What is a pay equity audit?

4 min readPublished April 25, 2022Updated May 05, 2022

Caveat: I am not a lawyer and this post is not legal advice. The information provided is general in nature. Please consult your legal counsel for more information.

In one of my recent roles as an Engineering Manager, I advocated for and successfully conducted a pay equity audit. We found positive results with no sign of pay discrepancies based on race or gender. I believe strongly that every engineering organization should conduct regular pay equity audits. Pay equity audits ensure a fair and inclusive culture for all your team members.

In this post, I break down what a pay equity audit is and why you should do one.

What is a pay equity audit?

A pay equity audit finds differences in employee compensation that cannot be explained by job-related factors.

Pay equity is not the same as pay equality. It doesn't mean that all employees are paid the same. Pay equity refers to being paid the same for comparable work and experience. Valid factors for different pay include differences in:

  • Job responsibilities
  • Skills required
  • Years of experience
  • Education
  • Quality or quantity of work performed
  • Employee/employer location.

Federal law has required that employees in the same workplace receive equal pay for equal work since the Equal Pay Act of 1963. It also specifically prohibits gender discrimination. But, many state laws require a broader look at pay equity. Most states require equal pay for "substantially similar" work. Pay equity laws continue to evolve with California and Colorado often leading the charge.

When doing a pay equity audit, there are many different ways to consider 'pay.' This can include:

  • Base pay (salary or hourly)
  • Variable pay such as commission or bonuses
  • Stock options
  • Benefits

The more complex your company's compensation structure, the more complex a pay equity audit will be.

A pay equity audit differs from a pay gap analysis. A pay gap analysis identifies the difference between the average compensation of a protected group vs a favored group. E.g. how much do women make compared to men in the company? Or how much do employees of color make compared to white employees? A pay gap analysis provides a high-level view of pay disparities but does not identify where those disparities exist or provide guidance on how to fix them.

A pay equity audit also looks at how a protected group is compensated vs a favored group. But it considers the employees' roles and job-related factors. It uses statistical analyses to identify potentially unlawful pay disparities between protected classes of employees performing similar work.

Why should you do one?

In addition to legal and compliance reasons, there are many benefits to proactively conducting a pay equity audit.

We've all heard the statistics about the gender pay gap. As a refresher, women make 83 cents for every $1 a man makes. But marginalized women fare worse with AAPI women making 75 cents, Black women making 58 cents, Indigenous women making 50 cents, and Latina women making 49 cents.

A common explanation is that women self-select lower-paying industries. But this problem affects high-paying professions as well. In tech, men were offered higher salaries than women for the same job title at the same company 59% of the time, according to a 2021 survey from Hired.

A pay equity audit is one strategy to close the pay gap. The information learned during an audit provides actionable solutions to resolve discrepancies. This ensures fairness in pay, prevents discrimination, and mitigates future legal risk. Consistently checking your data and resolving pay discrepancies prevents a widening pay gap and unchecked bias in your organization.

Companies that tell candidates that they have no pay equity issues (and point to data to back it up!) have a much easier time recruiting and retaining diverse teams. According to a Glassdoor survey, more than two-thirds (67 percent) of U.S. employees are not likely to apply for a job at a company where they believe a pay gap exists between men and women doing similar work. And a report by Beqom found that employees believing there’s a pay gap, whether or not it’s true, can result in a 16% decrease in the desire to stay at the company. The same report found that 58% of respondents would consider switching jobs for pay transparency.

Fear of negative findings is not a good reason to avoid doing a pay equity audit. Managing a business is all about gathering information and making the best decisions you can with what you know. Pay equity is the cost of doing business.