Q & A: Compliance Manual Section on Compensation Discrimination

INTRODUCTION

What does this Compliance Manual section address?

This section sets forth the standards governing compensation discrimination under Title VII of the Civil Rights Act (Title VII), the Age Discrimination in Employment Act (ADEA), the Americans with Disabilities Act (ADA), or the Equal Pay Act. Collectively, these statutes require employers to compensate employees without regard to race, color, religion, sex, national origin, age, or disability. They also prohibit retaliation for opposing violations of the statutes or participating in the statutory complaint process.

Why did EEOC issue this Compliance Manual section?

This Compliance Manual section is part of an ongoing EEOC project to update and streamline its Compliance Manual. It replaces the old Compliance Manual sections on compensation issues.

Who can make use of this Compliance Manual section?

This section will be useful to anyone who wants to know what the law requires on the subject of compensation --- employers, employees, advocates, and attorneys. It will also assist EEOC investigators and attorneys in evaluating cases. It contains a detailed Table of Contents to permit users to quickly find relevant information.

The following Questions and Answers summarize the most important points in this section of the Compliance Manual. For further information, we encourage you to refer to the relevant parts of the Compliance Manual section. We have included section numbers to make it easier to find the information that interests you.

Is compensation discrimination really a problem?

Yes. Despite longstanding prohibitions against compensation discrimination under the federal EEO laws, pay disparities persist between workers in various demographic groups. For example, women earn, on average, about 75 cents for every dollar that men earn. Moreover, in two recent studies by the President's Council of Economic Advisers on the gender wage gap, the Council found that after accounting for measurable factors that affect employee compensation, there is still a significant pay gap that could be due to discrimination. EEOC's Internet web site contains statistics on the number of discrimination charges filed and resolved under the EPA.

§10-III Title VII, ADEA, and ADA

What is "compensation"?

Compensation refers to any payments made to or on behalf of employees as remuneration for employment. All forms of compensation are covered, 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 benefits.

Under what circumstances is compensation discrimination unlawful under Title VII, the ADEA, and the ADA?

Compensation discrimination is unlawful when an employee is paid less because of his or her race, color, religion, sex, national origin, age or disability. The following are examples:

• An employer pays women less than similarly situated men, and the employer's explanation (if any) does not satisfactorily account for the difference.
• An employer sets the pay for jobs predominantly held by Hispanics below that suggested by the employer's job evaluation study, while the pay for jobs predominantly held by non- Hispanics is consistent with the level called for by the job evaluation study.
• A discriminatory compensation system that disadvantaged African-Americans has been discontinued, but salary disparities caused by the system still continue.

How can you tell whether compensation discrimination may be occurring in a workplace?

Of course, there can be an explicit policy or other direct evidence of compensation discrimination. For example, in the past, some employers provided lower pension benefits to women even though the women made the same pension contributions as men. This was held unlawful by the Supreme Court.

Typically, however, discrimination in compensation is more subtle and requires closer examination. The basic approach outlined in the Compliance Manual section is to identify similarly situated employees and compare their compensation. If there are differences, the next step is to determine whether there are nondiscriminatory reasons for the differences. If not, the differences may well be due to discrimination. Even if there appear to be nondiscriminatory reasons, those reasons should be evaluated to determine whether they actually explain the pay differences.

How do you determine whether employees are similarly situated?

The jobs the employees hold should be similar enough that one would expect the jobs to pay the same. This need not be an overly rigid process. The key is what people actually do on the job, not job titles or departmental designations. Skill, effort, responsibility, and the general complexity of the work are guideposts in determining job similarity.

Is it unlawful to discriminate in bonuses, commissions, and other compensation not included in base pay?

Yes. Bonuses, commissions, stock options, and any other payments in addition to base pay must also be provided on a nondiscriminatory basis. It is important to determine whether the employer's policy for providing non-base compensation is nondiscriminatory in design and application. There are two basic issues to consider in determining whether there is discrimination in non-base pay: (1) whether the eligibility criteria for the non-base compensation are applied in a nondiscriminatory way, and (2) whether, among those eligible, employees receive non-base compensation in nondiscriminatory amounts.

What if members of one protected group are lower-paid than others but there is no indication that the pay practices themselves are discriminatory? For example, what if job category A requires less skill, and therefore is lower-paid, and almost all of the employees in job category A are women?

In this situation the mere fact that almost all of the employees in job category A are women does not in and of itself violate the law. But it is important to make sure that the employer does not limit the employment opportunities of women. The focus should be on whether women are hired into job category A and other job categories on a nondiscriminatory basis, and whether women are treated equally in promotions and transfers. In addition, performance appraisals, procedures for assigning work, and training opportunities must be nondiscriminatory. If any of these employer practices are discriminatory, they violate the law in their own right, in addition to affecting employee compensation.

§ 10-IV THE EQUAL PAY ACT

What does the Equal Pay Act require?

The Equal Pay Act requires that equal wages be paid to men and women who perform jobs that require substantially equal skill, effort, and responsibility, and that are performed within the same establishment under similar working conditions.

How similar do jobs have to be under the Equal Pay Act?

Under the Equal Pay Act, jobs must be substantially equal, but not identical. Therefore, minor differences in job duties, or the skill, effort, or responsibility required for the jobs will not render them unequal. Also, differences between the people in the jobs are not relevant to whether the jobs are substantially equal, though differences in qualifications could ultimately be a defense to a claim of pay discrimination.

What does the Equal Pay Act mean by the terms "skill," "effort," "responsibility," and "working conditions"?

"Skill" refers to factors like the experience, ability, education, and training required to perform the job. "Effort" is the amount of physical or mental exertion needed to perform a job. "Responsibility" is the degree of accountability required in performing a job. "Working conditions" refer to the environmental surroundings and physical hazards of the job. Importantly, working conditions of jobs only have to be similar, while the other factors must be substantially equal.

When are pay differentials between men and women lawful under the Equal Pay Act?

The Equal Pay Act permits pay differentials when they are based on a bona fide seniority system, merit system, incentive system (in terms of quality or quantity of production), or any other factor other than sex. These are known as "affirmative defenses" and it is the employer's burden to prove that they apply.

How do you evaluate seniority, merit, and incentive systems?

They must be bona fide systems. This means that the system was not adopted with discriminatory intent; is an established system containing predetermined criteria for measuring seniority, merit, or productivity; has been communicated to employees; and has been consistently and even-handedly applied to employees of both sexes. And of course the system must in fact be the basis for the compensation differential.

What are common "factors other than sex" that can be defenses under the Equal Pay Act?

Examples include employees' job-related education, experience, training, and ability; shift differentials; job classification systems; and market factors. These and other common "factors other than sex" are explained in the Compliance Manual section.

§10-V INTERACTION OF TITLE VII AND EQUAL PAY ACT

How do Title VII and the Equal Pay Act interact?

Both statutes prohibit sex discrimination in compensation. But despite the considerable overlap of the two statutes, they are not identical. Title VII broadly prohibits discriminatory compensation practices, while the Equal Pay Act is more targeted in that it only prohibits sex- based differentials in substantially equal jobs in the same establishment. Therefore, not all compensation practices that violate Title VII also violate the Equal Pay Act. On the other hand, the Commission's longstanding Equal Pay Act guidelines state that a practice that violates the Equal Pay Act also will violate Title VII.

§10-VI RELIEF

If compensation discrimination is found, what is the appropriate relief?

The remedy should include a salary increase and back pay in the amount of the unlawful difference in pay. It is important to keep in mind that compensation discrimination is always remedied by raising the pay of the lower-paid person to match the pay of the higher-paid person. The victims are also entitled to their attorneys' fees and costs, and to damages that may be available under the particular statute. Injunctive relief also is available.