Wage and hour self-audits are vital for every organization and allow employers to identify employees making above or below their position’s average wage. This is crucial for keeping salaries close to industry averages and avoiding potential discrimination lawsuits. A useful way of identifying overcompensated or under-compensated employees is to employ the use of a “red circle” and “green circle” mechanism. The red and green circles method is straightforward and provides a simplistic way of grouping employees.
Before an audit begins, your company will evaluate the market and analyze the pay ranges for your industry. After establishing the ranges, look at employee salaries and see who falls above or below the range for their position. Overpaid employees fall into the red circle category and underpaid employees fall into the green circle.
Those in the red circle are paid over the average salary range in your industry. In other terms, they are likely being paid more than their position is worth. Employees who fall into this category could end up here for a variety of reasons, including managers caught in an organizational restructuring or long-time employees who were receiving annual wage increases.
Employees might end up in this circle due to a promotion without a wage increase or simple restructuring. Since green-circle employees are making less than the industry average, there is potential for discrimination-related issues.
Regardless of your method, wage and hour audits are a critical practice for any organization. The red and green circles strategy is an example of how to identify improperly compensated employees and protect your company. Any method will do as long as you take a careful look at the industry salary ranges and employee compensation figures.