Pay or compensation discrimination occurs when two people who perform similar work do not receive similar pay. The comparison is based not on job title, but on job functions and content. All forms of compensation are included, such as salary, overtime, bonuses, stock options, profit sharing, life insurance, holiday and vacation pay, benefits, cleaning or gasoline allowances, hotel accommodations, and reimbursement for travel expenses.

Pay differentials are permitted, according to the U.S. Equal Employment Opportunity Commission (EEOC), when they are based on seniority, merit, quantity or quality of production, or a factor other than sex. A disparity cannot, by law, be resolved by lowering one employee's compensation to the level of the other.

The Equal Pay Act (EPA) of 1963 is the oldest compensation discrimination law on the federal books. The EPA requires that men and women be compensated equally for equal work. Unlike claims under other federal statutes, an individual alleging a violation of the EPA need not file a charge with the EEOC. Instead, he or she can commence straight away with a lawsuit, with a two-year statute of limitations, three if the act was willful.

However, in 2009, in the first piece of legislation President Obama signed, the Lilly Ledbetter Fair Pay Act changed the law so that each time an unfair paycheck is issued, a new violation occurs. This provision is the same as found in the Ohio Equal Pay Law (EPL), which has only a one-year statute of limitations dating from the violation (which occurs with each paycheck).

The Civil Rights Act of 1964 also prohibits compensation discrimination based on sex, so the same person could have claims under both the EPA and Civil Rights Act if based on sex discrimination.

The Age Discrimination in Employment Act (ADEA) of 1967 and the Americans with Disabilities Act (ADA) also contain prohibitions against compensation discrimination. The ADEA discrimination applies to workers aged 40 and older who suffer wage differentials. The ADA protects against wage injustice toward workers with disabilities.

These acts all make it illegal for an employer to retaliate against any employee who files an equal pay claim or lawsuit.

The federal government uses four metrics to compare work to determine whether they are equal:

• SKILL: Do the two workers possess the same skill levels by virtue of training, education, and experience? For instance, two accountants are paid differently because one also has a degree in business administration and thus earns more. Since that degree is not a required skill, the differential is illegal.
• EFFORT: The example the EEOC uses is that of two assembly line workers. While most on the assembly line just attach parts or finish connecting pieces, the worker at the end of the line must also lift the whole assembly piece and put it in a box, thus requiring more effort. The end worker could thus be paid more.
• RESPONSIBILITY: If one employee with a similar line of work has more responsibility than the other, that employee can justifiably be paid more. For instance, a store clerk who must tally the day's receipts and secure proceeds in a safe has more responsibility than other clerks.
• WORKING CONDITIONS: Here the EEOC cites two factors: (1) physical surroundings like temperature, fumes, and ventilation; and (2) hazards.

The Equal Pay Act gives employers four affirmative defenses to justify a wage disparity in substantially equal jobs. The first three are that the disparity is based on a seniority system, a merit system, or a system that bases wages on quantity or quality of production. These lines of defense have been accepted in a straightforward manner by courts.

The fourth defense - a "factor other than sex" - has proven more contentious in court actions. The bottom line, though, is that whichever exception an employer chooses to mount in a challenge, the legal bar is high. The proof is on the employer.