How Unequal Pay Can Affect Your Business

Despite the federal Equal Pay Act and state laws concerning pay equity, unequal pay in the workplace remains the norm in many US businesses. While the focus on pay discrepancies usually centers on employees, unequal pay for women and minorities can also affect your business, resulting in low morale, high rates of staff turnover, difficulty hiring new talent, and litigation.

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Unequal Pay for Women

Before examining how pay equity affects businesses, it’s important to understand how prevalent unequal pay for women and minorities is. The National Partnership for Women and Families reports women are paid 80 cents for every dollar paid to men. Minority women see even larger pay gaps, with black women making 61 cents per dollar paid or white males, while Latinas see 53 percent. Such wage gaps exist regardless of idustry, occupation, and education levels.

The effect of pay inequality is far reaching. The NPWF estimates that if the annual wage gap were eliminated, the average women working full time in the United States would have enough money annually for

● 14 months of childcare (single mothers earn an average of 71 cents per dollar earned by men)
● The full cost of tuition and fees for a two-year community college degree
● Approximately seven months of mortgage payments
● Up to ten months of rent
● Enough money to pay off the average student loan in under three years.

How Unequal Pay in the Workplace Affects Your Business

Understandably, employees resent pay inequality, and more and more are demanding action be taken to address the issue. In response, many states and municipalities are passing updated pay inequity laws, which sometimes do more to muddy the definition of pay equity than address it. Only 28 percent of working women in the USA believe that are paid the same salaries as their male counterparts.

Employee Morale

Pay equity issues affect your workplace in multiple ways. The first, and perhaps most obvious, is the effect pay inequality has on employee trust and morale. Employees who feel they are treated unfairly are unlikely to perform at their best. Equal pay encourages a more content workforce, which can have a significant impact on productivity.

Employee Retention and New Hires

If an employee suspects she’s being paid less than her male counterparts, she’s likely to consider other employment opportunities. Pay inequity can lead to higher rates of employee turnover, with the attendant costs of hiring and onboarding new talent.

Finding new talent may be difficult for a business with a reputation for unequal pay. The majority of the US workforce–67 percent–report being unwilling to apply for jobs at any company they believe practices wage discrimination.

Complaints and Litigation

Unequal pay in the workplace can lead to complaints to human resources and potential litigation under the federal Equal Pay Act or local pay equity laws. Should a case go to court, your business may be liable for lost wages, emotional damage, and legal costs. Even if the business wins the case, it cannot recover the time invested in defending itself. A court case also leads other employees to question whether their own wages are fair or not.

Public Relations

Unequal pay for women and minorities is a hot button topic in both the media and on social media. Even a rumor of pay inequality in a workplace can go viral, with disastrous results to a company’s reputation and brand.

Addressing Unequal Pay in the Workplace

A proactive approach to pay equality helps prevent issues with unequal pay affecting your business. Some companies resolve the issue with a set system for determining pay that’s applied to all employees. Such systems determine pay based on position, work experience, and education, and effectively remove the risk of assigning different employees different pay for similar jobs.

Regularly reviewing employee compensation helps identify and fix pay equity issues. Remember gender discrimination goes beyond unequal pay. If your company routinely hires women for certain positions and men for others, you could be laying the groundwork for a discrimination lawsuit.

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Businesses should also consider an open pay policy, where employees can quickly compare their own wages with their coworkers. While this solution often works, it does raise the possibility of employees becoming disgruntled when they see how much management earns.

Unequal pay for women in the US workforce needs to be addressed. By ensuring your business is free from pay equity issues, you protect your business from litigation, keep your employees happy, and attract new talent. The company that pays its employees fairly has a major advantage when competing with other companies for the best talent.

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