How to Conduct a Pay Equity Audit: Templates and Examples

Doing a pay equity audit is important for any organization that wants to ensure fair pay practices. It helps find and fix any pay differences within the company, ensuring employees are fairly paid for their work.

Companies that prioritize pay equity audits demonstrate dedication to fairness and equality for their employees. This practice also helps them compete better and create a happier, more trusting workforce.

This guide discusses pay equity meaning, outlines the best practices when conducting it, and provides a clear plan with steps to conduct a thorough and effective pay equity analysis in your organization.

What is a pay equity audit?

A pay equity audit is a comprehensive examination of an organization's compensation system to uncover biases related to factors like gender or race. It analyzes employee data to find unexplained differences in salary, bonuses, and other compensation, aiming to rectify any unfair gaps and ensure paying employees fairly based on their role, experience, and performance.

For example, if the audit shows that women are paid less than men for the same job in a company, despite similar experience and performance, it's a gender pay gap. To solve this, the company might raise women's salaries to match men's, ensuring fair pay for equal work.

What is the purpose of a pay equity audit?

The main purpose of an equal pay audit is to identify and rectify any disparities in pay within an organization. However, there are reasons why organizations conduct this audit, including:

• Legal compliance: Ensuring the company follows the law to treat everyone fairly in pay.

• Ensure fairness: Making sure everyone gets paid equitably for their work, no matter who they are.

• Boost retention: Keeping employees happy and preventing them from leaving because they feel unfairly paid.

• Improve public image: Showing that the company cares about fairness, which makes it look good to the public.

• Attract top talent: Make the company appealing to skilled workers who want to work for a fair and equal employer.

What is included in a comprehensive pay equity audit?

Organizations should prioritize salary equity analysis to uphold fairness, diversity, and inclusion. However, before doing so, they should understand the key components of the process.

Data collection

This means collecting detailed employee information, such as salaries, bonuses, job titles, experience, performance reviews, and other factors that could affect pay.

Job evaluation and classification

Here, the audit determines the fair value of each job in the organization. This helps group jobs that have similar duties and skill requirements.

Comparative analysis

After grouping similar jobs, analysts compare employee pay within those groups to spot any differences based on factors such as gender, race, or age.

Use Compensation Software's reports to identify pay equity issues based on differences in protected categories like gender, ethnicity, and age. The tool's Intuitive Pay Equity Reporting reviews pay and highlights disparities across similar jobs.

Factors adjustment

It's important to consider valid reasons for pay gaps, like experience, education, or performance. Statistical methods help separate the influence of these factors to check for any unexplained pay differences.

Policy and process review

The audit reviews the organization's compensation policies and procedures to find any biases or inconsistencies that could lead to unfair pay differences.

Addressing pay disparity and recommendations

After the audit, suggestions are provided to fix any pay differences found. This might mean changing how pay is determined to make sure it's fair and follows equal pay laws.

Benefits of pay equity audits

When pay equity audit is done correctly, organizations can expect that fairness and equality within their workforce are promoted and upheld. Here are some benefits of a pay equity analysis:

• An equal pay audit reveals any pay disparities among employee groups, promoting fairness.

• Identifying and addressing these disparities ensures employees are valued and compensated based on their merits.

• Proactive audits minimize legal risks linked to pay discrimination accusations.

• Conducting a salary equity analysis demonstrates a commitment to fair treatment, enhancing the employer's reputation.

• Knowing they're valued and compensated enhances employee morale and satisfaction.

• A reputation for pay fairness aids in attracting and retaining top talent.

• Addressing pay gaps opens the candidate pool to a wider range of qualified individuals, regardless of background.

• Pay equity audits help organizations stay ahead of evolving legal requirements regarding pay reporting and compliance.

• A content and compensated workforce boosts productivity and business success.

• Pay equity analysis yields data for shaping future compensation strategies, ensuring ongoing fairness.

How to conduct a pay equity audit

To conduct an equal pay audit, you review how your organization pays people to find and fix any unfair differences based on gender or race. Here are the steps, along with the guidance of Compensation Software's Pay Equity feature:

1. Step 1: Establish a pay equity committee and choose an approach

   Create a dedicated committee responsible for overseeing the audit process and reviewing the current pay practices in the organization. This group should ideally include representatives from different departments or functions within the organization. Then, choose how you'll conduct the audit; here are some options to consider:

   • Foundational audit: A foundational audit aims to find any possible pay differences, perhaps even pinpointing them in certain departments or groups.

   • Remedial audit: A company needs a detailed plan to handle unexpected outcomes and stay financially responsible.

   • Causal analysis audit: With a causal analysis approach, a company checks if its methods might be causing pay differences, which could mean changing how it's managed.

2. Step 2: Develop a clear job classification system

   Having a clear system for classifying jobs is important to ensure fair and consistent pay across different roles. This system should detail job titles, duties, qualifications, and other factors that affect how much people are paid.

3. Step 3: Gather data and analyze pay disparities

   Gather data on employee pay, considering job titles, experience, and demographic details like gender and race. Look closely at this data to find any unfair differences in pay based on gender or race. This might mean comparing salaries for similar jobs or checking for pay gaps among different groups of employees.

4. Step 4: Implement corrective actions

   After identifying pay disparities, develop and implement corrective actions. This could involve adjusting salaries, revising job classifications, or changing hiring and promotion practices to ensure fair compensation. Ensure these changes are sustainable and do not strain the organization's finances.

   The Pay Equity feature helps create a remediation plan and model pay changes for fair salary adjustments. The tool also helps develop a strategy based on your organization's risk tolerance, culture, and budget.

5. Step 5: Communicate the process and results

   Communicate the audit process and results clearly to all stakeholders, including employees, management, and possibly external parties. Share the steps taken, findings, and corrective actions.

   Compensation Software assists in creating a communication plan, provides employee-facing tools for presenting pay, trains managers on employee discussions, and supports sustaining this communication plan.

Best practices for a pay equity audit

Executing a salary equity analysis requires a systematic approach to identify and address pay disparities. Here are some best practices for an effective audit:

1. Define and go beyond "equal pay for equal work"

   Pay equity isn't just about matching salaries for identical jobs. It's about ensuring fairness in opportunities for growth, benefits, and promotions. This means checking if all employees have equal access to training, development, and resources that impact career advancement.

2. Transparency is key

   Be open and honest about how pay decisions are made. Use a salary calculator or regular pay reports to show your commitment to fairness. Pay transparency builds trust and helps employees understand how their pay compares to others. In fact, 67% of US employees would avoid applying to companies with a gender pay gap.

3. Use objective criteria for job comparisons

   Don't rely only on job titles when comparing roles. Create a clear system to evaluate positions based on skills, experience, responsibilities, and organizational impact. This ensures fair comparisons and helps identify any biases in position value.

Pay equity audit template

Note: This pay equity audit template may vary by organization. Use it as a starting point and customize it to fit your needs.

I. Data collection

Employee information

Employee ID: Unique employee identifier

Name: Employee's full name

Position: Employee's current job title

Department: Department where the employee works

Date of hire: Employee's start date

Compensation Data

Base salary: Fixed pay for work performed

Bonus: Extra pay beyond regular wage

Equity: Stock options or other equity compensation

Benefits: Non-wage perks given on top of pay

Total compensation: Sum of base salary, bonus, equity, and benefits

Performance data

Last performance review score: Employee's last review rating

Performance review date: Date of last review

Data privacy and confidentiality

Ensure data is anonymous and compliant with privacy rules.

II. Data Analysis

Job Grouping

Group employees by job function, level, and responsibilities.

Statistical Analysis

Calculate median and average pay, pay ranges, and distributions. Use regression analysis to check for pay disparities.

III. Root Cause Analysis

Review HR processes for hiring, promotions, and evaluations. Conduct interviews or surveys to understand perceived pay issues.

IV. Results and Findings

Identify significant pay gaps and summarize key findings from data analysis.

V. Recommendations

Provide actionable steps to address pay disparities and set goals for achieving pay equity.

VI. Conclusion

Summarize findings and recommendations and outline the next steps for implementation and monitoring.

VII. Appendix

Include additional data, charts, and detailed analysis.

Conducting a pay equity audit is essential for ensuring fair pay practices and demonstrating a commitment to equality. By following this straightforward guide and utilizing Compensation Software's Pay Equity feature, organizations can comply with regulations and create a more inclusive and competitive workplace.