The Equal Pay Act (EPA) prohibits employers from discriminating “between employees on the basis of sex by paying wages to employees… at a rate less than the rate at which [it] pays wages to employees of the opposite sex.” Previously, courts determined that the EPA required companies to make sure the total compensation for employees of the opposite sex were equal. An employee’s total compensation consists of all payments a company makes to an employee. An employee’s salary, profit sharing, expense accounts, monthly minimums, bonuses, and any other form of reimbursement, payments, and earnings are all components of an employee’s total compensation.
On December 3, 2021, the U.S. Court of Appeals for the Fourth Circuit (whose decisions govern North Carolina, South Carolina, Virginia, West Virginia, and Maryland) decided in Sempowich v. Tactile Sys. Tech., Inc. that it is not total compensation that must be equal, rather the EPA requires employees to be equal on each component of their compensation. Why? The EPA places an emphasis on wage rates, so compensation cannot be combined into one lump sum when comparing earnings.
How does this apply to your employees? Take two employees: Employee A, a male employee, and Employee B, a female employee. Employee A and Employee B have the same qualifications, job title, job duties, and supervisors. Employee A receives $90,000 in salary and has a $5,000 expense account. Employee B receives $80,000 in salary and also has a $5,000 expense account. At the end of the year, Employee A receives a bonus of $5,000, bringing his total compensation to $100,000; and Employee B receives a bonus of $15,000, bringing her total compensation also to $100,000. Although Employee A and Employee B receive the same total compensation, Employee B can still sue the company for discrimination because her salary is lower than Employee A’s salary.
It remains to be seen whether the decision will be followed outside of the Fourth Circuit. For now, employers should examine if any inequalities exist regarding the components of their employees’ pay. Additionally, employers who distribute bonuses as a means of closing or remedying inequalities in base pay may be more vulnerable to lawsuits in the years that come.