Pay Equity Audit: How to Run One Step by Step

A pay equity audit is a structured review of your compensation data to find pay differences between employees doing comparable work that you cannot explain with legitimate, job-related factors. To run one, you define the scope, group comparable jobs, clean your pay data, compare pay across groups (often with regression), investigate every unexplained gap, and fix the gaps you cannot justify.

The national numbers explain why leaders keep asking for this work. In 2024, women who worked full time had median weekly earnings equal to 83 percent of men's, according to the Bureau of Labor Statistics. That figure is not proof of discrimination at any one employer, but it is a reason to check yours.

This article is general information, not legal advice.

Key takeaways

• The Equal Pay Act requires equal pay for men and women doing substantially equal work in the same establishment, and job content matters more than job titles.
• Employers can defend a pay difference only with seniority, merit, quantity or quality of production, or a factor other than sex, and the employer carries the burden of proof.
• Title VII is broader: it covers pay discrimination based on race, color, religion, sex and national origin, and it does not require identical jobs or a single establishment.
• When you find a gap you cannot justify, you must raise the lower pay. You cannot cut anyone's pay to close it.
• Involve legal counsel early so your analysis is structured with privilege in mind, and keep records that explain every pay difference.

What is pay equity, and which federal laws apply?

Pay equity means employees who do comparable work receive comparable pay, unless a legitimate, job-related reason explains the difference. In the United States, the two main federal laws are the Equal Pay Act of 1963 (EPA) and Title VII of the Civil Rights Act of 1964.

The EEOC explains that the Equal Pay Act requires men and women in the same establishment to receive equal pay for equal work. The jobs do not have to be identical, only substantially equal. The EEOC tests "equal work" with five elements:

• Skill: the experience, ability, education and training the job requires, not the skills a particular employee happens to have.
• Effort: the physical or mental exertion the job needs.
• Responsibility: the degree of accountability the job requires.
• Working conditions: physical surroundings and hazards.
• Establishment: usually a distinct physical place of business, though separate sites can count as one if pay and assignments are set centrally.

An employer can defend a pay difference only by proving one of four affirmative defenses (reasons the law accepts, which the employer must prove): a seniority system, a merit system, a system that measures quantity or quality of production, or a factor other than sex. "Pay" is broad. It covers salary, overtime, bonuses, stock options, profit sharing, vacation and holiday pay, allowances and benefits.

Title VII reaches further. The EEOC compliance manual on compensation discrimination notes that Title VII broadly prohibits discriminatory pay practices, while the EPA covers only sex-based differences in substantially equal jobs. Under Title VII, the comparison is with "similarly situated" employees, and the same-establishment rule does not apply. The Age Discrimination in Employment Act and the Americans with Disabilities Act add age and disability to the picture.

Timing also matters. Under the Lilly Ledbetter Fair Pay Act of 2009, each paycheck that contains discriminatory pay counts as a separate violation. An old pay decision can keep creating fresh exposure every pay period until you fix it.

Many states have their own equal pay laws, and some are stricter than federal law, with broader comparison standards or narrower defenses. Check the rules in every state where you have employees, and pair that review with your obligations under state pay transparency laws on salary range posting.

Federal laws at a glance

Law	What it covers	What it means for your audit
Equal Pay Act of 1963	Sex-based pay differences for substantially equal work in the same establishment	Compare pay by sex within equal-work job groups; document which of the four defenses explains each gap
Title VII of the Civil Rights Act	Pay discrimination based on race, color, religion, sex and national origin	Analyze similarly situated employees across sites, and test neutral policies for adverse impact
Age Discrimination in Employment Act	Pay discrimination based on age	Include age bands in your analysis where your data supports it
Americans with Disabilities Act	Pay discrimination based on disability	Handle disability data carefully and review whether pay practices disadvantage disabled workers
Lilly Ledbetter Fair Pay Act of 2009	Treats each discriminatory paycheck as a new violation	Old pay decisions still matter; fix gaps going forward, not just at hire
Recordkeeping rules (29 CFR 516, 1602 and 1620.32)	Payroll and personnel records, plus records that explain pay differences	Keep the evidence that supports each defense

What records do you need to keep?

You need payroll records plus documents that explain why pay differs. The EPA recordkeeping rule at 29 CFR 1620.32 incorporates the Department of Labor payroll rules in 29 CFR part 516 and requires you to keep records about pay, job evaluations, and merit or seniority systems that describe or explain the basis for any wage differential. You must keep those explanatory records for at least two years.

Title VII adds its own rules. According to the EEOC summary of 29 CFR part 1602, private employers must keep personnel records, including rates of pay and compensation, for one year from the date the record was made or the action was taken, whichever is later. If someone files a charge, you must keep all related records until the matter is finally resolved. If your workforce spans several states, our guide to multistate HR records retention covers how to reconcile conflicting periods.

How do you run a pay equity audit step by step?

You run it in six stages: scope, job grouping, data, analysis, explanation and remediation.

1. Set the scope and engage counsel. Decide which employees, pay elements and protected characteristics you will review. Most employers start with base pay and total cash pay for all regular employees, by sex and by race or ethnicity. Bring in employment counsel before you pull any data (more on privilege below).
2. Build job groups. A job group is a set of roles that do substantially similar work and that you would expect to pay similarly. Group by actual duties, level and required skills, not by job title. Test your job architecture and confirm that exempt and non-exempt classifications match the jobs you are comparing.
3. Gather and clean the data. Pull pay rates, bonuses, hire dates, time in role, job level, location, performance ratings, education and any other factor your pay policies actually use. Fix missing values, reconcile data across systems and annualize pay for part-time workers. If your payroll controls are shaky, start with a federal payroll compliance checklist before you trust the numbers.
4. Compare pay. For small groups, compare each employee's pay against peers side by side. For larger groups, use multiple regression, a statistical method that estimates how much each factor (such as tenure or level) relates to pay while holding the others constant. The EEOC compliance manual describes the key question as whether protected status has a statistically significant relationship to pay after other factors are taken into account. It also warns that statistics alone cannot tell you what caused a pattern.
5. Explain every gap. For each flagged employee or group, look for a documented, legitimate reason that fits one of the EPA defenses or a job-related Title VII justification. "She negotiated less" or "he came from a higher-paying competitor" deserves close scrutiny, because prior pay and negotiation can carry past bias forward.
6. Remediate and document. Raise pay where you cannot justify a gap, fix the policy that caused it, and record what you changed and why. The EEOC is clear that you may not reduce anyone's pay to close a differential. Process the adjustments through payroll, and if they apply to past periods, follow your retroactive pay calculation process.

Choosing the right level of analysis

Regression needs enough people in a group to produce meaningful results. For a team of five, a careful one-by-one review of each employee's pay, tenure and duties is usually more useful than a model. Look beyond base pay: bonuses, equity grants and starting salaries often hide gaps.

How does legal privilege apply to a pay equity audit?

Many employers run the audit at the direction of legal counsel so that the analysis may be protected by attorney-client privilege or the attorney work product doctrine. Protection is not automatic, and its scope depends on how the work is set up, who sees it and the law that applies, so ask your counsel how to structure it.

In general terms, that often means counsel engages any outside analysts, communications about findings go through counsel, and the team keeps a clear line between the privileged analysis and the business decisions that follow. If you later want to rely on the audit to show good faith, you may have to disclose it, so decide that strategy with counsel up front.

Privilege generally does not cover underlying facts such as payroll records and job descriptions, so keep them accurate.

Common mistakes in pay equity audits

The most common mistakes are grouping jobs by title, trusting dirty data, and fixing numbers without fixing the process that created them. Watch for these:

• Grouping by title alone. The EEOC says job content, not titles, decides whether jobs are substantially equal. Two "analysts" can do very different work, and a "coordinator" may do the same job as a "specialist."
• Using factors your policies do not actually use. Adding variables to a model just because they shrink the gap can hide real problems. Every factor should reflect how you really set pay.
• Using tainted factors. Performance ratings, prior pay and job level can themselves reflect bias. Test them before treating them as neutral explanations.
• Ignoring small groups. Regression may not run on groups of three or four, but those employees are still covered by the law.
• Cutting pay to equalize. This is prohibited under the EPA. Raise the lower pay instead.
• Treating the audit as a one-time project. Because each paycheck can count as a new violation, gaps that reopen after promotions or annual increases still create exposure.
• Overlooking the hiring pipeline. Pay gaps often start at offer. If you use automated screening, review it the way our guide to self-auditing your ATS for disparate impact describes.

How should you fix gaps and keep pay fair afterward?

Fix unexplained gaps by raising the lower pay, then change the policies that produced them so new gaps do not form. Remediation is both a one-time correction and a set of ongoing controls.

Set a budget, prioritize the largest unexplained gaps, and decide whether to adjust all at once or in phases. Ask counsel about timing, since each delayed paycheck may still count as a violation.

Then build controls into everyday decisions: structured salary ranges, written criteria for starting pay, a review of offers before they go out, and a check of merit increases and promotions before each cycle closes. Write your pay philosophy into policy, and consider adding it to your employee handbook so managers and employees understand how pay is set.

FAQ

How often should you run a pay equity audit?

Many employers run a full audit every year and a lighter check before each merit or promotion cycle. Run one sooner after a reorganization, acquisition or major pay change.

Does the Equal Pay Act require jobs to be identical?

No. The jobs must be substantially equal in skill, effort, responsibility and working conditions within the same establishment. Actual duties matter more than titles.

Can you lower one employee's pay to close a gap?

No. The EEOC states that an employer may not reduce wages to equalize pay. You must raise the lower-paid employee's pay.

How long can a pay discrimination claim reach back?

Under the EPA, the EEOC manual says back pay is generally limited to two years before suit, or three years for a willful violation. Under the Ledbetter Act, each discriminatory paycheck restarts the clock.

What to do next

Start with a conversation with your employment counsel about scope and privilege. Then inventory your pay data and job architecture so you know what you can analyze and where the gaps in your records are. Pick one business unit for a pilot audit, document every decision, and use what you learn to set up an annual cycle.

Sources

• EEOC: Facts About Equal Pay and Compensation Discrimination
• EEOC Compliance Manual: Section 10, Compensation Discrimination
• EEOC: Equal Pay Act of 1963 and Lilly Ledbetter Fair Pay Act of 2009
• EEOC: Summary of Selected Recordkeeping Obligations in 29 CFR Part 1602
• eCFR: 29 CFR 1620.32, Recordkeeping Requirements
• Bureau of Labor Statistics: Highlights of Women's Earnings in 2024

Last reviewed: November 2026.