As the pandemic slows, many businesses are now in hiring mode. To meet the pent-up demand for products and services, hiring new talent has become a top priority. But employers are no longer in the driver’s seat. With so many options available in the market, candidates have choices and are looking to leverage that advantage to maximize salary, benefits, and time off. Indeed, many organizations are offering signing bonuses, extra time off, and attractive hybrid or remote work arrangements to entice new hires.

But New Jersey employers need to be careful. Since the Diane B. Allen Equal Pay Act (“Act”) went into effect, it is important to be aware of a concept called “salary compression” and avoid potentially participating in an unlawful employment practice.

Salary compression happens when new hires are paid significantly more than existing employees in the same or similar roles. To get that qualified candidate, employers may consider extending an attractive offer that could inadvertently create a pay inequity with one or more current employees.

Employers should be familiar with the Act and have a plan in place to comply with its requirements. The Act amended the New Jersey Law Against Discrimination and makes it unlawful for an employer to pay protected class employees a lower rate of compensation, including benefits, than non-protected class employees for “substantially similar work.”

Any pay discrepancies must be justified by demonstrating how experience and education sets employees apart, pursuant to a seniority system, merit-based system, or based on legitimate bona fide factors other than a protected class, such as quantity and quality of production, etc. The law also prohibits employers from retaliating against employees for discussing rates of compensation and other issues.

There are significant financial penalties for failing to comply with the Act. It’s important to understand what’s at risk and how to avoid unintentionally running afoul of the law. If you are a business owner/employer in New Jersey, remember that you must comply with the Act when making decision about your existing employees as well as when hiring new ones. If you are unsure about any issue related to pay equity, you should consult with a trusted employment attorney who can protect you from potential liability.

For questions, contact Susan Hodges at shodges@parkermccay.com.