Not only does a commitment to pay equity showcase your values and care for employees, but it’s also required by law. To ensure fair and compliant pay practices, organizations often implement a pay equity audit. A pay equity audit is a review of the organization’s compensation practices to identify and address any pay disparities.
Understanding Pay Equity
Pay equity refers to ensuring equal pay for equal work, regardless of gender, race, ethnicity, or other protected characteristics. Pay equity addresses systemic biases that have historically undervalued work predominantly performed by women and minorities. Pay equity remains important, as the gender pay gap still exists.
Steps to Conduct a Pay Equity Audit
According to the Society for Human Resource Management (SHRM), 75% of organizations surveyed conduct a regular pay equity analysis. And pay equity continues to gain steam. To improve or implement a pay equity audit, follow these steps:
Step 1: Establish a Pay Equity Committee
Form a diverse committee representing various departments, including HR, legal, finance, and operations. This cross-functional team should establish the audit’s scope, objectives, and methodology while ensuring leadership buy-in.
Step 2: Develop a Job Classification System
Create a system that groups positions based on comparable skills, effort, responsibility, and working conditions. This classification should be objective and consider factors such as job descriptions, required qualifications, and market value.
Step 3: Data Collection and Analysis
Gather comprehensive compensation data, including base salary, bonuses, benefits, and other forms of compensation. Collect relevant employee demographic information and job-related factors that legitimately impact pay (experience, education, performance ratings, etc.).
Step 4: Identify Pay Disparities
Compare compensation across job categories, locations, and employee demographics to uncover trends and potential biases. If disparities exist, assess whether they can be attributed to factors such as tenure, experience, or performance, or if corrective actions are needed to address inequities.
Step 5: Implement Corrective Actions
Develop and implement a remediation plan to address identified disparities. This may include immediate pay adjustments, revisions to compensation policies, and adjustments to hiring and promotion practices to prevent future inequities.
Step 6: Communicate the Results
Share appropriate findings with stakeholders, including leadership, managers, and employees. Transparency builds trust, though legal counsel should guide the level of detail shared to protect sensitive information and minimize legal exposure.
Step 7: Ongoing Monitoring and Evaluation
Establish a regular audit schedule and continuous monitoring system. Integrate equity considerations into ongoing compensation decisions and regularly evaluate the effectiveness of implemented changes.
Pay Equity Audit Tools and Templates
The use of checklists and software can make the audit process go smoother. For example, HCM software should already capture demographic, salary, and job description data, making it easier to gather and analyze. And it’s even better if the software you use includes built-in analytics.
Payscale, which integrates with Paycor, offers comprehensive salary data that empowers businesses to streamline their compensation processes and ensure pay equity. Other recommended tools include Decusoft and LaborIQ.
Best Practices and Common Challenges
Successfully conducting a pay equity audit requires a structured approach and awareness of potential obstacles. Best practices include:
- Using standardized job classifications
- Involving key stakeholders from HR and legal teams
- Maintaining transparency in findings and corrective measures
- Regularly reviewing and updating compensation policies.
A proactive approach ensures pay equity remains a continuous priority rather than a one-time initiative. Despite best efforts, organizations often encounter challenges when conducting pay equity audits. Data gaps can hinder analysis, making it essential to ensure accurate and complete compensation records. Resistance to change, particularly from leadership or long-standing employees, can slow progress, so clear communication about the benefits of pay equity is crucial.
Additionally, legal complexities may arise, requiring consultation with legal experts to ensure compliance with pay equity laws. Overcoming these challenges through data-driven decision-making and consistent policy enforcement can lead to a more equitable and transparent workplace.
Legal and Compliance Considerations
Organizations must comply with pay equity laws such as the Equal Pay Act and state-specific regulations. Employers are subject to penalties and damages for violating such laws. Understanding these requirements helps mitigate legal risks and maintain fair pay practices.
Additionally, organizations should stay updated on evolving legislation and case law that impact pay equity compliance. Conducting legal reviews and working with employment law specialists can help ensure that policies align with current legal standards.
Pay Equity Audit Case Studies and Examples
Salesforce values equity and began evaluating and addressing pay gaps in its global workforce in 2015. The company continues to conduct an equal pay analysis annually, making adjustments as needed. The company reports its findings each year to drive transparency. This transparency and commitment contributes to Salesforce’s numerous accolades, including Forbes World’s Best Employer in 2024 and a score of 100 on the Corporate Equality Index.
Starbucks is another corporation striving toward pay equity. The organization achieved 100% gender pay equity for partners in the U.S. in 2024 and is working toward 100% globally. The corporation sees its turnover rate reducing year over year and remaining significantly below the average rate for quick-serve restaurants.
How Paycor Helps
Paycor Analytics provides a comprehensive breakdown of workforce headcount by gender and ethnicity and benchmarks the data against other Paycor customers in key industries. This information proves helpful for pay equity audits and other DEI initiatives.
In addition, our compliance experts empowers over 30,000 customers to stay compliant with federal, state, and local equal pay regulations. Learn more with a guided product tour.