Pay Equity Audits: A Practical Guide for HR Teams

A pay equity audit is a systematic analysis of your compensation data to identify whether employees in comparable roles are being paid equitably. As pay transparency laws proliferate, pay equity audits are transitioning from voluntary best practice to regulatory expectation.

Why now

The EU Pay Transparency Directive requires employers with 100 or more employees to publish gender pay gap data. California's SB 1162 requires annual pay data reporting. The underlying assumption of every transparency law is that you have analysed your compensation and can defend it. A pay equity audit gives you that defensible position — before a regulator requires it.

The five-step process

1. Define comparator groups: Employees doing substantially similar work — based on function, required skills, responsibility, and working conditions — not just job title
2. Gather compensation data: Base salary, bonus, equity, and total compensation for every employee in scope
3. Run controlled and uncontrolled analyses: The raw gap shows lived experience; the controlled gap shows unexplained disparities after accounting for legitimate factors
4. Investigate outliers: Flag employees significantly below comparator group midpoints; document whether there is a legitimate or unexplained reason
5. Remediate and document: Create a phased plan to address unexplained gaps, approved by CHRO and tracked quarterly

Legal privilege

Many employment attorneys recommend conducting pay equity audits under attorney-client privilege by commissioning the analysis through outside counsel. This can protect detailed findings from discovery in litigation. Consult your employment counsel on the right structure. For the regulatory context, see our EU Pay Directive guide.