How to do an adverse impact analysis with the Four-Fifths Rule

July 27, 2020 at 7:00 AM

Maintaining compliance during your company’s hiring process can be a convoluted, difficult thing to keep track of. It’s why many companies choose to outsource this work to experienced human resource agencies rather than take care of it in-house.

But if you’re an HR professional looking to understand the complexities surrounding hiring practices and compliance, you’ll want to start with adverse impact. Here, we discuss what adverse impact is and how to calculate it using a simple mathematical test.

What is adverse impact?

Adverse impact is when a company discriminates against a protected class during a selection process like hiring or promotion. Examples of protected classes include:

  • Race
  • Sex
  • Age
  • Religion
  • Veteran status
  • Disability status

When adverse impact exists in a company, HR professionals may find that it implements practices or procedures that benefit or undermine one segment of a class more than others. Measuring adverse impact at a company, and rectifying it if it exists, is important to make the hiring process fairer for all applicants.

After all, studies show that a less diverse workforce experiences less innovation and creativity, stagnated performance, and brings in less revenue than a diverse one. Diversity in the workplace allows different points of view to be brought to the table, ultimately encouraging your company to operate at its highest potential.

How to conduct an adverse impact analysis: The Four-Fifths Rule

The most common (and straightforward) way to determine whether a company is experiencing adverse impact is by conducting an adverse impact analysis with the Four-Fifths Rule.

The Uniform Guidelines for Employee Selection Procedures describes this rule as “a selection rate for any race, sex, or ethnic group which is less than four-fifths (or 80%) of the rate for the group with the highest rate will generally be regarded by the Federal enforcement agencies as evidence of adverse impact, while a greater than four-fifths rate will generally not be regarded by Federal enforcement agencies as evidence of adverse impact.”

Essentially, if the hiring rate of any segment of a protected group is less than four-fifths (or 80%) the rate of the most-represented segment in that group, then the lesser-represented group is experiencing adverse impact.

More elaborate ways to measure adverse impact in a company have also been used to conduct adverse impact analyses, like statistical and practical tests. However, the Four-Fifths Rule is a good benchmark to use during a company’s yearly audit of their hiring procedures and guidelines.

Schedule your free consultation today

Fair hiring practices form the backbone of any company, but it’s not as easy to implement and maintain as you may think. That’s why we’re here.

Whether you’d like to learn more about adverse impact analyses, compliance, or another HR-related matter, InterConnect Human Resource Services can help. Companies like yours work with us, outsourcing their HR consulting needs to ensure that they remain compliant with government requirements for federal contractors.

Our range of services include Affirmative Action compliance, diversity and inclusion programs, as well as OFCCP audit support.

Schedule your free consultation today, or contact us using the form on our website if you have any questions or concerns about our services. During this uncertain time, we are available to meet with you remotely to support you in your HR efforts.