When are differences in pay justified? Modern employers face this question every day — and there are no easy answers.

While the United States enshrined the concept of equal pay for equal work with the passage of the Fair Labor Standards Act of 1938, today many questions remain, such as:

• What constitutes “equivalent” work?
• How do you define “equal pay” when employees work in different locations and have different work experiences?
• Does equal pay apply to workers who are contractors and employees?
• What circumstances, if any, justify the unequal distribution of hires and promotions between genders?
• Does the definition of “equal pay” include just base pay, or also incentive pay, benefits, and imputed income?
• Is there a statute of limitation for unfair treatment of employees?

As employment practices in the United States have evolved, so has federal and state legislation. And there is a larger truth behind pay equity initiatives. Fair pay practices are not merely an important “corporate value,” or a tool for managing compliance risk. Rather, fair pay practices are also a core strategy for creating a vibrant, high-performing workforce. Yet, pay inequity persists across many protected classes — most predominantly across lines of gender.

The ADP Research Institute® (ADPRI) conducted a study on gender pay inequity to determine the relative contributions of recruiting, base pay, and incentive pay to an overall gender pay disparity across the U.S. labor market. The study examined disparities in base pay and incentive pay between genders both at time of hire and after six years of tenure within the same firm.

About this report: For this study, ADPRI looked at anonymized aggregated payroll data from third quarter of 2010. The sample data consisted of newly hired exempt salaried workers, since it was assumed that only salaried employees were receiving incentive pay. These newly hired workers, who had continuously worked for every month for the same company, were tracked through December of 2016. The resulting sample size was approximately 11,000.