Apr 09, 2018
Apr 09, 2018

New Study from Zenefits Finds 34% Gender Pay Gap in Small and Mid-Sized Businesses

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2018 SMB Fair Pay Report Illuminates Wide Perception Gaps Between Employers and Employees on Pay, Benefits and Company Culture Expectations

SAN FRANCISCO, April 09, 2018 – According to the SMB Fair Pay Report, new research sponsored by Zenefits and released today, small and mid-size businesses (SMBs) have a gender pay gap that exceeds the national average. Survey data revealed that on average, female SMB employees make $.66 for every dollar paid to men. This is 18 percent less than the broader nationwide gap of women earning $0.80 for every dollar men earn (Source: U.S. Department of Labor).

The SMB Fair Pay Report was conducted in order to further educate and empower SMB owners on the realities of the wage gap in businesses like theirs with less than 500 employees. Small and mid-sized businesses are the backbone of the U.S. economy, accounting for 99 percent of US businesses and providing employment to 48 percent of all workers in the US (Source: U.S. Small Business Administration). The survey was conducted in March 2018 and polled 1,000 employees and 400 employers (business owners or HR decision makers) nationwide on the state of “fairness” in today’s world of work — spanning equal pay, benefits, HR programs and company culture.

“Our mission at Zenefits is to empower SMB leaders with the insights they need to more efficiently run and grow their businesses,” said Jay Fulcher, Zenefits chairman and CEO. “SMBs have extraordinary economic influence and the potential to make a real difference in changing the world of work: creating more fair workplaces, more engaged employees and better performing businesses. This survey revealed interesting blind spots related to what employers are investing in and intending to deliver, and how employees experience the results. Having data to drive better decisions and better communications is the first step toward positive change.”

SMB Fair Pay Report Highlights

The study uncovered several factors that play a role in perpetuating inequality in the SMB workplace. These center around a lack of the right compliance, market, and employee expectation data to help SMB owners ensure their policies and practices meet the needs of their people.

Starting behind: advanced education isn’t advancing women in small businesses.

The study revealed that people with a Master’s Degree education earned on average 38 percent more in small business jobs than those with lesser levels of education. However, women with postgraduate degrees and less than five years of experience make 56 percent less than their male counterparts, thereby starting out well behind the curve.

Methods to determine fairness are inconsistent and sometimes illegal.

SMBs often lack access to the necessary data and tools to know that they are perpetuating the wage gap.

92% of small business owners report that they are paying fairly.
But, they also reported a wide and inconsistent range of sources for determining salaries. The good news: 20-25 percent use third-party benchmark data on pay based on role and region. The bad news: 33 percent ask candidates for their most recent pay. That practice is now illegal in a growing number of cities and states because it penalizes people already behind the pay curve. Despite this practice being regionally illegal, 74 percent of employers in those areas still reported asking for past salary information for some or all potential new hires.

Employers are half as good as they think they are.

The better that employers report they are doing, the bigger the gap. For example, 91 percent of employers in the midwest say they are paying fairly, but that is the region of the nation with the widest SMB pay gap for women: 43 percent less than men.There is also a rift in communication, with 92 percent of employers saying their employees are satisfied with communications and policies around compensation practices, yet nearly half of their employees—45 percent—feel neutral or disagree (49 percent of women and 36 percent of men).

Negotiation can be effective: but should employees be forced to make their own “fair” pay?

Regardless of gender, SMB employees who negotiate earn 43 percent more than those who do not. Even though very few have had formal negotiation training (21 percent of men and 12 percent of women), comfort levels around negotiating and self-advocacy are widening the gap.

The majority of employees, 78 percent of men and 67 percent of women, discuss their salary expectations at the beginning of a job interview, yet when an offer is made, 55 percent of men vs. only 36 percent of women indicated they negotiated their actual offer. The gap widens when it comes to asking for a raise, 62 percent of men vs. 41 percent of women felt comfortable asking. Furthermore, twice as many men will counter raises they are offered vs. women (17 percent of men vs. 8 percent for women). Only 13 percent of small businesses are transparent with their employees about pay policies and rates. Because this minimizes the need for people to negotiate, employees at transparent companies are 22 percent more likely to feel equitably paid.

SMB Fair Pay Report Insights

Most small business employers don’t know what they don’t know. Access to comprehensive salary benchmark data, tools and even updates on emerging compliance laws are too expensive or too time consuming, leaving them with little context about whether they have an issue or how to fix it. Modern HR tools, like Zenefits, are making market and internal benchmark data and compliance information more accessible to SMB companies. Today’s employees also have greater access to wage information, making them more informed and empowered to ask questions about a company’s equal pay policies. Employers should take advantage of available resources as they work to define their pay policies and better understand internal pay discrepancies.

Doing the right thing is different for every company. In the new world of work, the “right” combination of pay, benefits, purpose, culture and flexibility varies by industry, geography and business. Small business owners are wasting their investments if they don’t develop their internal people programs in step with what is most important to their teams. Then, clearly defining and regularly communicating a fair compensation policy will help employers ensure they’re actively and transparently taking on both the pay gap and the perception gap.

Implementing and communicating a fair pay policy, powered by market, internal and employee survey data, will mitigate inherent bias around differing skills at negotiation and self-advocacy.

“Self-advocacy and negotiation are two major factors in perpetuating the gender pay gap. By instating a more transparent and mindful pay policy, employers can help remove the issues of unconscious bias, bargaining and conflict that stem from a process reliant on negotiation,” said Beth Steinberg, Chief People Officer at Zenefits. “Teaching people to negotiate better is a flawed solution to the issue. True compensation fairness will come when employers become more transparent in their pay policies.”

For more information, Zenefits SMB Guide to Close the Fair Pay Gap —which includes more detail from the 2018 Fair Pay Report — is available at zenefits.com/equalpay. Additional resources for employers can be found at Zenefits.com/resources.

The 2018 Fair Pay Report, sponsored by Zenefits, is based on a survey of 1,002 full-time employees of small businesses and 401 small business owners and HR decision makers. In order to qualify for the study, both groups had to work at companies with less than 500 employees. The study was conducted in March 2018 by A.D. Laskey Consulting, a full-service market research firm. The sample was provided by Lucid, a panel aggregator.

About Zenefits

Zenefits is helping more than 10,000 small and mid-sized companies empower their modern workforce, manage change and stay compliant. Zenefits’ People Platform delivers the most comprehensive and mobile HR experience in the market. Zenefits’ HR, Benefits, Payroll and Performance apps combine with advisory services and tightly integrated partner apps to radically simplify HR administration — reducing paperwork and complexity so companies can focus on running and growing their business.