How Merit Increases Can Conceal Equal Pay Violations in NJ Workplaces

Merit pay sounds fair and simple: do good work, and get a raise. But in practice, merit increase systems can quietly lock in and widen pay gaps that started years earlier. If the “merit” inputs themselves reflect unequal opportunities, biased ratings, or opaque rules, then percentage bumps applied to already different salaries will compound the difference over time. In the Garden State, that’s more than a management problem.

Let’s take a look at how merit systems and percentage-based raises may hide a wage gap, how it must be defined to count as a lawful defense, the role of salary history bans and new pay transparency rules, and when it’s time to talk with an equal pay act lawyer in New Jersey if your “merit” raise isn’t closing an unlawful gap. 

The Legal Frame In New Jersey: When Merit Unlawfully Increases Wage Gap

New Jersey’s Equal Pay Act prohibits paying an employee who is a member of a protected class less than a comparable coworker for substantially similar work, when viewed as a composite of skill, effort, and responsibility. The law covers all protected traits — not only sex — and it looks beyond job titles to the work actually performed. 

To comply, many employers now turn to gender-neutral job evaluations, which assess positions based on objective factors like qualifications, decision-making authority, and working conditions rather than outdated assumptions or titles. 

If you’re paid less for the same job and title as someone outside your protected group, that pay difference may violate New Jersey law unless the employer can prove a legitimate, narrowly defined reason under the statute.

Two parts of that framework matter a lot for “merit” pay:

• The statute recognizes only three broad defenses: a seniority system, a merit system, or a specific set of job-related factors that fully explain the gap and are consistent with business necessity (and that don’t perpetuate past discrimination). The employer bears the burden of proof.
• New Jersey’s Division on Civil Rights explains that a “merit system” must be a predefined, uniformly applied plan that measures performance using legitimate, job-related criteria. Ad hoc judgments about what an employee is “worth” do not qualify as a merit system.

To uncover unfair disparities, employees have the right to talk about their salary with coworkers. Under both federal and state law, employers cannot forbid or punish these conversations. Open pay discussions often reveal inconsistencies that can expose whether a supposed “merit system” is being used fairly — or masking unequal pay for substantially similar work. 

If you discover pay gaps or face pushback for speaking up, consulting an equal pay act attorney in New Jersey can help you understand your rights, evaluate the evidence, and determine if the disparity violates state or federal law.

How Merit Increases Can Hide Or Worsen Wage Gaps In NJ

In 2023, women working full time earned only 83 cents for every dollar earned by men, according to federal labor data — a slight decline from 2022, when the gap had briefly narrowed to 84 cents, the smallest disparity on record. Despite decades of progress, that gap shows how structural pay systems, rather than overt bias alone, keep inequities alive.

Even when employers mean well, certain design choices can cause pay gaps to persist or even grow — often without anyone realizing it. Under New Jersey’s Equal Pay Act, certain design choices cause pay gaps to persist or grow:

• Percentage Raises On Unequal Bases. If Jane and John do substantially similar work but Jane started $8,000 lower, giving both a 4% “merit” increase grows the dollar gap each year. Over time, seemingly neutral percentages compound an unlawful differential.
• Biased Inputs And Unequal Opportunity. Performance ratings that rely on subjective traits (“executive presence,” “culture fit,” “aggressive closer”) can reflect gender or race stereotypes; so can sales or utilization targets if a worker was assigned fewer stretch accounts or given less billable work. Bias in pay bands can arise when those inflated ratings push one group into higher compensation tiers while others remain locked below, despite performing substantially similar work.
• Opaque Calibration. “Merit matrices” often get adjusted in closed-door calibration meetings. If those adjustments consistently favor one group — or rely on non-job-related rationales — the employer will struggle to show a bona fide, business-necessary factor that accounts for the entire gap, as New Jersey law requires.
• Unequal Bonuses and Stock Options. Merit programs often include discretionary bonuses or stock option grants that aren’t visible to coworkers. Because “compensation” under New Jersey’s Equal Pay Act includes base pay, bonuses, commissions, benefits, and equity awards, unexplained disparities in stock options or other incentive pay count too — and may indicate a systemic pay equity problem.
• “Market” Justifications That Don’t Hold Up. Employers may cite “market rate” to explain why some employees were placed lower in the band — but the statute requires any factor be job-related, account for the entire gap, and be consistent with business necessity when less discriminatory alternatives exist.

What Counts As A Lawful “Merit Based” Wage Gap In New Jersey

New Jersey’s guidance draws a clear line between a real system and ad hoc judgment:

• A merit system is a predefined plan with criteria tied to the job — think measurable outcomes, competencies, or quality metrics — applied uniformly and in good faith.
• “We pay what this person is worth” or “lead approved a larger bump” is not a merit system.

Separately, an employer can point to bona fide factors (like education, training, experience, or quantity/quality of production), but only if all conditions are met — the factor isn’t based on or doesn’t perpetuate a protected-class pay gap, it’s applied reasonably, it accounts for the entire difference, and it’s job-related and business-necessary with no less discriminatory alternative. That’s a high bar by design.

NJ’s Salary History Bans And Pay Transparency: Why They Matter To Merit Pay

New Jersey restricts reliance on salary history. Most employers may not screen applicants based on prior pay or require salary history to meet any threshold; they can verify only in limited, statute-defined circumstances, such as after a conditional offer or if the applicant voluntarily discloses. Salary history reliance can import old inequities into your pay band, which later “merit” increases will amplify. 

Looking ahead, New Jersey’s wage transparency law (effective June 1, 2025) requires many employers to include pay ranges and a general description of benefits in postings. Greater transparency makes it easier to spot when “merit” installments keep someone stuck at the bottom of the band compared with peers doing substantially similar work, and it supports internal equity audits.

If You’re Facing Merit Based Wage Gap In New Jersey

You can keep this measured and professional while protecting your rights:

• Ask For The Rationale In Writing. A short note works: “So I can improve, can you share the criteria used to determine my merit percentage and where I fall in the salary range for my role?” New Jersey protects employees who discuss pay or request information to evaluate pay equity.
• Compare Roles, Not Titles. Think in terms New Jersey uses: skill, effort, responsibility. If colleagues do substantially similar work and are paid more, the law doesn’t require identical titles to draw comparisons.
• Document The Pattern. Keep performance reviews, raise letters, and any range information from postings. Patterns matter, and each paycheck with an unjustified gap can be its own violation.
• Don’t Be Deterred By “Market.” If a prior salary anchored you low, New Jersey restricts salary history reliance. Ask for range placement based on the job, not past pay. 

Merit Systems Should Close Gaps, Not Cement Them

A well-run merit program rewards performance and reduces unjustified pay gaps. A bad one entrenches them. 

If you’re doing substantially similar work but can’t catch up because the system keeps awarding equal percentages on unequal salaries, New Jersey law gives you tools to ask hard questions, request range placement based on job-related criteria, and seek relief when the answers don’t add up.

We Help NJ Employees Facing Merit Pay Inequities

If your “merit” raise isn’t closing a persistent pay gap — or if your reviews and calibration meetings don’t line up with the work you actually do — we can help. 

Our team advises New Jersey employees and teams on pay equity, audits merit systems for legal risk, and pursues relief in court when needed. We’ll review your role, your pay history, your evaluations, and the company’s stated criteria — and outline practical next steps.

Contact Us Today — we’re here to listen and help you move forward.