Should you self-audit to protect against ‘Ledbetter’ complaints?
February 13, 2009 by Jim GiulianoPosted in: Complaint investigation, Employment law, Money, Pay and benefits, Records documentation, Special Report, policies
On January 29, President Obama signed into law the Lilly Ledbetter Fair Pay Act, opening a new door for employees who file discrimination complaints over pay decisions. Question: Should HR do a self-audit to make sure the company has no weak spots in its pay system?
First, a quick recap of the law (see “Obama signs Ledbetter Act: What it means to HR”):
The Fair Pay Act, S. 181, alters statute of limitations for pay discrimination claims. It also overrules the U. S. Supreme Court’s decision in Ledbetter v. Goodyear Tire & Rubber Company, Inc. Congress believed the High Court, in Ledbetter, unduly restricted the time period for bringing pay discrimination claims. The new law will will extend the shelf life of claims employees make against their employers.
Under the new law, an unlawful employment practice occurs when:
- the discriminatory pay decision is made
- an individual becomes subject to the discriminatory pay decision, or
- an individual is affected by the discriminatory compensation decision or other practice” – meaning that the deadline for filing a claim starts anew each time an employee receives wages, benefits, or other compensation tainted by the discriminatory pay decision, and may go back as far as two years from the date a charge was filed with the Equal Employment Opportunity Commission.
Now, back to the question(s): Should you do a self-audit? If so, how should you go about doing it? And what records should be examined and retained? And for how long should they be retained?
Record Retention
Because the law is new, and there haven’t been any court cases or rulings, there is no definite answer on how long you should keep pay records. Most law firms that have done a preliminary analysis of the law say you should retain pertinent records “indefinitely.”
Outside of IRS regulations on record retention, the only real guidance you have comes out of federal contracting regulations, which require retention of all employment records for a minimum of two years for larger contractors and one year for on smaller contractors — those with fewer than 150 employees. But no one is saying those limits will apply to Ledbetter complaints.
Self-audit
The first question anyone might ask are: Why should we do a self-audit? What’s the upside? Are there downsides?
Why to do one. First, realize that there are no provisions under Ledbetter where an employer avoids penalties because of “accidental,” “unintentional” or “uncovered” violations. A violation is a violation. And if one is discovered as a result of a complaint, the employer will pay for it. So a self-audit would serve the purpose of uncovering violations that you didn’t even know existed, simply because no one ever analyzed the pay data for your employer.
How to do one. The typical self-audit would involve examining written policies relating to pay decisions in (a) starting pay, (b) promotional pay increases and (c) merit pay increases.
Let’s say you don’t have a formal pay structure, with grades and merit increases, and that your managers have wide discretion in setting pay. That could be particularly dangerous in a Ledbetter complaint, and as a result you may want to come out of the audit with some written policies to ensure that managers’ decisions aren’t based on discriminatory factors.
How far back to go. Courts usually recognize the practical limitations on companies. Some law firms say if you do a an examination of your records for the last two years, that’s considered a valid audit and proof of best intentions.
The downside. Let’s say you do a self-audit and discover a problem in the way you’ve set pay scales. You’re just about obligated to go back and make things right — by, for instance, offering back pay or backdated promotions to employees who were victimized by the problem.
Why are you obligated? Because about the worst scenario you’ll ever face in court, in case there’s a complaint, is that that you uncovered an instance of a failure to follow the law and did nothing about it. On the flip side, if you went back and did your best to fix the problem and make amends, that’s a plus for an employer facing a complaint.
And remember, except as part of consultation with legal counsel, self-audit records usually are are fair game as evidence in a court fight — for either side. That’s another reason you’ll want to right any wrongs revealed during a self-audit.
Tags: congress, equal employment opportunity commission, HR, ledbetter, Pay and benefits
February 16th, 2009 at 4:18 pm
I have a better solution – don’t hire women in areas which may get scrutinized – such as areas which have multiple positions of the same type. As long as the gov’t. keeps its hands in my business, I’m going to do my best to keep it out. There are ways to bring up issues – through the company or otherwise – but keep the gov’t. and more regulation out.
And for those whiners out there who want to comment about my practices, save your typing. I hire on merit, promote on merit, and discharge on lack of merit. I don’t care what you are (sexually) or color or religion – if you do the job, there’s no concern over pay.
February 16th, 2009 at 4:42 pm
Larry makes me laugh! If “not hiring women in areas which may get scrutinized such as areas which have multiple positions of the same type, ” is not a form of gender discrimination, what is? I guess he is saying it is okay to discriminate, just don’t get caught at it…if that is hs intention, I don’t understand his defense of hiring on merit, but it certainly is amusing how people can self-justify & rationalize.
February 16th, 2009 at 4:50 pm
So Larry how many women do you have working for you?
February 16th, 2009 at 4:52 pm
Last I knew, ignorance was no excuse for law breaking. So, if you don’t self audit, then there is no excuse. If you do self-audit, you can correct an error. But, I think most business people take out insurance to cover errors and accidents of all kinds, including employment practices, but otherwise most gamble that the odds are in their favor that they are not likely to get audited or sued. And HR mngrs try to hold the line, that their employers might step over by informing them of the law. But I bet no one’s boss would be very happy with them for bringing an audit that revealed they owed somebody for years of back pay. If someone does sue, the HR mngr might get the shaft for not finding and correting the error. Middle management — between a rock & a hard place.
February 16th, 2009 at 5:08 pm
Well Larry if you are all about ______ on merit, then why the harshness on women??? I would like to believe that you would want your wife/daughter to make what they deserved if they were working the same job as a MAN doing the job equally if not better. Or maybe your able to provide for your family with one income? So good luck to all those who do work under your ruling.
But we could even take this one step further… So men can sit around and watch a woman do what they should have been in the first place? and STILL get paid for it?
Or we can take a very hard working black person, who gets paid less then the average white man, but he wants to prove to himself, and his employer (by taking the job) to be just as good if not better then the average white man to make what he deserved in the first place?
I think the point of this ruling is to keep people as honest as possible. And I do believe in merit, but that doesn’t mean I look at a certain group of people with rose colored glasses.
February 16th, 2009 at 5:34 pm
If an employer does a self audit and finds that there was a problem with the pay scales that may have been discriminatory to an employee or employees who have been under that pay scale for twenty years, it will be difficult in this time of economic trouble for an HR mgr to go to the CEO and say, ” The company owes these employees more money.” It may be the right thing to do, but before I do it, I’ll polish up my resume.
We will be doing a self audit and I sincerely hope that we have not done anything that even gives the appearance of pay discrimination.
February 16th, 2009 at 5:47 pm
Lady McB makes excellent points. As an HR Director in the state of California, every nuance is implicitly dangerous! We have two annual audits by independent firms; quarterly audits by our contracted CPA; and monthly HR audits of each department payroll. As a non-profit, we have chosen not to include merit increases in our pay structure and can only provide pay increases when our state and federal economies are stable, since every increase must be sustainable. We pay at or above minimum wage and are keen on compliance across the board. Granted, we (HR) may miss an OT half hour on rare ocasions, but the employee is quickly notified and pay is rectified. My Executive Director is ‘hands on’ and helps HR ensure we don’t make the mistakes that the Ledbetter Decision would pin point. Since this state is ’sue happy’ it is critical to check and double check…the employees appreciate the due diligence also.
Off my soap box and on to other 2009 legal stuff!
February 17th, 2009 at 2:54 am
The Ledbetter Act looks at compensating for 2 years of back pay, so I don’t see the big hullabaloo over this new law. It is only trying to implement what should have been implemented a long time ago. Women and other covered individuals aren’t trying to take businesses to their knees; women are just trying to get a fair deal–for their families, for their own self worth and for their retirement.
And let’s talk motivation. What is more demotivating than getting paid less than someone who is less productive or less experienced or less skilled? Or not getting hired at all? If this law had been passed years ago, we might not be in such poor shape economically right now.
February 17th, 2009 at 9:09 am
This is all about due diligence…Larry, dude what world do you live in? I truly feel sorry for the females that work for or with you.
February 21st, 2009 at 12:29 pm
Why does everyone jump to the conclusion Larry is a discriminating fool. He stated he hires and promotes on merit. He doesn’t like government interference. Is that inherently bad, that is, not wanting more government in our business. I’m a small business partner, he have a well represented demographic staff, not by design but by talent and merit. And, I don’t wish to pay more taxes; more BWC; more rules from governmental bureaucrats that we support – who may in fact be exempt from SS taxes – who may have never studied business nor tried to run one – who may squander what is given to them; and I don’t wish to incurr payroll & policy burdens the lowly business owner is forced to live with.