Take Notice Employers; Equal Pay Compliance

On March 23, 2021, Illinois enacted SB 1480, which amends several laws, notably the Illinois Equal Pay Act.  While effected employers have significant lead time to begin their compliance efforts (3 years from enactment), Illinois employers will need to start planning now to ensure they are prepared.

The Equal Pay Act amendment will require, starting in March 2024, Illinois employers with 100 or more employees to file annually an EEO-1 report, which includes a demographic breakdown of the employer’s workforce by race and gender.  The Illinois EEO-1 will be similar to the federal EEO-1.  There is, however, two major differences between the federal process and Illinois’ process.

First, the Illinois EEO-1 report will be made public.  Second, Illinois will join California as the only other state that will require employers to collect and submit employee pay data to the state.  Additionally, Illinois employers subject to the new law will be required to obtain, annually, an Equal Pay Registration Certificate from the Illinois Department of Labor.  Hefty fines will be administered if an employer fails to do so.

While these changes are significant to Illinois employers, as stated previously, this new law does not take effect until March 2024.  Businesses outside of Illinois boarders may not be impacted by this new state specific law, however we live in an ever-changing world where more states may follow suit, or business needs may dictate for an employer to open a location within Illinois.

What steps should you and your business start taking now to prepare for the inevitable?  There are more components to the law and specific directives for compliance will come in time, but on a high-level, the purpose of the law is to encourage employers to have a diverse workforce, from top to bottom, and equal pay for equal work.

Employers need to take a deep look at their recruiting, promotion, and pay practices now.  This is an effort Human Resources will need to lead.  Before reviewing these categories, you need to know where you stand.  Start by reviewing internally your current EEO-1 and compensation.  Areas where the largest gaps exist will dictate your priorities.

Let’s start with recruiting.  Referral programs are a great way to find talent but relying too heavily on your own staff to find employees can cause ‘corporate inbreeding’.  HR should start sourcing candidates through a variety of channels in an effort to cast a wide net.  Also, if your organization doesn’t have an Affirmative Active Plan (AAP), find one to review online or through network.  AAP create structure for employers to become more diverse.  One great component of an AAP is the Goal Setting, i.e. Placement Goals.  If your senior leadership has very little diversity, set a goal to diversify it within the next two years.  And put action plans for how you’ll do so.

Review how you handle internal promotions.  Is your organization opening up every position internally?  How much effort is your organization putting into employee development?  When you have an internal promotion are you adequately compensating the promoted employees?  Nationally, individuals switching companies for new positions make on average 15% more than in their previous position.  Don’t put a cap on how large their increase can be due to a promotion; pay the person for the worth of the new job.  This practice can cause pay inequities throughout the organization.

Lastly, review your compensation practices and consider doing an organizational salary evaluation.  If you start now, over the next 3 years you can fix any pay issues incrementally.  A salary evaluation can be conducted internally or externally. An effective method, if done objectively, is the point-factor salary evaluation.  The point-factor salary evaluation uses a quantitative technique to break down compensable factors (such as managing people, physical effort, skills required, etc.).  The end result is positions will be grouped together based on their overall rating.  You can then identify position(s) that are compensating less than their grouped peers.

Fortunately, time is now on your side to get your organization ready to be compliant.  And while the motive to start this planning is due to compliance, the results of your efforts will make the organization that much better.  More diverse, equal pay for equal work, and an organized plan to sustain these practices for the long-term.

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