Why Documenting Employee Compensation Plans is More Important Than Before

President Barak Obama  Equal Pay Bill Signing East RoomPresident Obama added his signature to the Lilly Ledbetter Fair Pay Act this week. The bill extends the statute of limitations restrictions for employees that want to sue employers for discrimination in pay based on race, gender, age, or disability. Previously, workers had up to 180-days to file a claim. With the new law, that 180-day window is renewed with each paycheck, effectively allowing an employee of many years to file a pay discrimination suit. In cases where the employee wins, they can recover up to 2 years of back pay.

What this means for small business owners is that you are more vulnerable to false discrimination charges and having to defend yourself in court, even if you are paying fairly but your employee believes you might not be or punitively chooses to incite an investigative claim.

You can’t simply decide to compensate individual employees on a case-by-case basis. Discrimination lawsuits are won when an employee can legitimately prove they were paid a lesser amount than other employees for reasons of discrimination.

You need to think of your employee compensation plan as a whole. So if you decide to give a raise to one employee, but not others, you need to document your reasons for it. Otherwise, you end up with everyone on different pay rates and are vulnerable to workers who are earning less deciding to file a discrimination claim against you.

It’s not okay to make employee pay decisions on the fly, keeping important bits of history and information in your memory. To be adequately prepared for defending yourself in a pay discrimination lawsuit, you need written documents. Keep copies of company compensation plans, being sure to update any changes. Employee files should be created that explain how you determined their compensation (as well as any other employee/employer records.) Those should be stored in a private area, accessible only to management.

For the overwhelmed small business owner, more paperwork is unwelcome, yet this law was passed for good reason. If you are a fair employer, then it’s just a matter of being able to prove it should the need arise. To help you be in compliance with this law and others, I recommend you buy our customizable business administration tools. We’ve got easy-to-edit Microsoft Word documents on CD-rom that you can quickly modify and print for your company & employee records.

  • Standard Operational Procedures Manual for Spas (and similar businesses)
  • Spa Administrative & Operational Forms (supplemental tools)
  • Employee Handbook & Manual

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About the Author

Jaya Savannah - Chief Inspiration Officer. Strategy Coach for Holistic Businesses. Trainer, speaker, and writer. Spiritually aware, yet street smart. Elephant lover.