Even though claims under the federal Equal Pay Act only made up 1.5% of all the claims filed with the Equal Employment Opportunity Commission (EEOC), pay discrimination remains a significant issue across the country.

Pay discrimination is not just an issue for employees, but employers too. After all, employers are the ones who could face considerable penalties or legal claims if they violate California or federal wage and hour laws.

This is only one reason why regular pay audits are an important tool that employers must utilize.

Pay audits find concerns proactively

When employers conduct a pay audit, it helps them to keep financial information organized. However, audits can also help employers identify potential issues before they become a problem.

For example, HR Dive reports that employers must take care to answer two questions during the pay audit:

  1. Is there a disparity in employees’ pay?
  2. Is this difference significant?

Employers must find and evaluate such disparities before they affect employees, so they can reduce the risk of litigation or legal consequences.

What should employers consider in a pay audit?

It is critical to create a plan before moving forward with a pay audit. When conducting an audit, employers should:

  • Double-check their workers’ classifications
  • Evaluate the criteria used to determine pay
  • Assess their pay policies carefully
  • Review all pay rate and time data

Employers should also maintain records of their pay audits. This is especially important now that California lawmakers passed a bill requiring many employers to report pay data annually.

Proposed law essentially requires pay audit reports

Reports project that Gov. Newsom will sign Senate Bill 973 by the end of September. This bill would require employers with more than 100 employees to file a pay data report with the Department of Fair Employment and Housing (DFEH) by March 31, 2021. They would have to file a report each year by that date.

To prevent pay discrimination and close the wage gap, this bill would also obligate employers to report not only the employees’ wages but also the number of workers they employ by race or sex in several job categories.

Conducting thorough and proactive pay audits can help employers prepare to meet these new requirements, should the law pass. However, audits can also help employers ensure they manage their finances and comply with current laws effectively.