Pay Equity

What is Pay Equity?

Pay equity means compensating employees fairly for equal or substantially similar work, regardless of gender, race, or other protected characteristics. It's distinct from pay compression, which concerns gaps tied to tenure rather than legally protected traits, even though both can show up in the same compensation data.

What Laws Govern Pay Equity in the U.S.?

Two federal laws form the core legal framework. Forbes explains that the Equal Pay Act of 1963 requires equal pay for substantially similar work regardless of gender, while Title VII of the Civil Rights Act later expanded protection to cover pay discrimination based on race, color, religion, sex, or national origin as well.

Law	What It Covers	Who It Applies To
Equal Pay Act (1963)	Equal pay for substantially similar work regardless of sex	Employers covered by the Fair Labor Standards Act
Title VII, Civil Rights Act	Pay discrimination based on race, color, religion, sex, or national origin	Employers with 15 or more employees
State pay equity laws	Vary; often add protected categories or reporting requirements	Varies by state and employer size

How Does a Pay Equity Audit Work?

A pay equity audit compares compensation across employees performing similar work, then determines whether any gaps can be explained by legitimate factors like seniority, performance, or education, versus factors that shouldn't drive pay differences. Indeed notes that employers may initiate an audit to satisfy shareholder demands, meet legal compliance requirements, or simply confirm they're paying staff fairly.

This kind of internal review pairs naturally with regular salary benchmarking, since external market data and internal equity findings often point to overlapping issues that neither process catches alone. Reviewing where employees sit within a pay band or salary range for their role is typically the first step in the analysis.

How Wide is the Gender Pay Gap Today?

The gap hasn't closed as quickly as many assume, and it widens rather than shrinks at senior levels. SHRM has reported that women earn roughly 83 cents on the dollar compared to men overall, with the gap growing among managers and supervisors (83 cents), directors (82 cents), and executives (72 cents), the opposite pattern many would expect as women advance in seniority.

The same SHRM research found that 75% of organizations regularly audit for pay equity, though the characteristics assessed vary: gender is included in 80% of audits, race or ethnicity in 68%, and age in only 62%, leaving real gaps in how comprehensively many companies actually check their own numbers.

Why Does Pay Equity Matter Beyond Compliance?

Fair, well-documented pay practices consistently correlate with lower turnover and stronger engagement, connecting pay equity directly to broader total compensation strategy rather than treating it as a standalone legal checkbox.

Unaddressed pay gaps also carry retention risk that compounds over time. Employees who suspect unfair treatment, whether they can prove it or not, are more likely to disengage or leave, contributing to turnover that costs far more to replace than the correction itself would have.

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Frequently Asked Questions

Q: What is the difference between the Equal Pay Act and Title VII?

A: The Equal Pay Act specifically addresses pay discrimination based on sex, while Title VII broadly covers pay and employment discrimination based on race, color, religion, sex, or national origin.

Q: What does a pay equity audit actually measure?

A: It compares compensation for employees doing similar work and checks whether any gaps are explained by legitimate factors like seniority or performance, versus factors that shouldn't drive pay differences.

Q: How big is the gender pay gap in 2026?

A: Recent research puts it at roughly 83 cents on the dollar for women compared to men overall, with the gap widening further at senior and executive levels.

Q: Do all employers regularly audit for pay equity?

A: No. Recent SHRM research found about 75% of organizations conduct regular pay equity audits, though the specific characteristics assessed, such as race or age, vary widely between companies.

Q: Is pay equity the same as pay transparency?

A: No. Pay equity refers to fair compensation for similar work, while pay transparency refers to how openly an employer shares pay information; the two are related but distinct practices.