If an employee receives a merit-based raise, do we have to pay other employees the same wage?

No, although the California Fair Pay Act wants employers to pay employees who do substantially similar work the same, differences in pay are allowed if they are based on legitimate, bona fide factors. Bona fide factors that may lawfully justify a pay disparity include:

• A seniority system;
• A merit system;
• Quantity or quality of work; or
• A factor other than sex, race or ethnicity, such as education, training or experience.

If an employer is using the fourth factor to justify a pay disparity, the employer has to show that the factor also is job-related and consistent with business necessity. For example, if an employer uses experience as the bona fide factor to justify disparate pay between two employees, the experience needs to be related to the job that the employees perform and not just “more experience.”

Here the employee earned the salary increase because of the quality of their work compared to their peers as reflected in the performance review. So, the employer may rely on this factor to justify why they are paying this employee more than any other that does substantially similar work.

Relying on these factors, employers then can have open conversations with their employees about why compensation decisions were made if the staff becomes aware of the raise as well as avoid any potential claims under the Fair Pay Act.

Read more about Wage Equality – Fair Pay Act in the HR Library.