As Claims Increase, Is Your Employment Practices Liability (EPL) Coverage Up to the Challenge?

Pay discrimination claims — whether based on gender, race, disability or other factors — are a major issue for U.S. employers. The Lilly Ledbetter Fair Pay Act (commonly known simply as the Fair Pay Act) increases the risk of employees bringing an employment-related claim against your business.

Despite its name, the Fair Pay Act does not apply solely to employee pay, but extends to cover overall compensation, including benefits and bonuses.

What’s changed, and how it impacts your business

The Fair Pay Act extends the time limit for an employee to file a pay discrimination claim. According to the Act, each paycheck that results in unequal pay is a separate violation, regardless of when the first incident of discrimination took place; the statute of limitations begins with the most recent incident. In fact, an employee in New York was recently able to bring a claim for pay discrimination that began in 1991.

The Fair Pay Act speaks in terms of equal work. It does not require that jobs be identical as long as they are substantially the same. In comparing jobs, factors such as duties and skills are considered. For example, the fact that one employee has a college degree while another has a high school diploma does not justify different pay if the job does not require a college degree.

The Act also considers the level of responsibility required by the job; whether an employee can perform their job with minimal supervision; whether they have management responsibilities; and the impact of the employee’s contribution on the business.

Steps to protect your bottom line

The Fair Pay Act is still evolving. Among upcoming changes is a requirement for businesses to maintain comprehensive pay documentation, and make some of it available to the Equal Employment Opportunity Commission (EEOC). The EEOC intends to aggregate and publicly release this data in an annual report, to show the average pay for employees in different sectors across the country.

In preparation for this, good risk management practices include the following:

• Focus on job functions, skills, location and responsibilities, rather than job titles or designations
• Ensure consistency in pay scales as they relate to specific job responsibilities, and experience and education requirements
• Make sure hiring and HR managers are able to justify pay differentials
• Keep records of employee pay and job classifications for at least three years; this will support compliance efforts with regard to equal pay and other employment laws

There are other measures you can put in place to protect your business, as well:

• Conduct an annual, companywide audit — covering job descriptions, locations and comprehensive compensation records — to detect any inconsistencies
• Update compensation policies, including pay and benefits, and ensure these changes are reflected in employee handbooks
• Conduct regular training; make sure your hiring managers and HR professionals are current on changes in the law and understand compliance needs such as record keeping

EPL claims are frequent — and frequently costly. In a changing environment such as ours, it’s crucial to take steps to mitigate your risk and exposure.