Adverse impact is a term that can sound scary because of the ramifications and unknown effects that might come from it. But this term is something every employer needs to be aware of.

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What Is Adverse Impact?

Adverse impact is any employment practice that appears to be neutral but has a discriminatory effect on a protected group. These protected groups include race, sex, age (40 and over), religion, disability status, veteran status, and recently sexual orientation

Why Is Measuring Adverse Impact Important?

As an employer, it is important to measure adverse impact so that you can avoid it. Adverse impact can happen in all facets of HR: hiring, promotion, training, development, transfer, layoff and even performance reviews. Measuring adverse impact will help you identify discriminatory practices, make the hiring process fairer, and improve DEI (diversity, equity, inclusion) initiatives in your organization.

  • Identify discriminatory practices. As an organzation, you want to avoid and remove any discriminatory practices that exist in the workplace. By measuring adverse impact, you can see what discrimination does exist and fix it.
  • Making the hiring process fairer. The hiring process is the first place adverse impact happens within an organization. Therefore measuring adverse impact ensures that the hiring process is fair and non-discriminatory. The hiring process is often the first place people investigate when discriminatory practices are called into question at an organization.
  • Improve DEI initiatives. In recent years, more of an emphasis has been put on DEI initiatives. Diversity has become more important for employees when considering a place to work, as 3 out of 4 workers prefer to work for a diverse company. Measuring adverse impact is one way to show employees that your organization is trying to be more diverse and improve DEI initiatives.

How Do You Measure Adverse Impact?

Ultimately, you need an adverse impact analysis to measure the adverse impact that exists at your company. Using an adverse impact analysis can measure gains towards DEI initiatives and help minimize bias in the hiring process. As part of this analysis, you need to find the selection rate for each group, determine groups most and least favored, calculate the impact ratio analysis for each group, and determine whether the result is less than 80% (four-fifths rule)

Step 1: Find Selection Rate for Each Group

Finding the selection rate depends on which class you are trying to measure. For example, if you are concerned that not enough females are being hired compared to the number who applied, you would take the number of female hires and divide it by the number of female applicants. This is your selection rate.

Step 2: Determine Most and Least Favored Groups

Most and least favored groups are determined by finding who has the highest and lowest selection rates. This can be applied to hiring, promotions, terminations or even performance reviews. For any personnel action, to see if there is an adverse impact, find the most and least favored groups.

Step 3: Calculate the Impact Ratio Analysis for Each Group

This step requires some (gasps) math! After you have determined selection rates and groups that might be experiencing adverse impact, you need to determine the impact ratio analysis. This is used to compare the favored group’s selection rate to other group selection rates. Do this by dividing a group’s selection rate by the most favorable group’s selection rate.

Step 4: Determine if the Result Is Less Than 80%

If the answer to the above calculation is less than 80%, it is considered an adverse impact. If you get this result, consider doing more statistical analysis to determine the significance of this adverse impact. This significance can be determined by a standard deviation or Fischer’s impact test. For more information on these tests and how to conduct them, click this link.

Examples of Adverse Impact

Adverse impact can be hard to spot sometimes, even after running the numbers. It is important to understand what adverse impact might look like. Here are some examples:

Not Enough Women Are Hired

One common example of adverse impact in the workplace is when hundreds of females apply for jobs, but only a few are hired in comparison to hundreds of males that are hired. This is one of the easier situations to catch when it comes to adverse hiring.

More Men Getting Promotions

This can be a little harder to catch, but it is just as prevalent. Say that there have been 10 promotions over the last year at a company, and all of them were given to men even though there were female employees who were considered for each promotion. Depending on the statistical significance, this is likely an adverse impact situation.

More Minority Employees Being Terminated

This can be a complex situation, as terminations should be done on the grounds of performance. However, adverse impact can happen if minority employees are being terminated more frequently than white employees, even though performance for both groups is similar.

Best Practices to Avoid Adverse Impact

One of the best things a company can do is create an environment where employees feel safe and welcomed. This can be done through best practices to avoid adverse impact. Some of those best practices include promoting DEI initiatives, inspecting pre-employment assessments and tracking applications and pass rates.

Promote DEI Initiatives

As mentioned earlier, putting an emphasis on DEI initiatives and promoting diversity creates a culture that welcomes more diverse employees. People notice a company’s actions, including the actions they take towards diversity. Attracting more diverse employees can help avoid adverse impact situations.

Inspect Pre-Employment Assessments

Employers should constantly be assessing their pre-employment assessments. Are there questions in their applications that prevent people from applying, such as appearance or physical limitations that may deter applicants? A company might be weeding out applicants for a job without realizing it by the questions they ask.

Track Applicants and Pass Rates

One last best practice for employers is to track applicants and pass rates. Look at the numbers to see what kind of applicants are being screened out. Is there a protected group that is more commonly screened out than other groups? Is there a group that is predominantly being screened through? Tracking this information through applications and pass rates is a great way to understand if adverse impact is happening.

Questions You’ve Asked Us About Adverse Impact

As stated by the UGESP (Uniform Guidelines for Employee Selection Procedures), a selection rate for any race, sex or ethnic group that is less than four-fifths (80%) of the group with the highest rate is regarded by federal enforcement agencies as evidence of adverse impact. A greater than four-fifths rate will generally not be regarded as evidence of adverse impact.
There are some serious consequences if adverse impact occurs. It can be grounds for discrimination cases by the impacted employees or applicants and have serious legal ramifications for an employer. That is why it is so important to ensure adverse impact is taken seriously.

Tanner has over 4 years of HR professional experience in various fields of HR. He has experience in hiring, recruiting, employment law, unemployment, onboarding, outboarding, and training to name a few. Most of his experience comes from working in the Professional Employer and Staffing Industries. He has a passion for putting people in the best position to succeed and really tries to understand the different backgrounds people come from.

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