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Equal Pay Audits

Mandatory pay equity audits, assessment methodologies, and certification requirements

Why This Matters

Pay equity audits go beyond simple gap reporting to identify and remediate unjustified pay differences between employees performing substantially similar work. Unlike gap reports that show overall differences, audits use rigorous statistical methods to control for legitimate pay factors (experience, performance, education) and isolate discrimination. Audits are critical for legal compliance, risk management, and demonstrating due diligence. Organizations that conduct regular audits reduce litigation risk by 60-80% and identify bias patterns before they become systemic problems.

How It's Measured

Audits typically employ multivariate regression analysis comparing compensation across demographic groups while controlling for legitimate factors like job level, tenure, performance ratings, location, and education. Statistical significance testing (p-values, confidence intervals) determines whether observed differences could occur by chance. Job evaluation methodologies assess whether roles are comparable using factors like skills, responsibilities, effort, and working conditions. Results show adjusted pay gaps, affected employee counts, and financial remediation needs. Some jurisdictions require third-party auditors or specific analytical approaches.

How to Comply & Mitigate Risk

Organizations should establish regular audit cycles (annual or biennial), engage qualified labor economists or compensation consultants, use legally defensible statistical methodologies, ensure data quality and completeness, document all pay decisions with objective business justifications, implement immediate remediation for identified gaps, conduct root cause analysis of systemic issues, and create ongoing monitoring systems. Proactive audits under attorney-client privilege can protect findings from discovery in litigation. Remediation should address both individual adjustments and systemic process improvements in hiring, promotions, and pay decisions.

Common Requirements

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Periodic pay equity audits

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Job evaluation requirements

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Enacted

Europe

Key Laws:

• Act on Equality between Women and Men
• EU Pay Transparency Directive (2023/970) - pending transposition

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