Fair compensation is a cornerstone of an equitable workplace. To remain compliant with labor laws and foster an inclusive environment, organizations must prioritize pay equity as a foundational element of their people strategy.
Moreover, the impact of pay equity goes far beyond compliance. Proactively identifying and addressing wage gaps can strengthen
employee morale,
workforce retention, and brand reputation. When employees feel confident that their compensation is determined by experience and performance rather than bias, they’re more likely to stay engaged and committed long-term.
What is pay equity?
Pay equity is the principle that all employees should receive equal compensation for performing work of equal value, regardless of gender, race, age, or ethnicity. It extends beyond
base salary to include other forms of compensation, such as bonuses,
stock options, and fringe benefits. The goal of pay equity is to ensure a fair and consistent compensation structure across roles that are comparable in scope, responsibility, and impact.
While often associated with the phrase “pay gap,” the two aren’t interchangeable. A pay gap is the difference in average earnings between groups (such as the
gender pay gap between men and women). Pay equity is a targeted, organization-specific practice that ensures individuals in similar roles are compensated fairly relative to one another.
Even if an organization achieves internal equity, it could still create pay gaps through inequitable hiring and promotion practices. For instance, a company may pay all senior managers equitably, but if men are disproportionately promoted to those roles, a gender pay gap will persist across the organization.
Why is pay equity important?
While the ethical case for pay equity is clear, it also presents a strong business rationale. Companies that commit to fair and equitable compensation often see a range of measurable benefits across their workforce.
Consistent compliance with legal requirements. Many countries and states mandate pay equity by law. Companies must institute pay equity policies to remain compliant and avoid potential legal and financial consequences.
Improved employee trust and engagement. Pay equity fosters a culture of transparency and trust that can increase morale and productivity. Fairly paid employees are more likely to feel valued, which can improve morale, engagement, and long-term retention.
Stronger diversity, equity, and inclusion (DEI) initiatives. Pay equity is a cornerstone of DEI policies, as it directly targets systemic imbalances and wage discrimination in the workplace. Addressing compensation disparities helps reduce structural inequities and emphasizes a commitment to workplace fairness.
Positive impact on financial well-being. Fair pay is fundamental to
employees’ financial stability. When employees earn what they deserve, they’re better equipped to manage expenses and focus on their work instead of worrying about money.
Pay equity laws
The U.S. government and various state legislatures have enacted pay equity laws to promote fairness and eliminate wage discrimination. To avoid fines, companies should review local regulations, abide by the latest policies, and comply with audits.
Here are the most prominent federal pay equity laws:
Equal Pay Act of 1963 (EPA). The
Equal Pay Act mandates that companies pay men and women the same for jobs requiring similar skill, effort, responsibility, and working conditions. If employees don’t receive equal pay for equal work, employers must justify it based on factors like seniority or merit — not gender.
Title VII of the Civil Rights Act of 1964. Under
Title VII, employers can’t discriminate based on race, color, religion, sex, or national origin. Title VII is broader than the EPA, and it’s often cited in cases where unequal pay is linked to patterns of discrimination.
In response to ongoing pay disparities, many states and cities implemented more aggressive laws to close wage gaps. These laws often build upon federal requirements, so companies should check their local jurisdiction when creating pay equity policies.
Common rules include:
Salary history bans. Over 20 states and multiple municipalities now prohibit employers from asking about a job candidate’s prior salary. This helps prevent historical pay inequities from following employees throughout their careers.
Pay transparency requirements. States like
California,
Colorado,
New York, and
Washington require employers to disclose salary ranges in job postings. This promotes accountability and gives applicants clearer expectations from the outset.
Conducting a pay equity audit
Many companies conduct structured reviews of their compensation data to uncover potential wage disparities and evaluate pay equity policies. These audits help employers assess whether individuals performing comparable work are being paid fairly. A strategic audit policy reduces an organization’s legal risk and demonstrates a commitment to workplace equality.
Here are the common steps of a pay equity audit.
1. Define the plan and objectives
Start by outlining the purpose and goals of the pay equity audit. Is this audit solely focused on gender pay equity, or will it include other factors? Establishing the scope at the outset helps determine the types of data to collect, the methodology to use, and how findings will be interpreted and addressed.
2. Collect workforce and compensation data
Gather comprehensive, up-to-date data on each employee, including total compensation (
base salary, bonuses, equity, and benefits), job title, level, performance ratings, tenure, education, and relevant demographic information (where legally and ethically appropriate). Ensure that demographic data is collected in compliance with privacy laws and internal policies.
Group employees into comparable job families based on function, responsibility, and skill level — not just by job title or department.
3. Analyze pay differences
Use statistical methods like regression analysis to examine pay differences within each group. Wherever disparities exist, determine whether legitimate job-related factors (such as performance or experience) explain these gaps. Flag any unexplained inequalities that may indicate potential discriminatory bias so HR can begin to build an action policy.
4. Address discrepancies and continue monitoring
After identifying unjustified pay differences, consider appropriate remediation strategies. Beyond individual salary raises, pay equity strategies may call for revised pay structures or clarified compensation guidelines.
Organizations should also build systems to continuously monitor and maintain pay equity over time. They may implement annual audit cycles or integrate equity checks into performance reviews.
How to create and maintain pay equity policies
Achieving pay equity requires more than a one-time correction. Companies need an ongoing, structured approach to ensure equitable policies endure.
Conduct regular pay equity audits and take corrective actions
Employers must conduct regular pay equity audits to identify and address wage disparities. Ideally, these should occur at least once per year, but they’re also insightful during organizational transitions like mergers or restructuring.
Avoid factoring salary history into hiring and compensation decisions
Using a candidate’s salary history to determine their pay can perpetuate historical pay gaps, particularly for women and underrepresented groups. Instead of anchoring offers to previous compensation, consider the role’s market value and the individual’s experience and qualifications.
Review and update compensation policies
Compensation policies need routine updates and continual monitoring to prevent unintentional pay disparities. Regularly review pay bands and hiring metrics to maintain alignment with the business’s pay equity strategy and diversity goals.
Communicate with employees about pay transparency and equity
Companies can promote trust and accountability by sharing aggregate data or pay equity audit results while keeping individual salary details confidential. For further transparency, include pay equity commitments in key documents, like onboarding materials and employee handbooks, to cement them in company culture.
Train managers and HR teams on fair pay practices
Regular training sessions on fair pay practices help managers and HR professionals avoid bias and effectively apply pay adjustments. Keeping them aware of how bias impacts hiring decisions can also help reduce existing pay gaps or prevent new ones from existing.
Support financial wellness beyond pay equity
Achieving pay equity is a powerful way to show employees they’re valued — and it’s a crucial legal requirement. Fairly compensated teams are more likely to trust and respect their organization, which often translates to
increased motivation and higher retention rates.
However, equitable pay alone won’t eliminate employees’ financial stress. Even with fair compensation, teams may experience financial anxiety that impacts their well-being and productivity.
EarnIn can help give employees more flexibility via a suite of financial wellness benefits. For example,
on-demand pay helps employees cover everyday expenses and unexpected costs. They can
access their pay the same day they work, starting at $3.99 per transfer,
with the ability to get up to $150 per day, with a max of $750 each pay period.
EarnIn also offers additional tools such as free
Credit Monitoring and
Tip Yourself,
which provides a no-cost FDIC-insured account that automatically saves part of every paycheck,
to help employees to stay on top of their financial health,
Best of all, EarnIn comes at no cost to employers with no payroll integration. Request a demo
today to see how EarnIn can support employee financial well-being and engagement.
Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.
This Blog was sponsored by EarnIn. While the author received compensation, the information shared is grounded in independent research and intended to provide helpful and accurate guidance to readers.
EarnIn is a financial technology company not a bank. Banking Services are provided by Evolve Bank & Trust, Member FDIC. The FDIC provides deposit insurance to protect your money in the event of a bank failure. More details about deposit insurance
here.
Lightning Speed is an optional service that allows you to expedite the transfer of funds for a fee. Depending on the product, the fee may be charged by EarnIn or its banking partner. Lightning Speed is not available in all states. Restrictions and terms apply. See the
Lightning Speed Fee Table and
Cash Out User Agreement for details.
A pay period is the time between your paychecks, such as weekly, biweekly, or monthly. EarnIn determines your daily and pay period limits (“Daily Max” and “Pay Period Max”) based on your income and financial risk factors as outlined in the Cash Out Maxes section of our Cash Out User Agreement. EarnIn reserves the right to adjust the Daily Max and Pay Period Max at its discretion. Your actual Daily Max will be displayed in your EarnIn account before each Cash Out.
EarnIn does not charge interest on Cash Outs or mandatory fees for standard transfers, which usually take 1–2 business days. For faster transfers, you can choose the Lightning Speed option and pay a fee to receive funds within 30 minutes. Lightning Speed is not available in all states. Restrictions and terms apply; see the
Lightning Speed Fee Table and
Cash Out User Agreement for details and eligibility requirements. Tips are optional and do not affect the quality or availability of services.
Calculated on the VantageScore® 3.0 model. Your VantageScore 3.0 from Experian® indicates your credit risk level and is not used by all lenders, so don’t be surprised if your lender uses a score that’s different from your VantageScore 3.0.
Learn more.
Tip Yourself Account funds and Tip Jars are held with Evolve Bank & Trust, member FDIC and FDIC insured up to $250,000. Tip Yourself is a 0% Annual Percentage Yield and $0 monthly fee service deposit account. For more information/details visit
Evolve Bank & Trust Customer Account Terms.The FDIC provides deposit insurance to protect your money in the event of a bank failure. More details about deposit insurance
here.
