The Complete Guide to Adverse Impact by Mile Živković on Mar 4, 2019

In our quest to find the best talent for our companies, there are so many things to bear in mind. The cost of hiring, time to hire, when to make an offer, where to post the job ad, who the ideal candidate is… It’s no wonder that hiring managers get so preoccupied that they forget about something of utmost importance – fairness and inclusivity.

Adverse impact is a consequence of a biased hiring process and a hidden danger for every employer looking for new talent. Negligent employers will not only risk making a bad hire, but also breaking the law. For example, 2016 saw more than 90,000 discrimination lawsuits in USA alone.

So, what is adverse impact and what can you do to minimize it? Let’s find out.

What is adverse impact and how to measure it

The most common way of measuring adverse impact is the four-fifths rule. Established more than 40 years ago, it is still one of the main methods of measurement today. Adverse impact (also called disparate impact) means the following: if the rate of selection for a given group is less than 80% of the group that has the highest selection rate, that group has adverse impact.

Sounds complicated? Let’s simplify.

Here’s an example: a company has an opening for 50 sales reps in their workforce. There are 1000 female applicants and 2000 men. The company ends up hiring 30 men and 20 women. That leaves us with 1.5% of hired men and 2% of hired women from the total hiring pool. In other words, even though more men were hired, they were adversely impacted in the hiring process. For anyone who wasn’t involved in hiring, they would get the impression men are clearly better off in this selection.

Once we divide 1.5% by 2%, we get to 75%, which is under 80%, or four-fifths. It is evident that this example of a hiring process has adverse impact for the male group of applicants. While this method is by no means perfect, it’s a fairly simple way to establish if your hiring process is biased and whether you’re hiring according to best practices.

Why measure adverse impact?

Put simply, the main reason for measuring adverse impact is to ensure a fair and unbiased candidate selection process. Companies that keep this metric in mind along their hiring process have a better chance of finding top talent without bias for gender, age, religion, education or any other trait.

The second important reason for minding adverse impact is that not paying attention to it may cause you to break the law. If your hiring process is biased towards a certain type of candidate, you’re (un)knowingly setting yourself up for a potential lawsuit.

Problems often arise when employers aren’t even aware they’re breaking the law. For this reason, it’s imperative to get familiar with your local, state and country laws on hiring discrimination before you even put out a job ad, let alone start with your hiring process.

How to decrease adverse impact in your hiring process

For starters, you can use a tool such as Textio to determine if your job ad copy is biased towards a certain gender. Once you start sourcing and selecting candidates, make sure you measure adverse impact for each of the steps in the process. If the first step (the sourcing) is discriminatory, that means the entire hiring process is skewed. Not only are you breaking the law, you are also lowering your chances of hiring the best person for the job.

The second way to stay on the safe side is to always keep measuring. By keeping tabs on how many candidates applied, got to the interview, received and offer and got hired, you can measure adverse impact using the four-fifths rule to ensure you are on track.

Third, make sure your legal team is always up to date with the latest legislation. Depending on your part of the world, adverse impact may not be that big of a deal. However, job markets such as USA have very specific laws on discrimination and it would be smart to follow updates on the Equal Employment Opportunity Commission (EEOC) and the Society for Human Resource Management (SHRM) websites.

Finally, you can use pre-employment testing methods to make sure your selection process is unbiased. The problem with traditional hiring is that at the very beginning, you know some of the most basic information about a candidate that will make it easy to discriminate. In other words, by reading their resume, you’ll find out their name, gender, age, education and much more. Just by opening up the CV, you’re already biased – even if it’s not your intention.

To tackle this issue, you can use a pre-employment assessment tool. For example, Hundred5 allows you to test candidates on skills related to their job. As candidates take the test, all you get is their results, and any candidates that don’t pass the threshold are eliminated immediately. Later on, you can reveal the candidates’ identities as they go further in the hiring pipeline.

Conclusion

Although it’s not perfect, adverse impact is one of the easiest ways to make sure that your hiring process is unbiased and according to the legal requirements. By always measuring for adverse impact, you’ll ensure a fairer and more inclusive hiring process and avoid legal issues down the road.

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