Many employers are advertising open positions that offer signing bonuses to incentivize applicants to help fill job vacancies.  While this practice is legal and apparently effective, employers should be aware that resulting pay discrepancies can lead to violations of the Massachusetts Equal Pay Act (MEPA) as revised by the Pay Equity Act of 2018.

The Pay Equity Act was passed to strengthen the protections of MEPA and to close the wage gap between male and female employees.

The Pay Equity Act revised MEPA to clearly define the term “comparable work” as that requiring “substantially similar skill, effort, and responsibility” and performed under “similar working conditions.” MEPA previously required equal pay for comparable work.

MEPA allows for pay disparities only if based on:

• Seniority systems;
• Merit systems;
• Per-unit or sales compensation plans;
• The job’s geographic location;
• Differences in education, training, and experience; or
• Travel requirements of the position.

Note that MEPA does not include market demand among the six permissible reasons for pay disparities.

Offering a signing bonus to a new employee who will be paid at the same hourly rate as a current employee puts the employer at risk for a claim alleging a violation of MEPA.  A successful claim by the earlier hired employee who did not receive a signing bonus may result in recovery of not only the difference in pay, but also double that amount in liquidated damages, plus attorneys’ fees and costs.

How can an employer offer a signing bonus without running afoul of MEPA? One way is to offer the bonus to existing employees as well.  Usually, a signing bonus requires the new employee to remain employed for a set period such as 60 days or three months.  The employer can place the same condition on receipt of the bonus to incentivize other employees to remain in their positions.  Another way to achieve pay equity is to increase hourly pay for existing employees to close any gap caused by hiring bonuses.

Conduct a self-audit of your organization’s pay practices.  The Pay Equity Act added to MEPA a means of limiting employer liability by providing that a self-audit conducted within three years prior to the filing of a MEPA claim will give an employer an affirmative defense to an equal-pay lawsuit.  This defense is available if the audit is “reasonable in detail and scope in light of the size of the employer” and the company makes reasonable progress toward eliminating disparities.

When the Pay Equity Act was first passed in 2018, many employers undertook pay audits to ensure compliance and to avail themselves of this defense.  Now that we are about to enter 2023, those audits performed in the early days of the law are “expired” in terms of providing a defense to an equal pay claim.  If your organization audited its pay practices more than three years ago, you should consider conducting a new audit.

AIM members with questions about signing bonuses or pay practices may call the AIM Employer Hotline at 800-470-6277. AIM HR Solutions conducts pay audits.  Information about this service is available by calling the hotline or Kelly McInnis, Director of Business Development at 617-872-3039 or kmcinnis@aimhrsolutions.com.