Too often, small businesses believe they can’t perform HR as effectively as larger organizations because they lack the resources needed to be successful. Larger employers typically have fully staffed HR departments, while small businesses often can’t afford even a full-time HR generalist. This reality seems to put smaller businesses at a competitive disadvantage in the labor market.
Fortunately for small businesses, it doesn’t have to be this way. With the right tools and approach to HR, small businesses can be just as effective in creating a productive and healthy workplace and transforming HR into a competitive advantage. Pay equity—a currently hot topic in the HR world—is one case in point.
Pay equity isn’t a new issue. The federal Equal Pay Act was enacted in 1963 to eliminate pay disparities based on sex. This law requires that men and women who perform jobs requiring substantially equal skill, effort and responsibility are paid equal wages—and that any disparities of pay between them are based on seniority, merit, quantity or quality of work, or a factor other than sex.
But half a century of the Equal Pay Act hasn’t eliminated the pay gap. In 2018, women still earned only 85 percent of what men earned. In response, states and cities are taking action in two key ways: expanding on the federal law and introducing new restrictions connected to pay decisions.
Pay equity laws or anti-discrimination statutes that technically require equal pay are currently in place in 48 states. Although many mirror the protections of the federal law, the more recent trend is to impose stricter and broader standards on employers than the federal law. For example, in Oregon employers must ensure pay equity across all protected classes (e.g., race, religion, disability). In California, employers must provide the pay scale for the position to applicants who request it.
State and local governments are also imposing new restrictions on pay decisions, such as prohibiting salary history inquiries. Traditionally, employers asked about a candidate’s previous pay to help them evaluate and calibrate both their and the candidate’s expectations. But if a candidate’s previous pay was the result of discriminatory practices or legacies, basing pay on salary history carries that disparity into the present. California, Massachusetts, Vermont, New York City and Cincinnati are among the jurisdictions that have enacted salary history inquiry bans of some sort—a trend that’s likely to continue.
To ensure compliance with pay equity laws, small businesses need to audit their pay scales and practices, more clearly define the roles within their business, and be more disciplined and methodical about hiring, promotion and compensation. Those aren’t necessarily easy tasks for small businesses, but implementing them ensures compliance and equity, and can be used to create a competitive advantage.
Small businesses that invest in creating an equitable workplace can leverage their work to become an employer of choice in their community. Pay equity is a legal matter, of course, but also a moral and cultural one. Job candidates want to work with an employer who shares their values. If a business has made equality in the workplace a priority, it can build that message and the values underlying it into its employer brand and story.
This dynamic is even stronger for businesses that address workplace equality proactively and go beyond the legal requirements. Businesses in states that have not yet adopted additional pay equity regulations can learn from the best practices of the businesses already subject to them. Don’t ask about pay history. Be transparent about your pay systems. Assess your pay practices for any disparities. Communicate your commitment to pay equity to candidates and employees.
You don’t have to be a big corporation to be known as a champion of pay equity. Small businesses can get ahead of the recent wave of pay equity laws, build a reputation for integrity and fairness, and position themselves as culture-driven thought leaders in their market.
Nathan Christensen is the CEO of Mammoth HR, a collaborative HR company that serves over 80,000 small and mid-size businesses nationwide. Nathan has been named a “Game Changer” in the HR field by Workforce magazine and was selected by the Portland Business Journal as a member of the “Forty Under 40” class. Mammoth HR, has been recognized as one of the country’s top workplaces by Fortune magazine and Entrepreneur magazine.