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HR Glossary

Adverse impact

What is adverse impact in HR?

Adverse impact in HR refers to employment practices, policies, or decisions that seem neutral on the surface but actually negatively impact a protected group of people (e.g., those of a particular race, ethnicity, nationality, gender, etc.). It's usually unintentional, and the discrimination may be present in hiring, promotions, performance reviews, and similar practices. 

Why does adverse impact matter?

Having an eye on adverse impact matters because it can help organizations identify and rectify any underlying discriminatory practices before they affect employees and hurt company reputation. Here's why every organization should track adverse impact:

  • Upholds diversity and inclusion

Diversity and inclusion at the workplace is important. According to a Glassdoor report, a whooping 76% of job seekers see diversity and inclusion as an important factor while evaluating job offers. Eliminating adverse impact can help your organization break unintentional barriers that prevent underrepresented workers from progressing, hire and promote employees purely based on their talent and performance, and build an inclusive workplace. 

  • Prevents legal challenges

Title VII of the Civil Rights Act prohibits discrimination in employment based on race, gender, ethnicity, religion, nationality, and other factors. Not having proper measures in place to address adverse impact on protected groups can result in organizations facing legal suits, even if it's unintentional. 

  • Improves employee morale

Eliminating adverse impact can help organizations offer equal opportunity and extend fair treatment to every employee without any bias or discrimination. This will go a long way toward building a positive work environment and reinforcing the trust employees have in their organization, improving their morale. 

  • Enhances company reputation

Any organization that takes steps to prevent discrimination and support equality will have a great reputation among potential candidates, customers, investors, and partners.

What are the key causes of adverse impact?

Here are some key causes of adverse impact that organizations should strive to keep at bay: 

  • Sticking to rigid policies and recruitment practices without analyzing their impact on the current pool of talent
  • Unconsciously favoring candidates or employees who may belong to the same religion, sex, age, or ethnicity as the manager
  • Failing to analyze employment practices regularly for any patterns of discrimination

What are some examples of adverse impact?

Here's what adverse impact would look like in HR strategies:

  • Recruitment:

Adverse impact in recruitment could occur when organizations rely on unstructured interviews without any proper assessment methods that align with the job role. In such cases, managers may unintentionally select candidates who share a similar background, language, ethnicity, or religion, leading to a lack of diversity. Similarly, using limited channels to post job openings could restrict access to diverse talent.

  •  Attendance: 

In a multicultural workplace, providing a single, standard list of holidays that only accounts for common religious observances could lead to adverse impact. This practice discriminates against employees who observe less common holidays due to their cultural or religious beliefs.

  • Promotions: 

In some organizations, seniority and male traits may be unintentionally associated with leadership roles, which could prevent talented younger employees and women from progressing to top leadership positions. 

  • Layoffs: 

Certain organizations may lay off senior employees first, which could put older workers at a disadvantage. 

What is the four-fifths rule in adverse impact?

The four-fifths rule, also known as the 80% rule, is a guideline that enables organizations to determine if adverse impact exists in any of their employment practices. According to this particular guideline, if the selection rate of any protected group is less than 80% of the selection rate of the favored group, it means that adverse impact exists in the employment practice that's being evaluated. For example, let's see how this rule is put into practice in recruitment:

  1. Calculate the selection rate of each group of employees

  • Determine the selection rate by dividing the number of people hired from a particular group by the total number of applicants from that group.

Formula: Selection Rate = Number Hired / Total Number of Applicants

  1. Determine the group with the highest selection rate

  • Identify which group has the highest proportion of individuals selected. This is the most favored group for comparison.

  1. Compare the selection rates

  • Calculate the ratio of each group's selection rate to the selection rate of the most favored group.

Formula: Adverse Impact Ratio = Selection Rate of Group / Selection Rate of Most Favored Group

  • Check if the selection rate for any group is less than 80% of the most favored group's rate.

  1. Interpret the result

  • If the adverse impact ratio is less than 80%, this suggests potential adverse impact, and further investigation is required to determine if discrimination exists.
  • If the ratio is 80% or more, adverse impact is unlikely.

What are some strategies to mitigate adverse impact?

Here are some of the tried and tested strategies that will help you mitigate adverse impact in your organization: 

  • Make use of interview questions and assessments that are directly related to the job role and responsibilities of the position that you're hiring for.
  • Advertise job openings in diverse recruitment channels—including social media, employee referrals, job boards, career fairs, and more—to reach all candidates.
  • Have a well-defined process that defines the criteria for promotions and salary hikes.
  • Ensure that employees of all groups, regardless of their role, seniority, or gender, have access to training programs that address their skill gaps.
  • Make managers and your leadership team aware of the unconscious biases that may exist in employment practices.
  • Provide safe channels for employees to provide feedback about inequalities in any employment practices.
  • Analyze recruitment, promotion, performance, training, and layoff (if applicable) data regularly to identify any patterns of discrimination.
  • Apply the four-fifths rule to your HR strategies to determine any discrepancies.

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