Skip to Main Content
Filter By +
Topic +

What Is Pay Equity? Definitions and Compliance

11 Minutes to Read

Topics covered


    Pay equity is the practice of ensuring positions of equal importance to an organization are equally compensated — even if the roles are fundamentally different. The concept is a direct response to biases and other factors that create unreasonable disparities among employees and what they earn. Read about the laws that promote pay equity and how to champion it in your workplace.

    Every workplace should aspire to fairness. And pay equity can help you achieve it by ensuring that compensation aligns with the actual value of work and isn’t influenced by biases related to:

    • age
    • race
    • gender
    • class
    • background
    • and more

    If employees get equal pay for equal work, it benefits not only the individuals, but the company as a whole, improving your organization’s reputation, morale and overall success.

    Let’s explore how pay equity differs from the similar concept of equal pay, discuss the importance of pay equity in cultivating a just and inclusive work environment and explore strategies for enforcing pay equity practices within your organization.

    What is the difference between pay equity and pay equality?

    Pay equality involves eliminating discrimination from compensation, whereas pay equity ensures jobs of similar importance are paid similarly. Consider these more extensive definitions of each to better understand what makes them distinct.

    Pay equality is the concept of paying employees the same amount for the same or substantially similar work without discrimination based on gender, race or other personal characteristics. It means that two individuals who hold the same position or perform the same tasks should be compensated the same amount. Equal pay laws are typically enforced to prevent employers from discriminating based on gender or other factors.

    Pay equity takes a broader approach, ensuring that jobs of equal value to the employer are compensated fairly, even if the roles are technically different. This concept considers factors like:

    • skill
    • effort
    • responsibility
    • working conditions

    It aims to address systemic pay disparities across job categories that might disadvantage certain groups, such as women and minorities. Essentially, pay equity ensures that different jobs that contribute equally to an organization’s goals or success are compensated equally, regardless of job title.

    While pay equality is a component of pay equity, pay equity encompasses a broader range of issues to achieve fairness in compensation across an organization. It requires a more complex evaluation of job roles and their contributions to the organization beyond the direct comparison of pay for identical roles.

    Why is pay equity important?

    Implementing pay equity practices can significantly improve the workplace in several ways, contributing to a more equitable, productive and positive environment for all employees.

    Ensures compliance

    Pay equity helps businesses align their compensation practices with legal standards and regulations. By proactively evaluating and adjusting pay structures to ensure that employees are fairly compensated for work of equal value, organizations can avoid legal penalties, reduce the risk of lawsuits related to pay discrimination and demonstrate their commitment to fairness and equality.

    Prevents discrimination

    Pay equity means that compensation decisions are based on objective criteria (skills, responsibilities, effort, working conditions, etc.) rather than subjective or biased factors (gender, race, ethnicity, etc.).

    This helps promote a fair and transparent compensation system, reduce systemic inequalities and prevent discriminatory pay practices.

    Improves morale

    When employees know their compensation is based on the value of their work rather than on superficial factors, it can boost morale and job satisfaction. A fair approach to compensation can lead to a more loyal and motivated workforce and, ultimately, a more successful business.

    Increases employee satisfaction

    Fair compensation practices create a work environment where employees feel respected and valued, leading to higher:

    This employee-friendly environment can help businesses attract and retain top talent, as employees are likelier to stay with an organization that upholds principles of equity and fairness.

    Raises retention

    Fair pay practices can reinforce employees’ sense of value and loyalty toward an organization. When employees feel that their contributions are recognized and rewarded appropriately, they’re less likely to look for opportunities elsewhere, which leads to lower turnover and creates a more stable and experienced workforce.

    Reduces turnover

    One of the main reasons employees leave their jobs is the feeling of being unfairly compensated. When employees are paid fairly for their efforts and contributions compared to their colleagues, it reduces the likelihood of them seeking more equitable treatment elsewhere. This helps increase employee loyalty and reduces the costs and disruptions associated with hiring and training new staff, leading to a more stable and productive work environment.

    Attracts top talent

    Pay equity signals a commitment to fairness, diversity and inclusion, which are increasingly essential values for job seekers. Prospective employees want to work in environments where they feel valued and know they will be compensated fairly, regardless of their background or identity. Organizations known for their equitable practices will be more competitive in the job market, which will help them attract a more diverse and skilled workforce.

    Pay equity and compliance

    Pay equity and compliance are intrinsically linked, with laws designed to prevent discrimination and ensure fairness in the workplace. These laws require employers to provide equal pay for equal work, mandating that compensation decisions be made in a manner that equally values work of equal importance, regardless of who performs it.

    The Equal Pay Act of 1963

    The Equal Pay Act of 1963 is a landmark U.S. labor law prohibiting wage discrimination based on sex. It states that men and women in the same workplace should be given equal pay for equal work, which includes jobs that require substantially equal skill, effort and responsibility and are performed under similar working conditions. This act was a significant step towards addressing gender-based pay disparities, eliminating wage inequality and promoting fairness in the labor market.

    Civil Rights Act of 1964, Title VII

    This foundational federal law prohibits employment discrimination based on race, color, religion, sex and national origin. It applies to a wide range of employment practices, including hiring, firing, promotions, salary and training, among other things. Title VII also established the Equal Employment Opportunity Commission (EEOC) to enforce these protections, making it a cornerstone in the fight against workplace discrimination.

    Additional laws promoting pay equity in 2024

    Additional federal laws exist to promote pay equity and prevent workplace discrimination, working together to create a comprehensive approach to address these issues.

    The Age Discrimination in Employment Act (ADEA) of 1967

    The ADEA protects employees and job applicants age 40 and older from discrimination based on age, whether in hiring, promotion, discharge, compensation or other terms of employment.

    The Americans with Disabilities Act (ADA) of 1990

    The ADA prohibits discrimination against disabled individuals in all areas of public life — jobs, schools, transportation and any public or private place open to the general public. Regarding employment, the ADA ensures that employers provide reasonable accommodations to qualified employees or applicants with disabilities as long as they don’t cause undue hardship to the business.

    The Lilly Ledbetter Fair Pay Act of 2009

    Though it doesn’t directly prohibit discrimination, the Lilly Ledbetter Fair Pay Act extends the time frame for filing pay discrimination claims, making it easier for workers to challenge unfair pay. It was a significant amendment to Title VII of the Civil Rights Act of 1964, allowing each discriminatory paycheck to be considered a violation of the law and resetting the 180-day statute of limitations for filing an equal-pay lawsuit.

    Enforcing pay equity

    To bolster enforcement efforts, the EEOC requires employers to complete an annual conformance survey, which collects detailed employment data, including wage information, categorized by gender, race and ethnicity. This data helps the EEOC identify patterns of wage disparity and conduct investigations into employers who may be breaking the law.

    By analyzing this data, the EEOC can more effectively ensure that employers provide equal pay for equal work and promote a more equitable workplace. It’s a proactive approach that holds employers accountable and underscores the importance of transparency in addressing wage discrimination.

    EEO-1 wage reporting

    EEO-1 wage reporting is an EEOC requirement that requires certain employers to submit employment data categorized by race/ethnicity, gender and job category. This annual report includes detailed information on employee compensation and hours worked, which helps the EEOC analyze and identify disparities in pay that might indicate discriminatory practices.

    State and local government initiatives to address pay equity problems

    State and local governments across the U.S. have implemented various initiatives to address pay equity problems, reflecting a growing recognition of the need to go beyond federal laws. These initiatives take a comprehensive approach to tackling pay equity, with state and local governments often serving as testing grounds for innovative policies that could inspire broader national action.

    Pay transparency

    Pay transparency laws are designed to make compensation practices more open and subject to scrutiny, requiring employers to disclose pay scales for positions (or upon request by employees). Ideally, pay transparency eliminates the ambiguity surrounding salary negotiations and compensation decisions, with increased transparency that ensures all employees have equal access to information about what their work is worth.

    When employers disclose salary ranges, applicants and current employees can negotiate salaries more effectively and equitably. It also pressures employers to regularly evaluate and justify their pay structures to avoid disparities. Generally speaking, pay transparency laws help level the playing field, creating a more equitable workplace where compensation is based on role, responsibilities and performance rather than gender, race or other factors.

    Salary history bans

    These innovative measures prevent employers from asking job applicants about their previous earnings, so they can’t rely on past salary information to determine new salary offers. The reasoning here is simple: If someone has been underpaid in the past, perhaps due to discrimination or other illegitimate reasons, using their salary history as a benchmark perpetuates this disparity.

    By eliminating this practice, salary history bans ensure that salary offers are based on market rates, job requirements and the candidate’s experience. This encourages a more equitable negotiation process, directly addressing wage gaps and helping to level the playing field for all job seekers, particularly women and minorities who have traditionally been affected by wage discrimination.

    How to ensure pay equity in the organization

    Ensuring pay equity requires a committed, multifaceted approach. These steps can help your organization demonstrate a commitment to fairness and equity, which can improve your reputation, employee satisfaction and overall success.

    1. Gather pay data

    Collecting pay data allows organizations to comprehensively analyze their compensation practices, helping to identify potential disparities and trends across different roles, departments and demographics. This data-driven approach provides a factual basis for understanding and addressing pay gaps, ensuring that compensation decisions are made transparently and equitably.

    By regularly reviewing and acting on this information, businesses can proactively address pay equity and foster a fairer, more inclusive workplace.

    2. Define the factors affecting pay differences

    Establishing clear and objective criteria for compensation decisions is crucial in ensuring pay equity. By defining factors like experience, education and job performance, organizations can prevent arbitrary or discriminatory practices from affecting employee pay, so everyone is compensated fairly for their contributions. Transparently applying these criteria can help justify pay differences and promote a culture of fairness within the organization.

    3. Set pay equity benchmarks

    Setting benchmarks based on industry standards, job roles and market rates can provide a precise reference point for fair compensation practices. When internal salary data is compared to these benchmarks, companies can identify and address pay disparities that don’t align with broader norms. And when all employees are compensated competitively and equitably, it reduces the risk of systemic pay inequities within the organization.

    4. Analyze data and compare similar job functions

    Analyzing job-function data can reveal compensation discrepancies for roles that require comparable skills and responsibility, helping employers identify unjustified wage gaps and take corrective action to adjust their pay scales where necessary. By systematically evaluating and aligning compensation for similar roles, employers can ensure that pay is based on the work’s value and not on arbitrary or discriminatory factors.

    5. Determine the cause of pay disparity

    Determining the reasons for pay disparities helps companies identify discriminatory practices, structural inequalities or other unjustified factors that could lead to wage gaps. By understanding the root causes of these disparities, employers can adjust compensation policies and practices to rectify inequities and promote a more equitable and inclusive workplace. This can also help prevent future pay disparities.

    6. Plan to address pay disparity

    To ensure pay equity at your company, planning and taking action to correct identified wage gaps is imperative. This means setting clear goals, timelines and measures for adjusting compensation practices and structures where disparities are found. The bottom line: Employers need to systematically address these issues and move towards more equitable pay distributions, so all their employees are compensated fairly for their work.

    Pay equity: FAQ

    Should you conduct pay equity audits annually?

    It’s highly recommended that organizations conduct pay equity audits annually. This helps to proactively identify and address any potential disparities in compensation, which can lead to systemic inequality. By conducting annual audits, employers can ensure that their pay practices remain fair and transparent over time, reflecting changes in the workforce, job roles and market conditions. Regular reviews also help businesses comply with evolving legal requirements while maintaining a commitment to fairness and equity, which can enhance employee trust and satisfaction.

    What is the Equal Pay Act?

    The Equal Pay Act of 1963 is a federal law in the United States that makes it illegal to discriminate against employees based on their gender when it comes to their wages. The law requires that men and women who work in the same job — with similar working conditions, and who perform the same amount of skill, effort and responsibility — be paid equally. The goal of this law is to eliminate the gender wage gap and ensure that employment decisions are made fairly without any gender bias.

    What software helps with pay equity compliance in an organization?

    Software designed for human resource information systems (HRIS), payroll and compensation management can significantly help with pay equity compliance. These tools, including Paycom, offer streamlined, automated features for conducting pay audits, analyzing compensation data across different demographics and identifying potential disparities. They also facilitate data-driven decision-making by providing insights into pay practices, allowing organizations to make adjustments where necessary to ensure fairness and compliance with pay equity laws.

    Explore Paycom’s resources to learn more about compliance, pay structures, employee retention and more.

    DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.