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Unintended Consequences of New Jersey’s Pay Equity Law

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nj pay equity laws and small businessOn April 24th Governor Phil Murphy signed the New Jersey Pay Equity Law which went into effect on July 1, 2018. The headlines in the days surrounding these events hyped the Law as a victory…

Working women rejoice: New Jersey now has the strongest equal-pay law in America – The Philadelphia Inquirer, April 25, 2018

NJ leads the way for fair pay – My Central Jersey (part of the USA Today Network), April 25, 2018

Employers in these 3 states just leapt ahead in the talent race – Fast Company, July 1, 2018

And for a good reason.

The law, the most progressive in the nation, is designed to help close the wage gap that has dominated the media and ensure that all protected classes are compensated equally for substantially similar work. All this is good news, especially for employees.

But what about New Jersey employers? What impact will it have on them? Since its passing, Balance Point has fielded many questions

Can we lower salaries?

Can I pay a one-time penalty?

What action should I take?

And while we can answer most, some will have to wait until we see how the law unfolds over time.

One thing we know for certain: it will force employers to re-examine many of their processes and policies, including how they hire, compensate, and measure performance. But there have been—and yet may be—unintended consequences for employers and employees to contend with. Here, we examine a few.

Driving Businesses Out Of The State

“Free professional business assistance,” home to “19 Fortune 500 companies,” and a “highly-educated and work-ready employee base” are just a few of the attractive benefits the website for the New Jersey Business Action Center boasts to entice businesses to choose New Jersey as their home. What you won’t find is guidance to help New Jersey employers comply with this law.

New Jersey isn’t the only state in the country to have a pay equity law, but it is the most aggressive. On Massachusetts’ website you’ll find a 30-page guide with frequently asked questions and a checklist to help employers review the policies they have in place. Oregon gave employers an 18-month grace period to prepare for the law. New Jersey employers aren’t as lucky.

There’s no denying that New Jersey is a great place to build a business (Balance Point knows this first-hand!). Will this law serve as a deterrent and keep businesses away? Only time will tell.

A Surge In Layoffs And Bankruptcy Claims

The law states that employers may not reduce the salaries of better paid workers to comply. Instead, they may need to increase the salaries of lower paid employees, a financial burden some businesses may not be prepared to bear.

The law’s vague “substantially similar work” is not clearly defined. Employers and employees are left to interpret this language on their own. Employees, with the support of employment lawyers, might seek to capitalize on this. An uptick in unnecessary and meritless claims of discrimination is a possibility. To say the penalties for inequity violations are significant, is an understatement:

  • Repayment of up to six years of back pay
  • Damages of up to three times the amount a claimant was denied in compensation
  • Each paycheck that contains an unequal pay rate counts as a separate act of discrimination, restarting the statute of limitations

These factors could force businesses to reduce headcount and, in some cases, drive them out of business altogether.

An Increased Need for Documentation

The burden is on the employer to prove they have not violated the law. Employers need to be prepared to demonstrate that any pay disparity is not based on discriminatory factors. This means that documented proof supporting all hiring and compensation decisions must be maintained and made available.

For example:

If an employer wants to offer one employee a higher salary based on education or experience, the employer will need backup to support why it is warranted. This will lead to an increased need to conduct background checks, and verify education and employment claims.

If an employer wants to promote an employee, they will need to maintain detailed performance reviews as proof that it is merited. Without a proper method or system in place to collect this data, this need may lead to a reduction in the number of promotions and raises given to deserving employees.

 

Jersey Proud

Whether good, bad, or unintended, you can’t ignore the consequences of New Jersey’s Equal Pay Law. New Jersey employers need an outside resource by their side to help them navigate its complexities.

As a New Jersey-based business, Balance Point knows how to assist the state’s employers better than any national human capital management provider. Since we’ve become aware of this law, we’ve been formulating ways we can help our valued clients remain compliant. The learn more, schedule a consultation with one of our HCM experts.

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