8 Steps to Follow for a Perfect Pay Equity Audit

The best talent will always have the most choice when it comes to who they work for—so what are they looking for? 

Research shows that companies with fair pay initiatives increasingly attract and retain top talent. Organisations that see this as a cultural imperative are therefore routinely evaluating their people’s salaries through the practice of pay equity audits.

What Are Pay Equity Audits?

When conducting a pay equity audit, you examine and compare the pay of people in similar roles against each other and their market rates.

When you look at the market, you’re looking to see if what you pay your people is consistent with what they could be paid if they worked somewhere else. 

Many companies define what ‘competitive’ means for them in something called a compensation or pay philosophy. This process is one way of staying true to that position. 

That same compensation philosophy should also make what is a reasonably standard commitment towards fair pay. 

A pay equity audit, using pay equity software, therefore compares the salaries of individuals within a group, to ensure that any reasonable factors such as performance or skills justify the differences in pay.

When to do a pay equity audit?

It’s always in a company's best interest to undertake both the internal and external parts of a pay equity audit on an ongoing basis. This is true for a few reasons, such as:

• Eliminate the risk of underpaying your people
• Ensure the accuracy and effectiveness of your payroll software or service
• Prevent losing critical personnel and skills to competitors that pay more generously.
• Avoid fines, reputational damage and legal trouble that comes with paying people differently based on age, gender or ethnicity
• Better morale among the workforce when pay equity is established
• Remain compliant with laws such as the Equal Pay Act

Companies that are not only committed to rooting out pay disparity, but eliminating it, reap the benefits in both talent attraction and engagement. It’s a strategic advantage.

Both payroll software solutions and compensation management platforms are evolving in response to this, bringing features that dashboard information on these pay disparities, and giving organisations an even higher level of insight.

Arming yourself with insights is important, but it’s only through routinely undertaking a pay equity audit that you can ensure your company doesn’t veer away from where it wants to be.

Benefits Of Pay Equity In The Modern Workplace

The commercial benefits of a comprehensive pay equity audit are many, but center largely on ensuring your people stay motivated and stay longer.

But what does this look like for companies that don’t undertake pay equity audits?

Pay Equity in Action

Courtesy of pay transparency laws and protections, it’s not unlikely that your current employees will, at some point, either search for or be served an ad for a job that is similar to the one that they’re doing now, yet pays significantly more money. 

As you can imagine, the employee’s immediate next thought is likely “Why am I not being paid similarly?” 

Regardless of what happens next, what just took place is an important touchpoint in the employee experience that leaves a lasting impression. The employee may now be left feeling undervalued for the work that they do. 

Companies that proactively practise pay equity audits are aware of those roles in the market and are actively ensuring that a moment like this is instead one where their people affirm that they are paid similarly to the ad that popped up.

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Internal pay equity

The same can be said of internal pay equity factors. Flaws in people systems and processes can result in pay discrepancies based on the traits of an individual instead of their role or performance. 

With the discussion of pay becoming less taboo by the day, if someone is paid less than their peer they’ll inevitably find out. In the best case, companies could expect that employee to raise it and have it addressed swiftly, hopefully limiting any impairment to motivation and engagement. 

Sadly, the worst case is more common, with systemic issues often creating barriers for individuals to raise the issue — resulting in impacts on productivity or attrition. 

While the need for regular pay equity audits is clear, companies must take a structured and robust approach toward completing them, or their efforts will be seen as a veneer that causes more harm than good.

How To Conduct A Pay Equity Audit

Any pay equity audit is a data-informed approach, so your intentions must be backed up with robust and accurate data on your people. 

Here is where the value of an employee management platform is critical for ensuring you can spend your time focused on analysing and taking action, and not on data entry. Once your data is in a good place, it’s time to dive in.

1. Document your pay practices

Most companies will undertake a pay equity audit on at least an annual basis, and you should look to codify this within your compensation philosophy. Conducting a pay equity audit is simplified with a payroll automation system that tracks compensation effectively.

Documenting your pay practices gives certainty to your people of not only what is involved but when they can expect it to take place. For example, you might craft and regularly update a payroll processing checklist for your company.

Your compensation philosophy should therefore be the place you start when defining the goal of the pay equity audit, which is a critical first step in its undertaking.

Author's Tip

Start by clearly outlining your pay practices in your compensation philosophy. This should detail how often pay equity audits will occur, what the process involves, and the goals you aim to achieve. Communicate this to your employees to ensure transparency and trust. Regularly update this documentation to reflect any changes in your compensation strategy.

2. Set goals that inform your approach

It’s easy for the volume of data that materialises in a pay equity audit to become overwhelming. To combat this, you’ll need to set a series of goals as a way to inform how you look into the mass of data you’ll be working with and draw insights that can inform action. 

Author's Tip

Define clear, specific goals for your pay equity audit. For example, if one of your goals is to compare roles to market benchmarks, identify the key data points needed, such as employee salary, job level, and relevant benchmarks. These goals will help you focus your analysis and draw actionable insights from the data.

3. Consider sub-goals

As you define top-level goals for an effective pay equity audit, you’ll undoubtedly uncover requirements that need to be satisfied to meet them — these are your sub-goals. 

An example of a sub-goal may include ‘set a benchmark rate for each role type’, which needs to happen before we know if someone is paid fairly compared to the market. 

Defining the needs for your goals and documenting these sub-goals is critical to ensure you know what you’re doing and when you’re done. 

Author's Tip

Create a detailed plan that includes steps like selecting reliable salary survey sources, defining job categories for comparison, and setting timelines for gathering and analyzing data. Additionally, assign team members to each sub-goal to ensure accountability and progress tracking.

4. Consult with legal

It’s also never a bad idea to speak with your legal counsel in a process like this, ensuring you’re accounting for any federal laws, DEI or demographic metrics that should inform your analysis along the way. 

But remember, your legal team is typically focused on what I would call the bare minimum — ensuring your company is avoiding the risk of a claim. 

It’s your role as a people operations professional to ensure that you’re accountable for another kind of risk — disengagement and attrition. It’s you who is focused on enabling an incredible people experience, and this often extends well beyond the compliance basics.

Author's Tip

Schedule a meeting with your legal counsel early in the audit process to review all relevant federal, state, and local laws related to pay equity. Prepare a list of questions and areas of concern to ensure all potential legal risks are addressed. Additionally, ask your legal team to review your compensation policies and any communications you plan to send to employees about the audit. Keep a record of all legal guidance received and integrate it into your audit plan to ensure compliance and mitigate risks.

5. Define comparable jobs

Before looking at the data and coming away with your decisions, it’s important to start by defining comparable jobs, where the scope and responsibilities are largely similar. Job titles are a great place to start but you could go as deep as a review of skills and responsibility. 

Most organisations will employ a job-level framework that efficiently categorises individuals and aids in this process.

Author's Tip

Develop a comprehensive job-level framework that categorizes roles based on skills, responsibilities, and scope of work. Start by creating or revisiting a detailed job description for each role within your organization. Then, group similar roles together and validate these groupings with department heads and employees to ensure accuracy. Utilize job evaluation tools or external consulting services if needed. Regularly update this framework to reflect changes in job responsibilities and organizational structure.

6. Define necessary data

Once you know what you’re looking for, it’s time to define all the data necessary for your findings. Of that data, what do you already have the information that needs to be surfaced or crafted so that you can make determinations and achieve your goals? 

It’s at this stage that solid analytical skills are important as you’ll face large amounts of information that can be made more efficient with clever formulas, reducing the overwhelming nature of this work. While large spreadsheets may feel impressive initially, they can be a nightmare to manage. 

These days, there’s a tool for everything, so let technology be your friend here. Good compensation management is made more difficult by manual processes and user interfaces that aren’t intuitive or easy to consume. 

Author's Tip

Create a checklist of all data points required for the audit, such as employee demographics, salaries, job levels, performance ratings, and market benchmarks. Review existing data sources to identify gaps and plan how to collect missing information. Use data visualization tools to help organize and interpret large datasets. Implement data validation techniques to ensure the accuracy and completeness of the information. Regularly back up your data and maintain data security protocols to protect sensitive information.

7. Look for patterns and outliers

Once the data is gathered, it’s time to see what it tells us. Look for patterns or outliers, ensuring that the context of any comparison is correct and that it adjusts for legitimate factors like performance or tenure which may influence pay determinations depending on your pay philosophy. 

This kind of compensation review process is likely to yield a ‘rinse and repeat’ of data collection or changing formulas to ensure accuracy, so don’t be disheartened if you have to return to the previous stage and adjust your sub-goals slightly to meet your goals effectively.

Author's Tip

Use statistical analysis software or data visualization tools to identify trends, patterns, and outliers in your payroll data. Create visual reports, such as charts and graphs, to make it easier to spot discrepancies. Pay special attention to significant deviations and investigate the underlying causes. Adjust your analysis to account for legitimate pay differentiators like tenure, performance, or specialized skills. Document any findings that require further investigation and outline next steps for resolving identified issues.

8. Compile your findings

Once you’ve been able to successfully investigate the data, it’s time to pull together your findings. This is commonly done in a report or presentation that can surface high-level insights such as a group's compa-ratio or pay gaps amongst roles of equal work, to determine where any remediation efforts should be directed for achieving pay equity. 

This stage often ends with a recommendation for addressing the areas of the business that are at odds with the pay stance we mentioned earlier and the cost and mechanism for doing so.  

Author's Tip

Draft a comprehensive report that summarizes your key findings and provides actionable recommendations. Include an executive summary for quick reference, detailed analysis sections, and visual aids like charts and graphs to highlight important data points. Propose specific remediation actions for identified pay gaps, including timelines and estimated costs. Share your report with key stakeholders, including executives and department heads, and schedule follow-up meetings to discuss implementation plans. Ensure ongoing communication with employees to maintain transparency and trust throughout the remediation process.

Strategies For Correcting Pay Inequities 

Of all the effort and complexity that a pay equity audit comprises, how organisations correct for them is the most important. 

While it’s one thing to direct the budget toward correcting for pay differences, it’s also the bare minimum. Leading companies are committed to meaningfully identifying the underlying causes of pay discrepancies and continually pursuing corrective actions that prevent them from materialising again.

The ongoing nature of pay equity audits

Companies should look across successive pay equity audits for patterns in their results, and drive pay equity audits from a merely compliance-driven transaction to a progressive and transformative talent enabler. 

An example may be that multiple audits repeatedly find one gender is paid less than another, despite the same roles receiving similar performance ratings. It’s these broader insights that can be a canary in the coal mine for surfacing systematic flaws in workplace practices, eroding their effectiveness. 

Companies would do well to use findings like this to drive initiatives aimed at controlling for the biases that led to those pay disparities, improving areas such as budgeting functionality and reducing the risk of disengagement or attrition in the process. 

Transparency drives success

Progressive companies aren’t keeping mum about their pay equity audits either. Organisations frequently platforming their efforts towards remediation are the ones that see pay equity audits as cultural imperatives, and are driving talent attraction and retention results.

You can start this journey by taking simple actions like debriefing your workforce on anonymous data of the findings and what actions you’re taking away from the effort. Highlighting areas such as how you are addressing any gender wage gap, or showing where the budget was directed in the last cycle are great places to share insights.

While it may seem daunting, I’ve witnessed first-hand the unprecedented support and appreciation shown by workforces treated as the lifeblood of the organisation that they are.

Evolve Your Approach To Pay Equity

Pay equity audits are a critical mechanism through which you can ensure equal pay — inside and out — but don’t let that be the end of it. 

Done well, the audit process can instill trust and show your people that fair compensation is not just a nice to have but a deep-rooted pillar of your culture. Talented professionals are increasingly looking toward organisations with both commitment and accountability on this front.

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