To protect their organizations while also improving employees’ pay situation, human resource leaders should examine in-house pay rates and correct any disparities. That means conducting a pay equity analysis.

Here’s how that works and why it’s important.

The Issue

Pay equity is a complicated subject and an elusive target. The latter is partly because discussions about employee pay are often tacitly verboten, rendering many people unsure of what size paychecks they merit or should anticipate.

To promote the aim of pay equity, HR departments should start within their own organizations. Let’s look even closer.

What is a Pay Equity Analysis?

Also called an equal pay audit or a pay parity audit, a pay equity analysis is a way of researching pay rates within your organization and evaluating any disparities in pay relative to a broad range of criteria that includes age, race, gender, seniority, and job descriptions and responsibilities.

What’s the Goal?

For one, it’s always a smart move to shield yourself as an organization from potential wage discrimination lawsuits. Within the last several years, agencies such as the Equal Employment Opportunity Commission, along with local and federal governments, have increased their focus on the gender wage gap.

Also, HR leaders can use the pay equity analysis to right the pay picture within their own organizations. In turn, more competitive rates will result in an enhanced ability to lure and keep the best employees. Signaling equitable opportunities for promotion typically has the same effect.

Conducting a Pay Audit

Follow these steps to conduct a pay equity analysis within your outfit:

  • Be strategic and plan well. Ask yourself why you’re conducting your analysis. Is it to keep you in compliance with regulations, or are you correcting disparities? The answer will inform the method, timeline, personnel, budget, and stakeholder commitment needed to complete a comprehensive and precise audit.
  • Examine your pay policies. Gain an understanding of how pay was determined for all relevant positions, even before you start gathering rates. Doing so will help protect your organization from lawsuits and give you an idea of the base causes of any current pay inequities.
  • Collect the info. Your audit’s scope and purpose will inform the info you’ll need when gathering data. For each employee, you should note job title, job grade or level, department, hire date, gender, and — depending on the audit’s breadth — ethnicity, age, education level, starting salary, and overtime pay and bonuses. Next, collect info such as evaluation ratings, punitive actions, and experience level.
  • Size up the work of employees with similar positions. You must make several distinctions. For example, while federal legislation cites “equal work,” some state laws use broader terms such as “comparable” and “substantially similar” in their definitions. This gets tricky because such terms extend past job title and description. Make sure you’ve thoroughly researched your state’s labor laws in this regard before drawing your comparisons.
  • Study the data. Once you’ve compared organizational roles and separated them into groups, you’re ready for the analysis. Your aim is to see whether there are wage differences that can be linked to criteria such as gender, race or age.
  • Determine whether pay differences are legally justified. Your study may show employees who do comparable work are paid different wages. Now, this doesn’t automatically mean the organization’s in trouble. According to federal law, pay disparities are legal if they are tied to seniority, merit, work production, or any factor other than gender.
  • Move to lessen pay differences. If you can’t find justification for the wage gaps in your organization, you must fix the disparities. Then use what you’ve learned to inform future decisions.

As you can see, conducting a pay equity analysis has many benefits as it relates to economic viability. Organizations that prioritize closing wage gaps can help themselves while helping their workforce.