A New Challenge to Using W-2s in Job Qualification

When interviewing mortgage banking originators, it is common practice to ask sales candidates to provide their W-2s. Lenders believe W-2s provide proof that the candidate has done the sales volume he or she has claimed. Now, asking about salary history in candidate evaluations is coming under scrutiny by states. As an example, the state of Massachusetts recently passed a regulation (August 1) that will remove salary inquiries in the interviewing process. This is a significant issue for companies that use this approach in their hiring.

While Massachusetts has had an equal pay law since 1945, this new addition is intended to help the gender-based pay gap for women according to SHRM lawyer Lisa Piazza. This law will require employers in Massachusetts to change their hiring process including employment applications. This same issue is being discussed in other states and appears to have momentum as a way to address pay inequality for comparable work. For lenders in Massachusetts, changes in the hiring process will need to be made quickly to comply with 2018 implementation date.

While depending on W-2s is suspect simply because it is not predictive of future success in origination, it is now questionable legally. What will companies be able to depend on? (Companies should discuss this with their employment attorneys.)

In my opinion, one of the best ways to minimize legal exposure in hiring is for companies to use pre-employment assessments. Pre-employment testing is another way to produce documented evidence that the employer made a reasonable and prudent investigation of the applicant’s fitness for the job.

There has been a lot of misinformation regarding the legality of using personality assessments in the interviewing process. Unfortunately, sometimes even companies’ attorneys have not differentiated between clinically oriented psychological assessments and pre-employment assessments which are designed and developed for business use.

A properly validated pre-hire assessment must comply with professional standards detailed in the Uniform Guidelines On Employee Selection Procedures (UGESP). The UGESP is a joint statement by the Civil Service Commission, the Department of Labor, the Department of Justice and the EEOC on proper procedures for employers to use in the selection process including employment testing.

A key point of the UGESP is that validation of a pre-hire assessment is required to show that there is a clear relationship between selection criteria and successful performances on the job. The guidelines are quite specific in what is required when using assessments in the interviewing process. By the way, using DISC assessments when screening candidates is not a correct use of that assessment. It was designed for detailing communication styles. For further information regarding these standards, it is worth reading the document itself.

One thing is clear: not having a validated pre-hire assessment and relying on W-2s is a risky hiring strategy legally and practically. Are you ready to meet the new standards? Don’t be penny-wise and pound foolish!