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A pay equity audit is a structured review of compensation data to find unexplained pay differences between employees doing similar work, particularly differences correlated with sex, race, or other protected characteristics, and to correct the ones that cannot be justified. Run it through counsel and budget for remediation first.
A credible audit begins by grouping employees into comparison sets, often called similarly situated employee groups, based on job content, level, and location rather than job title alone. Within each group, the analysis controls for legitimate factors such as experience, tenure, performance rating, education, shift, and geography, then tests whether a pay gap remains that correlates with a protected characteristic. Larger groups support regression analysis; smaller ones require cohort comparison and judgment.
The legal backdrop is layered. The federal Equal Pay Act requires equal pay for equal work, allowing differentials only for seniority, merit, quantity or quality of production, or a factor other than sex. Title VII reaches broader discrimination claims. Many states have gone further, expanding the standard to substantially similar work, narrowing the affirmative defenses, banning salary history inquiries, and in some cases requiring pay data reporting.
Two practical points. First, run the audit under attorney-client privilege through counsel, because findings are discoverable otherwise and an identified but uncorrected gap is worse than no audit. Second, budget for remediation before you start; the usual outcome is a set of individual adjustments plus a structural fix, such as tightening starting-pay ranges and requiring approval for offers above a midpoint. Repeat the audit on a cycle, since new hires and promotions reintroduce drift within a year or two.
By job content, level, and location rather than by job title. Titles drift and rarely describe comparable work, so credible audits build similarly situated groups from actual duties, then control for experience, tenure, performance, education, shift, and geography before testing whether an unexplained gap remains.
To keep the analysis privileged. Findings prepared outside privilege are discoverable, and a documented gap that was identified but never corrected is worse evidence than no audit at all. Running it through counsel also forces a decision about remediation before the results exist.
On a regular cycle, because drift returns quickly. New hires, promotions, market adjustments, and counteroffers reintroduce differences within a year or two. Pairing the repeat audit with a structural fix, such as approval requirements for offers above the midpoint, keeps the correction from unwinding.