What to Know About Compliance and Cutoff Scores

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When talent acquisition teams today are evaluating interview and hiring tools, they’re interested in more than just scalability and ease-of-use — they’re also concerned about compliance and legal defensibility.

Besides being the right thing to do, equitable hiring practices are also encoded and enforced by the law. In an unpredictable economic environment, no one wants to face surprise legal fines. A recent report found that since 2000, the vast majority of large corporations in the US — including 99% of Fortune500 companies — have paid out payments in at least one employment discrimination or harassment lawsuit.

In this article, we’ll walk through different compliance guidelines to keep in mind for your hiring process. We’ll also discuss how compliance impacts your cutoff score: the score threshold that you use to decide when to move candidates forward.

Note: This article constitutes general information, not legal advice. You should always involve your legal counsel in conversations about compliance and legal defensibility. They will understand the full context of your business and can keep you informed about changes in local and federal laws.

Adverse impact

The EEOC (Equal Employment Opportunity Commission) defines adverse impact as “a substantially different rate of selection in hiring, promotion or other employment decision which works to the disadvantage of members of a race, sex or ethnic group.”

What does “substantially different” mean? The agency uses a “4 / 5ths” or “80%” rule of thumb: a selection rate for any race, sex, or ethnic group should not be less than 80% of the selection rate of the group with the highest selection rate.

Let’s unpack that: Imagine 50 women and 200 men applied for software engineering positions at your company last quarter, and 3 women and 20 men were hired. You would therefore have a 6% selection rate for women and a 10% selection rate for men. Since 6/10 is less than 4/5, the EEOC’s rule of thumb would suggest that there has been an adverse impact on women applicants.

Increasingly, states (such as New York) are implementing additional legislation to mitigate adverse impact when leveraging recruiting technology in your hiring process, which makes it even more critical to have a strong strategy in place for maintaining compliance at all levels.

What you can do

No business intends to create an adverse impact, but it can happen for a number of reasons, including unconscious bias. To improve diversity and equity at your organization, it’s a good idea to be proactive about adverse impact. If you’re working with an assessment vendor, you have the benefit of data on your side. Here are some steps you can take:

1. Know where you stand

To conduct an analysis of adverse impact, your assessment vendor should be able to help you pull the relevant data on candidate pass rates at different points in your funnel. This can help you compare outcomes for race, sex, and ethnic groups (when assessing groups, consider those that constitute 2% or more of your applicant pool).

By understanding your metrics, you can start to prepare plans to improve — which will be different depending on whether the drop off is at the screening, interview, or offer stage.

2. Adjust cutoff scores

If you do identify adverse impact on the technical assessment stage, what can you do? In this case, you may want to work with your vendor to adjust the cutoff score or threshold for moving candidates forward. Assessments are powerful instruments, but they also need to be carefully and continuously tuned to achieve the most equitable outcomes.

Validation

When it comes to avoiding employment discrimination, preventing adverse impact is a business’s first line of defense. If the EEOC does find adverse impact in the course of an investigation, they will ask for validation of the hiring process. Validation is the backstop that can protect your business from further action.

According to the EEOC Guidelines, “validation is the demonstration of the job relatedness of a selection procedure.” Importantly, any type of validation requires evidence — which can be obtained from the business’s data or through validity studies done elsewhere — that the selection procedure is related to successful performance on the job.

What you can do

Working with an assessment vendor will help you validate your assessments more easily, because you’ll have access to structured data and records on your assessments, along with tools to make your processes more consistent. However, it’s important to educate yourself about these tools and avoid making the assumption that all vendors will simply handle the validation step entirely.

Perform regular job analyzes

Creating a valid assessment starts with understanding the job you’re hiring for. You might have a perfectly good set of interview questions, but if those questions aren’t relevant to this particular role, they’re not valid.

Therefore, in order to choose the right type of assessment for the role, it is essential to conduct a job analysis. These structured, scientific evaluations are often done with the help of IO psychologists. They need to be repeated as job requirements can change over time.

Here at CodeSignal, we use a Combination Job Analysis Method that brings together the duties of the job with the knowledge, skills, abilities, and other person-related characteristics (KSAOs) that an employee needs to succeed in the role.

2. Use skills evaluation frameworks

While many assessment vendors provide a library of questions for you to choose from, some are moving towards even more structure and consistency by introducing skills evaluation frameworks. Skills evaluation frameworks are like blueprints for constructing interviews that are consistent and repeatable. They’re built around specific roles and tested by subject matter experts to ensure validity.

GDPR

While not related to employment discrimination, GDPR is an important compliance category to be aware of when evaluating hiring solutions. GDPR protects candidates’ personally identifiable information (PII). It applies to EU organizations or non-EU companies that offer goods and services to EU residents or monitor their behavior.

What you can do

GDPR affects how you can collect, process, and store data from candidates. It includes the “right to be forgotten,” meaning that if a candidate asks you to remove their information, you must do so within 1 month. To be compliant with GDPR, you will need to also transparently share how candidates’ data is used.

1. Audit how you collect and use candidate data

This includes your ATS, any spreadsheets, and how data about candidates is shared across your company. What processes do you have around protecting this data? How do you correct inaccuracies?

2. Ensure your tools are GDPR compliant

Any hiring and interview tools and services that you work with should be GDPR compliant. If your contractors or software fails to comply with GDPR, your business is accountable as well.

CodeSignal is GDPR-compliant, and we provide research-backed, validated skills evaluation frameworks. We’re always happy to help existing and prospective customers with any questions they might have about compliance and legal defensibility for employment discrimination. Reach out and schedule a demo today to learn more about CodeSignal.

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