How to Conduct a Pay Equity Audit in a Modern Workforce

Knowing how to conduct a pay equity audit is a must-have skill for HR professionals. Unfair pay is a major issue for employees worldwide, often linked to race, gender, and other forms of discrimination. US Census Data shows that pay gaps persist across various groups, emphasizing the need for regular checks to ensure fair pay.

To address this issue, companies are taking action to reduce pay discrepancies. In fact, 75% of organizations, or 3 in 4 companies, say they regularly conduct pay audits, according to the 2024 survey. Support your organization in this effort by learning how to conduct a pay equity audit and see how Salary.com’s Pay Equity toolkit can assist throughout the process.

Defining modern pay equity

Modern pay equity means ensuring employees performing similar job duties receive comparable pay, regardless of factors like gender, race, or ethnicity.

According to the Plunkett Pay Equity Framework, pay equity means equal pay for comparable work that is internally equitable, externally competitive, and transparently communicated, meaning that employees performing similar jobs with similar responsibilities and qualifications should receive equal compensation.

For example, if two employees are doing equally valuable work, but the one in a female-dominated role is paid less than the one in a male-dominated role, pay equity initiatives would work to fix this gender pay gap.

Pay equity vs pay equality

The difference between pay equity and pay equality is that pay equity ensures jobs of equal value are paid the same, regardless of who does them. Pay equality ensures people doing the same job get the same pay, regardless of their gender, race, or other characteristics.

Here's an example of pay equality to show the difference:

Consider two sales associates in the same company, one man and one woman, both receive the same salary for doing the same job. Pay equality ensures there is no difference in pay based on gender. Learning how to conduct a pay equity audit can help achieve both pay equity and pay equality within an organization.

Importance of pay equity in the modern workplace

Pay equity is a key principle in today's workplace, important for both ethical and practical reasons. Here's why:

• Pay equity means everyone gets the same pay for the same job, no matter their gender, race, or age. This promotes fairness and equality

• Fair pay makes employees feel valued, boosting their morale and keeping them with the company longer, which helps avoid costly turnover.

• Companies with fair pay practices attract skilled workers. Being known for equal compensation makes a company more appealing to job seekers.

• Pay equity is good for business. It lowers lawsuit risks, increases productivity, and enhances the company's reputation.

• Some laws require equal pay for equal work. Ensuring pay equity helps you follow these pay equity laws.

Common barriers to pay equity

Here are the three common barriers organizations might face in achieving pay equity, according to Plunkett:

Lack of salary structure

A lack of salary structure means there's no formal system for deciding employee pay. Without it, pay decisions can be inconsistent and unfair, causing differences in compensation.

Wage compression

Wage compression happens when employees with different experience, skills, or responsibilities are paid almost the same. This often occurs when new hires earn close to what long-term employees make or when pay raises don't keep up with market changes.

Bias

Bias in compensation means treating employees unfairly based on personal traits, like gender, rather than their skills or performance. Many HR professionals think women face discrimination at work, according to a report . Therefore, organizations need to fix any biases in pay practices and learn how to conduct a pay equity audit.

If you think this sounds like a lot of work, it depends on your data and tools for reviewing and analyzing pay equity. Salary.com's Pay Equity feature helps you achieve and maintain pay equity, addressing identified pay gaps, pay raises, general pay inequality, and more with a comprehensive solution.

What is a pay equity audit?

A pay equity analysis is a systematic review of an organization's compensation system to identify any unexplained differences in pay between employees, particularly across groups like gender or race, while accounting for legitimate reasons for pay variations like experience or performance.

Learning how to conduct pay equity in the modern job market can be beneficial as it helps ensure fair compensation, attract and retain talent, and prevent legal issues. However, it's important to first clarify what aspects of "pay" will be reviewed in the pay audits—will they include only wages, or other compensation elements as well?

What is included in pay for pay equity analysis?

It's important to understand that pay includes more than just wages; it covers all parts of total compensation. To ensure fairness, an equal pay audit will review these compensation elements:

• Benefits;

• Any tiers related to benefits;

• Bonuses;

• Retirement contributions;

• Stock and equity;

• Reimbursements;

• Equipment, phone, wellness, and other allowances; and

• Other perks

As per Plunkett, comparable jobs should have similar total pay. If they don't, adjust pay and benefits based on the work done. You can only raise compensation to fix pay equity, not lower it or cut benefits. Also, don’t adjust job comparisons just to match your existing pay structure; assess the work to find truly comparable jobs.

How to conduct a pay equity audit

Organizations must ensure fair and transparent pay. Here's how to conduct a pay equity audit in your workforce with the help of Pay Equity Reporting Toolkit to assess internal pay differences and take corrective action as needed.

1. Step 1: Secure a leadership mandate

   Gain support from top leadership to ensure the pay audit is prioritized and resourced appropriately. Emphasize pay equity's role in legal compliance, boosting employee morale, and enhancing the company's reputation.

2. Step 2: Group comparable jobs

   Organize jobs into groups based on similar responsibilities, skills, and qualifications. This helps to ensure fair comparisons and identify pay disparities more accurately.

   With the Pay Equity Toolkit, organizations can easily create pay equity groups. It automatically assigns comparable work groups or allows you to group jobs by characteristics like grades, point value, location, or other criteria.

3. Step 3: Model internal equity

   Analyze the internal pay structure to identify any disparities among employees performing similar work. Use statistical models or Pay Equity feature to compare salaries and identify disparities in similar jobs. Salary.com's tool also assesses the demographic distribution and pay levels across your compensation tiers.

4. Step 4: Benchmark external competitiveness

   Compare your organization's pay rates with those of similar roles in the market. Use reliable compensation surveys and market data to ensure your pay levels are competitive and fair.

   When benchmarking:

   • Market price 50% of your company jobs.

   • Ensure 80% of the duties match.

   • Compare job requirements, not employee qualifications.

   • For jobs without enough data, consider similar skill, knowledge, effort, and responsibility levels, or slot the job between two survey roles.

5. Step 5: Communicate pay equity analysis report

   Share the findings and actions from the audit with employees. Transparency helps build trust and demonstrates the organization's commitment to fairness and equity.

   The Pay Equity tool simplifies communication about pay equity. It lets users generate Total Compensation Statements and Job Focus Reports®, helping employees understand their roles, their position among peers, and growth opportunities within the organization.

6. Step 6: Update continuously

   Regularly review and update your comprehensive pay equity audit to address any emerging disparities and ensure ongoing compliance with legal standards and internal equity goals.

Knowing how to conduct a pay equity audit can be challenging without the right data and tools. Use Salary.com’s Pay Equity tool and follow the steps mentioned to ensure fair pay in your organization. Regularly review and update your compensation practices, involve stakeholders, and train staff on bias to maintain fairness and transparency.