New Jersey Equal Pay Act

What You Need to Know

On April 24, 2018 the “Diane B. Allen Act” was signed into law by New Jersey Governor Phil Murphy.  The act officially became active July 1, 2018.  Its original basis was” an act concerning equal pay [for women] and employment discrimination”, however its final inception is much broader in scope.

The information below will provide you with an overview. For an in-depth review of the new law click here for a PowerPoint presentation in PDF format that you may print out or share with your colleagues.

Who Has to Comply?

The act is a revision of the New Jersey Law Against Discrimination.  It impacts all businesses in the state of New Jersey no matter the size of the company.  It applies to both public sector and private sector businesses.

With the inception of this new law it is now the company's responsibility to prove that it did not violate the statute and show that a pay differential is based on legitimate factors.  If the employer cannot prove that the entire differential is based on documented factors it will be considered a violation.

What Does it Mean?

The new law makes it illegal for an employer to “pay any of its employees who are members of a protected class at a rate of compensation, including benefits, which is less than the rate paid by the employer to employees who are not members of that protected class”, “for substantially similar work viewed as a composite of skill, effort and responsibility”.  This leaves a lot of scope to review.  Any employee, in any classification protected under the New Jersey Law Against Discrimination is covered under the pay equity law.  Physical location or facilities are not a characteristic that protects a company with pay differentials. 

In addition, employers who prohibit employees from discussing their own or others' compensation are now in violation.  The law does not specifically carve our management or even HR as it is currently written. 

What Does “Substantially Similar” Work Mean? 

What Are Some Ways to Address Liability?

The Act has provided a five test outline that is to aid businesses in avoiding liability. 

1. Have a seniority system – similar to a union contract
2. Have a merit system
3. Five Factor Test
   1. Differential based on one or more “legitimate, bona fide factors” other than protected class, such as training, education or experience, or the quantity or quality of production”
   2. “That the factor or factors are not based on, and do not perpetuate, a differential in compensation based on sex or any other characteristics of members based on a protected class”
   3. “That each of the factors is applied reasonably”
   4. “That one or more of the factors account for the entire wage differential”
   5. “That the factors are job-related with respect to the position in question and based on a legitimate business necessity”
      1. i. “A factor based on business necessity shall not apply if it is demonstrated that there are alternative business practices that would serve the same business purpose without producing the wage differential “

What is a Recommended Strategic Course of Action?

• Meet with leadership and discuss duties and responsibilities for key positions
• Review your recruitment site for any questions that are no longer acceptable (ex. What was your previous salary?)
• Review your on-boarding process
• Review and update current personnel policy regarding confidentiality
• Review all job descriptions for educational requirements, physical requirements and skill based compensation, and identify ones that may be substantially similar and evaluate those salaries
• Review and define the factors that explain differentials in salaries in your company and build a salary plan from that data
• Develop a detailed recording plan of the reasons behind all compensation decisions and have staff sign off on all changes to their salary