, also known as a pay equity audit, is all about ensuring equal pay for equal work. Put simply, this process involves analyzing pay rates within your organization in order to establish if there are any unjustified differences in pay. You can do this by analyzing your payroll data.

The payroll data you collect will usually include the following information:

• Job titles and descriptions
• Departments, levels, roles, and responsibilities
• Protected class identifiers such as age, gender, race, etc.
• Educational level and experience
• Seniority levels
• Hours worked
• Starting salaries
• Current salaries
• Promotions
• Bonuses and benefits
• Frequency and rate of pay increases
• Business practices
• Market data

A pay equity analysis serves a number of functions. Firstly, it ensures you are paying all your employees fairly, helping you avoid any potential sex-based compensation discrimination lawsuits. This is important because legal bodies like the Equal Employment Opportunity Commission and the Department of Labor (DOL) are becoming increasingly focused on addressing gender equality and the wage gap.

Secondly, a pay equity analysis is a great way for you to offer fair rates of pay, helping you attract and retain top talent by offering competitive rates and equal opportunities for all. It highlights your commitment to diversity, equity, inclusion and belonging (DEIB), and helps you stay relevant in a competitive market. 

Correct any pay inequities 

Once you’ve conducted your pay equity analysis, you need to implement action plans to correct any pay inequalities. This will ensure you are offering equal pay for equal work at all levels of your company. 

Aside from comparing substantially similar organizational roles, it’s also a good idea to compare compensation strategies between different departments. For example, are you paying your sales reps considerably more than your finance administrators? Or are you applying your compensation strategy fairly relative to the skills, experience and qualifications required for each function?

If you identify potential cases of sex-based compensation discrimination, don’t forget that you must never reduce someone’s salary to balance out the discrepancy. According to the terms of the EPA, any unjustified pay gaps need to be addressed by raising the salaries of those receiving lower rates of compensation. 

Design a clear compensation strategy 

Although conducting a pay equity analysis and implementing corrective measures is essential for ensuring equal pay in your business, it’s equally important to focus on preventative measures. This will help you reduce the chances of sex-based compensation discrimination practices occurring in the first place.

Start by creating a well-defined compensation strategy with clear guidelines for salary benchmarking. A compensation strategy defines you policies for employee benefits and compensation in line with your organization’s mission, vision, and goals. It’s about deciding where you want to compete, how competitive you need to be, and how you will reward your employees. In other words, what provisions you need to make in order to compensate your employees fairly.

It’s also a good idea to conduct market research to ensure that the salary ranges you offer for each role are in line with industry standards. This is what’s known as salary benchmarking. This will help you establish what you should be offering in order to remain competitive so that you can attract top talent to your business.

Once you’ve done your research, you need to determine a framework for compensation. This means defining your pay grades based on job positions and duties, as well as skills and levels of experience. This will help you define how much you should be paying each employee in line with job requirements and experience (skill or competency-based pay). And this is one of the foundations of a competitive compensation strategy based on pay equity. Ultimately, by establishing a clear compensation framework, you will be able to justify higher salaries and avoid potential claims of sex-based compensation discrimination.

Benefits of Equal Pay Act  

The most obvious benefit of the Equal Pay Act is that it provides equal opportunities and fair compensation to all employees. And this is a vital element of creating a company culture that is based on diversity, equity, inclusion, and belonging. Equally important is that EPA compliance helps you avoid costly claims and lawsuits relating to sex-based compensation discrimination.

However, the benefits don’t end there.

Aside from ensuring you offer equal pay for equal work, the EPA and the promotion of pay equity:

• Demonstrates your organization’s values to employees.
• Aligns your company’s social responsibilities.
• Drives company culture and employee engagement.
• Sets your position in the market.
• Boosts motivation and morale and helps your employees feel valued and appreciated. 
• Incentivizes your employees to give their best in terms of performance and productivity.
• Creates a more competitive workplace that attracts top talent to your business.
• Forms an integral part of your employer brand and reputation.

Criticisms of Equal Pay Act 

Although the concept of equal pay for equal work is straightforward in practice, the definition of equal pay and how it’s applied in practice can sometimes be a little more complicated. And this has led to a number of criticisms of the Equal Pay Act.

Generally speaking, there are four legal defenses for pay inequality that employers can cite.

Essentially, these defenses can be used to justify why you are paying certain employees higher salaries than others working substantially similar roles, and they include:

• Seniority
• Merit
• Quantity or quality of work
• Any other difference based on another factor that is not gender

However, historically, these defenses have been interpreted in different ways by different courts. And this has led to a degree of confusion amongst employers in the US. It has also led to criticism of the EPA by the American Bar Association which claims that gender discrimination is difficult for employees to prove. The ABA also claims that there are further shortcomings of the EPA. For example, they believe that the penalty of back pay, increased wages, and attorney’s fees for an employee who wins a lawsuit is not a sufficient deterrent for employers.  

To address these criticisms, the House of Representatives passed the Paycheck Fairness Act in 2021. The Paycheck Fairness Act is a proposed United States labor law that would add procedural protections to the Equal Pay Act of 1963 and the Fair Labor Standards Act as part of an effort to address the gender pay gap in the United States. However, as of January 2023, the legislation is yet to reach the Senate floor. 

Other types of discrimination law 

We are going to finish this post by taking a look at a few other HR compliance laws that you need to be aware of. The following discrimination laws serve as additional protections to ensure that all businesses promote pay equity. You also need to be aware of any state and local regulations relating to pay discrimination, such as the California pay transparency law.  

Title VII of the Civil Rights Act of 1964

Title VII of the Civil Rights Act of 1964 prohibits employment discrimination based on race, color, religion, sex  (including gender, pregnancy, sexual orientation, and gender identity), and national origin. It specifically prohibits discrimination in the terms and conditions of employment, including hiring, compensation, employment benefits, advancement, employment training, assignments, and termination of employment. 

The Act, enforced by the Equal Employment Opportunity Commission, applies to private, state government, and local government employers that employ 15 or more employees. It also applies to federal government employees and applicants for federal employment.

The Age Discrimination in Employment Act of 1967

The Age Discrimination in Employment Act (ADEA) of 1967 protects workers who are aged 40 and older from workplace discrimination. It prohibits employers from making decisions to hire, fire, or promote employees based on their age. 

The ADEA outlines a comprehensive ban on discriminatory practices based on age. Specifically, it prohibits the following:

• Discrimination in hiring practices, the awarding or withholding of promotions, wages, terminations, and layoffs.
• The use of or making statements regarding certain age preferences or limitations.
• Harassing older employees because of their age.
• Denying benefits to older employees. 
• Mandatory retirement at a certain age. 

The ADEA, which is also enforced by the EEOC, applies to private and public employers with 20 or more workers. The ultimate objective of this discrimination law is to minimize the damaging effects of long-term unemployment on older workers.

The Americans with Disabilities Act 

The Americans with Disabilities Act of 1990 (ADA) makes it unlawful to discriminate in employment against a qualified individual with a disability. The ADA also outlaws discrimination against individuals with disabilities in State and local government services, public accommodations, transportation, and telecommunications. This act protects the rights of both employees and job seekers. 

As with the Equal Pay Act, Title VII, and the ADEA, the Equal Employment Opportunity Commission enforces the ADA together with State and local civil rights enforcement agencies that work with the Commission. Moreover, although not responsible for enforcing the act, the Department of Labor’s (DOL) Office of Disability Employment Policy (ODEP) offers technical assistance on the basic requirements of the law. This includes the obligation to provide reasonable accommodations to qualified job applicants and employees with disabilities.