pay equity analysisEnsuring pay equity in the workforce continues to be a goal for many of our clients. Awareness of social inequalities, changes in federal and state laws, increased numbers of EEOC/OFCCP audits, and highly publicized discrimination in the workplace cases have all resulted in employers renewing their focus on pay equity.

If you or your client are subject to allegations of unequal pay, or if you want to perform a self-audit in order to identify any potential problem areas and gain awareness of how your pay data might appear to others, Welch Consulting labor economists can work with you to organize your data and develop practical solutions.

When looking at pay data as part of a pay equity audit, it is important to be aware of both federal laws and state-by-state pay equity laws. Variances in the definition of “substantially similar” work, bona fide factors, relevant geographic radius, and differences in protected classes may all be relevant in cases of alleged discriminatory pay. Welch Consulting takes individual states’ pay equity laws into account when structuring our analyses in order to yield a more complete explanation of any possible pay differentials.

State-Specific Pay Equity Laws

New York’s original equal pay law, which stipulated that men and women must be paid equally for equal work, originated in 1944. It predates the Federal Equal Pay Act of 1963 by nearly two decades. California passed its own Equal Pay Act in 1949, and its stipulations mimicked New York’s law. Men and women in California were entitled to equal pay for equal work, meaning that the same salary was paid to men and women–but only if they held the same job title. In 2016, the California Fair Pay Act took effect, altering the 1949 legislation, and in 2019 Governor Cuomo updated New York’s legislation. This post will discuss the major differences between the updated pay equity laws of New York and California and explain how a labor economist would structure a pay equity audit.

Important Differences

New York and California’s updated equal pay laws are similar, but not identical—and these differences must be taken into account in a well-rounded economic analysis:

1) Different protected classes

pay equity in the workforceThe Federal Equal Pay Act of 1963, amending the Fair Labor Standards Act, protects against wage discrimination based on sex. The Equal Pay Act (EPA) protects both men and women, and includes not just wages but also overtime, life insurance, bonuses, holiday and vacation time, and other benefits. The federal law stipulates that if there is a difference between the wages of men and women when they perform “substantially equal” jobs, then employers must raise the wages of the disadvantaged party so that pay is equal (while not lowering the wages of the advantaged party).

Subsequent federal laws (Civil Rights Act of 1964, Age Discrimination in Employment Act of 1967, etc.) protect other classes, such as race, color, national origin, religion, sex (including pregnancy, childbirth and related medical conditions, transgender status, gender identity, sexual orientation and sex stereotyping), age (over 40), marital status, political affiliation and disability. However, these laws have different standards of proof than the Equal Pay Act.

Previously, New York’s law stated that it was incumbent upon the employer to show that a pay differential was based on a “factor other than sex.” In the 2019 update, the state’s law now mandates equal pay for substantially similar work, irrespective of “age, race, creed, color, national origin, sexual orientation, gender identity or expression, military status, sex, disability, predisposing genetic characteristics, familial status, marital status, or domestic violence victim.”

California law, by comparison, mentions only “gender, race, and ethnicity.” An employer is prohibited from paying its employees less than employees of the opposite sex, or of another race, or of another ethnicity for substantially similar work. It is also illegal to use prior salary as a justification for a pay differential that is in fact based on gender, race, or ethnicity.

2) Definitions of “substantially similar work”

The Federal Equal Pay Act prohibits sex discrimination “for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions.” This definition opens the door for some challenges—one could argue, for instance, that a housekeeper and a butler perform roles that require equal effort and similar conditions.

California was the first state to create legislation clarifying and extending this wording. As of 2016, California state law stipulates that no employee who falls into a protected class can be paid differently than an employee outside that class, working for the same employer, for “substantially similar work.” This refers to work that is mostly similar in skill (experience, ability, or education needed to perform the job); effort (mental or physical exertion needed to perform the job); or responsibility (degree of accountability or duties required in performing the job).

In New York, the legislation was likewise updated in 2019 to include “substantially similar work.” This refers to a composite of skill, effort and responsibility, and similar working conditions. That provision extends the previous wording, which prohibited pay disparities for equal work–requiring equal skill, effort and responsibility, and performed under equal working conditions.

3) Exceptions due to “bona fide factors”pay equity audits

In the Paycheck Fairness Act, a 2017 update to the Federal Equal Pay Act, a defense of “bona fide factors” applies only in certain conditions. The employer must be able to demonstrate that a pay discrepancy is not based on sex, is job-related to the position in question, is consistent with a business necessity, and accounts for the entirety of the pay differential. A bona fide factor defense cannot apply if any alternative practice could avoid the pay differential.

New York and California laws elaborate on what would constitute a legitimate bona fide factor: In New York, employers must show “a bona fide factor such as education, training or experience” that supports the difference in pay. (Prior to the 2019 legislation, an employer need only show that the differential was based on any “factor other than sex.”) Valid reasons for a differential may include a system based on seniority, merit, or one that measures earnings by quantity or quality of production.

In California, employers must show “a bona fide factor other than sex, race or ethnicity”—to include education, training or experience. Importantly, the bona fide factor must account for the entirety of the pay differential. Moreover, an applicant or employee’s prior salary does not alone justify a difference in compensation.

As in the federal law, the bona fide factor defense does not apply in either state if a viable alternative practice exists that could eliminate the wage gap.

4) Geographic area may support pay differential

Federal employment law puts the onus upon the plaintiff in a pay equity case to demonstrate that comparators work within “the same establishment,” meaning the same physical place of business. State laws have extended the legitimacy of geography as a defense against an allegation of pay inequity.

The California law eliminated the previous requirement that employees work in the “same establishment” to be comparable.  It did not expressly permit or forbid geographic location as a bona fide reason for a pay differential other than gender.  Under New York law, workers are considered to work in the same “establishment” if their comparators work in the same “region” (no larger than a county, taking into account population distribution, economic activity, and/or the presence of municipalities). A pay differential between employees in different regions might then be justifiable.

As economists analyzing pay data, we work with clients to understand whether and how pay structures vary by geography.  We then account for this in our models, typically looking at the data in multiple ways, to account for the multiple ways that different parties may interpret these new laws.

The Role of Welch Consulting

discrimination in the workplace casesThe labor economists at Welch Consulting are experts at analyzing data for local and nationwide employers. When we design a pay equity analysis, we will work with counsel to ensure that we review the data in ways that align with federal and state laws.  This typically includes analyzing data both nationwide and separately by state and tailoring our employee grouping and control factors to comport with the relevant laws pertaining to each population.

We can also run analyses to assist with evaluating compliance in a variety of scenarios, in addition to pay equity laws. This may include analyzing hiring and promotion patterns, as well as compliance with relevant wage and hour laws.  Our economists can also serve as expert witnesses in workplace discrimination lawsuits. We have worked in an economic consulting capacity with firms all over the United States and remain up to date on legislative changes and trends in employment litigation.

Contact Welch Consulting to discuss how we can work with you.



New Pay Equity Laws in New York and New Jersey (Again)

California Equal Pay Act

Can California Prevent Wage Discrimination Against Women?

What Is the California Equal Pay Act?

CEA Presents: Guide to California’s Equal Pay Laws

FACT SHEET: 2019 New York State Pay Equity Laws

New York State to Expand Protections Against Discriminatory Pay Practices