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Are You Paying Female Employees Fairly?

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In the past year, the #MeToo and #TimesUp movements have brought lots of issues around gender equity into mainstream conversation, including the gender wage gap. Hollywood actresses aren’t the only women earning less than their male counterparts for the same work. On average, according to the Department of Labor, women with full-time, year-round employment earn 79.6 cents for every dollar earned by men with the same employment conditions.

Sure, that’s an increase from 1980, when women earned an average of 60.2 cents for every dollar made by men—but there’s still a long way to go, especially for small- and mid-sized businesses. That’s where the gender wage gap is biggest, according to a recent study by Zenefits. The researchers reports that at SMBs, female employees make an average of 66 cents for every dollar that men make.

We’ll look at some of the reasons for the gender wage gap, plus how to know if your business is affected and what to do about it if you are.

Why Is There a Gender Wage Gap?

A variety of factors contribute to the gender wage gap, the Department of Labor reports.  Women are more likely than men to leave the workforce to raise children, and more likely to work part time. They also tend to work in different occupations than men, and those occupations are typically lower-paid.

But even when all of these factors are taken into account, there’s still a significant wage gap—and it’s worse at small- and mid-sized businesses than at bigger ones.


Does Your Business Have a Gender Pay Gap?

If you think your business isn’t affected by the gender pay gap, you’re probably wrong.

Researchers for Zenefits found a wide discrepancy between employer beliefs and reality. For example, 91% of employers in the Midwest say they pay employees fairly. But that region actually has the widest SMB pay gap: Women there make on average 43% less than men.

You don’t have to be actively discriminating against women to fall victim to the gender pay gap. Some 90% of business owners in the survey say compensation is based primarily on employee performance, and 68% say the same about promotions. Although this approach may seem fair on the surface, here’s how it contributes to the gender pay gap:

  • Subjectivity: Employee performance reviews aren’t objective measures and thus aren’t always consistent.  In fact, in companies with performance management systems, the wage gap between men and women was actually bigger than at those without (36% vs. 30%).
  • Self-advocacy: Among employees who are offered a raise after a performance review, men are more than twice as likely as women to negotiate. Men also get raises more often than women.
  • Starting salary: Men and women often come into the same position with the different starting salaries—not because employers are discriminating outright, but because many companies still base compensation on a job candidate’s former salary history. Women are also less likely than men to negotiate their starting salary. If a woman is hired at $25,000 a year, a man is hired at $35,000 a year and they both get subsequent raises, it will only increase the wage gap.

How Can You Pay Your Employees Fairly?

These are a few steps you can take to make sure everyone at your business is paid fairly:

  1. Look at the facts. Assess each position in your business to figure out the minimum, maximum, and average you’re paying people in that job.
  2. Get benchmark data. If you want to be competitive, you need to be paying competitive wages. Your industry association may have benchmark compensation data you can use. The Bureau of Labor Statistics has occupational and regional data.  Finally, check out information available on websites like Glassdoor and
  3. Survey your staff. In employee surveys, ask questions such as “Do you feel you are paid fairly?”, “Do you feel you are paid competitively?”, and “How likely are you to refer us to friends or family as a great place to work?” to get a sense of how employees feel about their compensation. If staff is reluctant to discuss this topic, try an anonymous survey to encourage them to share their true thoughts.
  4. Develop standard pay ranges. Using the information you’ve gathered, create pay ranges for each position or for similar positions throughout your company.

Once you’ve determined equitable compensation:

  • Communicate pay ranges to job candidates during the interview process so they know what to expect.
  • Standardize starting salaries instead of letting employees negotiate for them.
  • It’s fine—in fact, preferable—to reward good performance, but set standardized percentages for raises and bonuses instead of letting employees negotiate.
  • Don’t ask for previous salary history when hiring. This question is illegal in some states and cities, but many small employers still ask.  
  • Educate employees on the value of your entire compensation package. Share the cost of health insurance and other benefits with your employees, and they’re more likely to appreciate this aspect of compensation.

Take the Lead on Equal Pay for Women

The Department of Labor’s Guide to Equal Pay has more information about federal equal pay laws to help. If you need additional working capital to make the compensation changes needed to close the wage gap, a either small business loan to help with extra liquidity or a business line of credit to tap into when you need it can be a smart solution.

Small business owners have long been leaders when it comes to innovation, ingenuity, and enthusiasm. Why not make your business a leader in pay equity, too?

Irene Malatesta

Irene Malatesta

Irene is a business content strategist for Fundbox, with over a decade of experience working with entrepreneurs and mission-driven businesses to bring their stories to life.