How to Conduct a Pay Equity Analysis to Improve the Gender Pay Gap

You’ve likely heard of the gender pay gap, or maybe Equal Pay Day—marked each year by how far into the new year women must work to earn the same amount as men (it fell on March 26 in 2026). The conversation around pay transparency is an ongoing one, with continuous efforts to close the pay gap. In the US, women are paid 16% less than their male coworkers. Globally, women earn only $0.77 for every dollar men earn.

But pay gaps aren’t just about gender. According to the US Department of Labor, Black employees nationwide typically make $991 weekly compared to $1,225 earned by their White counterparts.

To recognize and close such gaps within our own organizations, we need to understand the importance of pay equity and how it differs from pay equality.

Read on to discover the differences and how your company can achieve both.

What is the definition of pay equity?

Pay equity is the concept of reducing pay gaps based on factors such as race, gender, and other characteristics. It ensures fair compensation for jobs that are different but have equal value to the business.

In essence, the employer pays their employees based on their job role and not the person doing the role. Paying people fairly and consistently for work of equal value can keep businesses compliant, helping to prevent pay discrimination and other legal issues.

Pay disparities might instead be explained by factors such as aptitude, tenure, credentials, and so on.

The objective of pay equity laws is to build workplaces that inspire employee engagement, loyalty, excitement, and confidence. By fostering an environment of transparency, openness, and fairness in compensation and opportunity, businesses can achieve just that.

What is pay equality and the gender pay gap?

Pay equality is the notion of providing equal pay for equal work—regardless of an employee’s race, gender, or other characteristics.

Let’s say a business employs two part-time warehouse workers, one being a woman and the other being a man. If they both have the same level of experience and education, they should be paid the same—that’s pay equity. However, if they aren’t paid the same, that’s both illegal and an example of unequal pay. It also falls under the umbrella of pay equality.

Gender pay gap: A closer look

As you might expect, pay inequality often brings discourse surrounding the gender pay gap. This occurs when two employees who are alike in every aspect except their gender are paid unequally.

Due to persistent bias and societal pressures, women earn less than men in general. There are also fewer women in leadership roles, who represent just 29% of current C-suite positions in the US as of 2024. Again, these differences in pay and career attainment come from biases and prejudice that go beyond just a single bad employer.

Pay equity laws to be aware of

Pay equity isn’t just an idea, it’s a complex patchwork of federal, state, and local regulations. The aim is to ensure fair compensation for all, fostering a more equal society while enhancing a company’s bottom line.

Here are some key pay equity legislation HR should know about:

Equal Pay Act of 1963

The Equal Pay Act (EPA), signed in 1963, established a legal precedent prohibiting sex (the word “gender” was a few years from mainstream use) from justifying greater pay. It guarantees that women in equivalent positions within an organization are paid equally to men in similar roles. The basic assumption is that men and women with equal work should be compensated equally.

Originally designed to add to the Fair Labor Standards Act, the EPA encourages companies to compare positions based on quality rather than titles.

Civil Rights Act of 1964, Title VII

The Civil Rights Act of 1964, Title VII protects employees from discrimination based on race, color, ethnic background, sex, and religion. It prohibits employers from discriminating based on any term, condition, or privilege of employment under Title VII.

Recruiting, hiring, promoting, transferring, coaching, punishing, dismissing, allocating work, assessing performance, and giving perks are all areas that might lead to breaches. Commercial and governmental firms with a minimum of 15 employees are subject to Title VII, as well as federal government, labor groups, and employment agencies.

EEO-1 Reporting

An EEO-1 Report (Equal Employment Opportunity) is an annual conformance survey that some employers must submit demographic data of their workforce. Private employers with 100 or more employees, or federal contractors with 50 or more employees, must submit the report to the Equal Employment Opportunity Commission (EEOC).

Information that must be disclosed under this legislation includes an employee’s race, ethnicity, sex, and job category. This is used to help the EEOC identify systemic disparities and potential pay discrimination in the workplace.

Are pay equity and pay equality the same thing?

While pay equity and pay equality point to systemic bias against certain employees, they’re distinct concepts.

Pay equity is the principle of fair compensation for work, meaning that employees are paid fairly and without discrimination, regardless of their characteristics. It goes beyond “equal pay for equal work” to also include “equal value”— i.e., two completely different jobs that are comparable in terms of skill, responsibility and effort.

Meanwhile, pay equality is concerned with the ways in which that bias prevents people from even getting the opportunity to attain certain positions, and from advancing at a commensurate rate with other demographics. It’s the principle behind the Equal Pay Act and a core component of anti-discrimination laws in the workplace.

Does your company offer unequal pay?

While this can be hard to stomach, it’s always better to review pay practices than brush it under the rug. As an employer, pay transparency is key to fostering trust and fairness, promoting pay equity, and helping to close pay gaps. We’ll show you how to achieve just that.

How to calculate pay equity

Calculating pay equity is the first step to correcting unequal pay, and takes just four steps.

1. Gather data. This data should track compensation, gender, race, education, experience, performance, job descriptions, and anything else your company uses to calculate compensation.
2. Analyze the data. Control for different factors like gender or educational background to see where and why pay inequities may exist.
3. Find and correct unequal pay. Discrepancies in pay that can’t be explained by legitimate reasons need to be examined and corrected.
4. Work toward pay equality. Once you’ve established a foundation of pay equity, you can begin to analyze how to achieve pay equality. Dig deeper into the external issues that are preventing your company from creating truly equal opportunities for employees across a spectrum of experience, capabilities, potential, and performance.

Uncover how your employees really feel

Organizationally, the biggest hurdles to pay equity and pay transparency are lack of understanding and communication. In our 2025 compensation trends report, 61% of US workers stated that executives and leadership were out of touch with the financial struggles of employees.

And that’s just the tip of the iceberg. Some 50% of employees believe that salary transparency can ensure equal pay for equal work, while 43% see it as a way to reduce pay discrimination. Nearly a quarter (23%) believe it can call attention to disparities in salaries.

When you understand how your employees feel about compensation, you can build a plan that’s tailored to their needs—and your company’s. Your route for finding these answers can include engagement surveys, HRIS data and reporting, and one-on-ones with individual employees, but it’s also useful to keep an eye on overall industry and market trends.

Our report also highlighted that a significant percentage of employees are dissatisfied with their salary increase, and some workers haven’t received a salary increase at all.

• Two in five salaried workers haven’t received a pay increase in the past 12 months.
• 44% of employees would change jobs but are staying put due to a secure salary.
• 36% of employees say that their compensation is directly associated with their mental health.

How to fix a gender pay gap

To implement pay equity and close gender pay gaps, start by looking at the salaries of women in your organization, regardless of role, and compare them to the salaries of men in your organization. If there’s a difference, that’s pay inequality.

Discovering these pay discrepancies is just the beginning—what matters is looking at long-term solutions to fix them. For example, if women aren’t being promoted as frequently as men, you can ask:

• What’s driving promotional opportunities?
• Do we make data-based or person-based decisions?

Even an ironclad promotional process can have room for bias. According to research from McKinsey, in 2024, 81 women received their first promotion to manager for every 100 men.

Promotions are the number one thing you need to change if you want to move toward greater pay equality. Base promotions on performance and tenure, not potential.

Other ways to create more equal opportunities and incorporate pay equity in the workplace include:

• Offering mentorship programs
• Implementing diverse hiring practices
• Supporting both genders in caregiving duties
• Providing on-the-job training for underserved populations.

Conduct a pay equity analysis

A pay equity analysis is a payroll audit comparing compensation rates to spot gaps or discrepancies. Analyzing pay scales against protected classes can help ensure fair compensation across your team. For example, you’ll want to make sure that employees in the same role are paid equitably based on their qualifications, experience in the field, and tenure at the company, regardless of their age, skin color, gender, sexual orientation, or disability.

Types of pay equity analyses

There are two types of pay equity analyses—internal and external. We recommend conducting both for a complete data set to work with.

• Internal pay equity. An internal pay equity analysis is an internal payroll audit that compares compensation rates within your company. You’ll want to compare current compensation rates within and across roles as well as your company’s historical data to see whether employees are paid equitably now, and whether there’s been any change over time.
• External pay equity. An external pay equity analysis involves researching what competitors and other businesses in the external market are paying their employees and then comparing that pay scale to your own. This helps you determine whether you’re compensating employees fairly according to industry standards.

Why conduct a pay equity analysis?

When you prioritize fair pay as an employer, you demonstrate your commitment to your employees and to a fair and equitable workplace. Pay equity analyses can help you do that. While these might sound like lofty and even intangible goals, there are concrete business benefits to conducting pay equity analyses, too.

• Complies with regulations. The Equal Pay Act of 1963 and other local laws prohibit discrimination in the workplace based on protected characteristics. A pay equity analysis helps businesses meet these legal obligations.
• Promotes a fair and inclusive workplace. Diversity, equity, and inclusion (DEI) initiatives have real impact on your bottom line. Ensuring equitable compensation helps you commit to these values in practice, not just in theory.
• Enhances brand reputation. Brand reputation is important in attracting top talent, ensuring customer loyalty, and even increasing sales. Setting a precedent of fair pay at your company is something customers, employees, and prospects are sure to notice.
• Retains top employees. Pay equity in the workplace and a solid reputation can help keep your best employees engaged and working hard.
• Prevents discrimination lawsuits. Some employees may feel their lower wages are due to their race, gender, sexuality, or disability. Conducting a pay equity analysis can mitigate the risk of legal action by creating a culture of transparency around compensation at your company.

Conducting a pay equity analysis step-by-step

You know why pay equity analysis is so crucial. Here’s how to conduct one for your business and take that first step towards creating a fairer, more inclusive workplace.

Step 1: Set your analysis goals

The first step is to determine your “why,” which will help you set the appropriate goals. Do you want to update your current practices? Tackle the issue of inadequate pay? Reduce legal risks? Double-check that your fair-pay practices are working well? Your overall goal ‌will impact the process you follow. Give this some careful thought first.

Step 2: Get buy-in from stakeholders

You’ll also need to get buy-in from key stakeholders and your leadership team. The ultimate goal is to fix any inequities, if discovered, and getting stakeholder buy-in early ensures everyone is on the same page, no matter the results of the pay equity analysis.

Similarly, carrying out a pay equity analysis is no small job, and you’ll need the budget and capacity to support it. Other teams may also need to be brought in to help, such as an analytics team or a data expert.

Step 3: Set the parameters for your data

It’s important to define key terms around your data, as this will determine how you process it. For example, comparable work. What does this mean in your organization? One of the first things you’ll do when analyzing the data will be to determine who does comparable work across departments to determine how their pay is assigned.

Step 4: Gather the required data

You’ll need to work with the relevant teams to pull payroll data for your employees to analyze. It’s best to break down each analysis individually and prioritize the practices you deem most important.

For example, if you know a gender pay gap exists, this is the first thing to look for and compare. If you want to ensure that employees who don’t have a formal education are offered the same opportunities as those who attended college, you’ll first need to analyze the data to determine if this is already the case.

Step 5: Review the data

You have what you need. Now is the time to review and compare your data, checking if it meets your parameters and noting those that don’t match your desired criteria. Here, you can also think about drawing up a plan of action and priorities across the business to eliminate pay discrimination.

If you spot a pay disparity, check for supporting documentation (like performance reviews, recent high sales commissions, or a bonus) that may explain why one employee is paid slightly more or slightly less than their peers.

Step 6: Rectify issues

Once you understand how pay equity looks in the workplace, you’ll then need sign-off from executives and stakeholders to make the necessary changes. Note that this isn’t something that can happen overnight.

While you may have agreed on a budget at the start of this process, you may need to adjust this to ensure your actions don’t negatively impact the business. But keep in mind that unequal pay and legal disputes can cause far more damage.

Next steps: Check your pay equity and fix the problems

Tackling both pay equality and pay equity in the workplace can feel like an overwhelming task. Working to solve these problems can pay huge dividends for your company. With the basics covered, you can move onto next steps, such as creating a structure for salary negotiations, and tying raises and bonuses to quantifiable performance metrics.

If your company is looking to address wage gaps, work on pay equity first. It’s a specific and quantifiable way your company can track whether you’re removing biases in compensation practices. While pay equality is important, it cannot be achieved until you’ve created a foundation throughout your organization.