Why Every Organization Should Prioritize Pay Equity Audits Now

Balancing compliance with pay equity and organizational goals is more critical than ever amid shifting federal and state laws. Amid evolving regulations, pay equity requires strategic planning and legal awareness to ensure compliance and organizational fairness.

Evolving Federal Landscape

There have been major changes in federal enforcement under the current administration, said Joanna Colosimo, vice president of workforce analytics and compliance strategy at DCI Consulting Group, at SHRM25 in San Diego. Colosimo highlighted how three recent shifts might influence risk for employers.

1. Executive Order (EO) 14173 rescinded prior affirmative action requirements for federal contractors outlined in EO 11246. This limits the enforcement scope of the Office of Federal Contract Compliance Programs (OFCCP).
2. Recent guidance from the U.S. Equal Employment Opportunity Commission and U.S. Department of Justice introduced frameworks to identify “illegal DEI [diversity, equity, and inclusion] practices,” emphasizing enforcement aligned with Title VII of the Civil Rights Act. Colosimo stressed that this applies to all protected classes, ensuring that every demographic group is reviewed equitably.
3. EO 14281 challenges employers to carefully assess neutral policies to ensure they do not unintentionally harm certain groups.

Podcast Episode: Breaking Down Title VII and Trump’s Executive Orders

State-Led Regulations Driving Action

States are stepping into the gaps left by federal agencies, explained Quenton Wright, vice president and economic consultant at Charles River Associates, at SHRM25. New and expanded pay transparency and reporting laws across states such as California and Illinois make compliance more complex.

• Pay transparency laws require employers to include pay ranges in job postings. This not only encourages equity but also promotes trust in recruitment. However, it introduces risks if posted ranges don’t align with current employees’ salaries.
• Reporting requirements in states such as Illinois mandate detailed, disaggregated reporting of employee pay data, increasing scrutiny of pay practices and potential exposure to liability.

The Critical Role of Pay Audits

Pay equity audits are the foundation of compliance and internal fairness, Colosimo and Wright said. However, executing these audits requires careful planning to align with legal standards and organizational objectives.

Essential Steps for Effective Pay Audits

1. Collect comprehensive data: Accurate data is the starting point for any meaningful analysis. Include factors that predict pay such as years of experience, education, and job performance while excluding protected characteristics such as race or gender from merit variables.
2. Simplify comparisons: For large employers, statistical frameworks such as regression analysis provide valuable insights by grouping employees into similarly situated comparison sets. Smaller organizations may rely on cohort analyses.
3. Flag all disparities: Include all protected groups in your reviews. Pay inequities can affect any demographic, including traditionally underrepresented groups. “Title VII protects everyone equally,” Colosimo said.
4. Interpret results thoroughly: Avoid rushing to conclusions. If you flag a disparity, ask why. Is the data accurate? Are there legitimate, merit-based reasons? This diagnostic phase ensures you’re addressing actual issues, not creating new problems.

Common Pitfalls and How to Avoid Them

Failing to design thoughtful pay equity audits can lead to significant issues, including broken compensation systems and legal challenges. Colosimo and Wright outlined three key mistakes to watch for:

1. The “peanut butter” approach: Applying uniform pay increases across a flagged group might solve one problem but risks creating new inequities. Instead, use regression models to guide precise, merit-aligned adjustments.
2. Narrow comparisons: Avoid oversimplified approaches such as comparing one demographic to another. Perform full-spectrum comparisons that account for all protected characteristics across groups.
3. Ignoring majority group equity: A flagged pay disparity may indicate that men, white people, or another majority group face inequities. Address these equally to ensure compliance with Title VII.

Webinar: Navigating Title VII Compliance

Adjustments and Mitigation

When pay disparities persist after thorough analysis, adjustments should follow these best practices:

• Make individualized adjustments: Where disparities are unexplained, calculate a predicted pay for each employee based on merit and performance factors and align actual pay accordingly.
• Apply across groups: Adjust salaries for anyone flagged during analysis, regardless of demographic group, ensuring caution and fairness in implementation.

It’s important to track results post-adjustment.

“Adjustments should solve problems, not rearrange them,” Wright said, urging organizations to adopt flexible, iterative mitigation strategies.

The Future of Pay Equity Compliance

The landscape surrounding pay equity audits continues to evolve. Compliance priorities shift, but the importance of equity remains central. For organizations, this is more than a legal obligation — it underpins culture, employee trust, and long-term success.

Colosimo and Wright gave some recommendations for organizations to keep in mind:

• Regularly conduct pay equity audits that include demographic and merit variables.
• Integrate legal counsel early to protect privilege and focus on compliance.
• Keep abreast of state-level legislation and adjust strategies accordingly.

“Pay fairness is still important,” Colosimo said. “Internal equity within your employee population drives your culture forward. It also helps reduce your legal risk and shows your commitment to fostering a workplace where everyone feels valued.”