What Is Pay Equity?

Pay equity ensures that employees performing comparable work receive fair compensation, regardless of gender, race, or other protected characteristics.

Imagine you and your coworker pull overtime to finish a comparable project. You get it done, it goes over great with the boss… and then you find out that-despite being at the same level in the organization-your female coworker is getting paid less. In fact, it seems like a lot of women around the office are making less than their male coworkers…now that's a problem.

People are going to get paid differently, yes-sometimes even for similar roles. The issue here is when those pay differences are based on a protected characteristic (such as gender, race, etc.).Organizations must base compensation decisions on measurable criteria such as skills and experience rather than demographic characteristics that have no bearing on job performance.

Now, there is a subtle difference between pay equity and pay equality. Pay equity examines compensation for comparable roles within an organization. Pay equality looks at whether average salaries for different demographic groups are equal across the entire company, regardless of specific roles.

Pay equity aims to eliminate unjustified wage disparities that often stem from unconscious bias or systemic inequalities. When implemented effectively, it creates transparent compensation structures where employees understand that their pay reflects the true value of their work. This approach helps organizations build trust and maintain fair treatment standards across diverse teams.

The practice has become essential, especially for global organizations that must navigate different legal frameworks and cultural contexts. Companies with distributed teams face unique challenges in ensuring equitable compensation while accounting for factors such as local market rates and cost-of-living differences.

Why pay equity matters for employers

Pay equity has evolved from a moral imperative to a business necessity. Organizations that prioritize fair compensation practices position themselves for long-term success across multiple dimensions.

• Legal compliance. Avoids lawsuits, audits, and penalties under national and international labor laws that increasingly mandate pay transparency and equity standards.
• Reputation and retention. Enhances employer branding and fosters employee trust, which directly impacts workforce stability and the company's reputation in competitive talent markets.
• Diversity and inclusion. Demonstrates commitment to fair and inclusive hiring and compensation practices that attract diverse talent and meet stakeholder expectations.
• Operational consistency. Helps standardize compensation practices across remote and global teams, reducing administrative complexity and ensuring equitable treatment regardless of location.
• Talent acquisition advantage. Creates a competitive edge in recruiting top performers who prioritize fair compensation and transparent workplace practices.
• Performance optimization. Eliminates compensation-related workplace tensions and distractions that can undermine team productivity and employee engagement.

"While a majority of employers are working toward pay equity, there is still work to be done," reports Kathryn Mayer of SHRM. Based on data from Beqom, "About 1 in 3 employers (34%) still don't have a pay equity strategy in place," she says.

The bedrock of pay equity: The Equal Pay Act of 1963

The Equal Pay Act of 1963 is a landmark U.S. legislation that prohibits employers from paying different wages based on sex for jobs that require equal skill, effort, and responsibility. President John F. Kennedy signed this federal law on June 10, 1963, as an amendment to the Fair Labor Standards Act of 1938. This Act established the foundation for modern pay equity protections in the United States.

The Equal Employment Opportunity Commission (EEOC) enforces the Equal Pay Act and investigates claims of wage discrimination. Under the law, employees must demonstrate that different wages are paid to workers of opposite sexes performing substantially equal work under similar working conditions. The Act imposes strict liability on employers regardless of their intent to discriminate.

Employers can only justify wage differences through four legally recognized defenses: seniority systems, merit systems, productivity-based compensation, or factors other than gender. These exceptions allow organizations to maintain legitimate pay differentials while preventing discrimination. The Act applies to virtually all employers and covers all forms of compensation, including bonuses, benefits, and other workplace perks.

While the Equal Pay Act specifically addresses U.S. workplaces, similar legislation exists globally. The U.K.'s Equality Act 2010 mandates equal pay for men and women performing equal work. Canada's Pay Equity Act requires federally regulated employers to proactively examine compensation practices and ensure equal pay for work of equal value.

How employers can evaluate and improve pay equity

Creating fair compensation practices requires systematic evaluation and continuous improvement efforts. Organizations must implement structured approaches that address both immediate disparities and long-term equity goals.

• Conduct comprehensive pay equity audits. Regular internal audits help identify compensation gaps across roles, demographics, and locations by analyzing base salaries, bonuses, and total compensation packages. Organizations should establish cross-functional audit committees that include HR, legal, finance, and operations representatives to ensure thorough evaluation and leadership buy-in.
• Develop a standardized job architecture. Develop objective job classification systems that categorize positions based on comparable skills, responsibilities, and working conditions, rather than subjective criteria. This framework should include clear job descriptions, defined salary bands, and consistent evaluation criteria that minimize unconscious bias in compensation decisions.
• Implement HR analytics and monitoring systems. Use compensation management tools and statistical analysis to track pay patterns across departments, locations, and employee demographics. Advanced platforms can automate payroll processes for global teams and provide predictive analytics to identify potential equity issues before they become problematic.
• Partner with global compensation experts. Work with specialized providers or Employer of Record (EOR) services to benchmark salary ranges against local markets and ensure consistency across international operations. These partnerships provide access to market data and payroll compliance expertise that helps organizations navigate varying regional pay equity requirements.
• Integrate equity into broader organizational strategy. Embed pay equity initiatives into comprehensive People Operations and DEI frameworks rather than treating them as isolated compliance activities. This integration should include tying executive compensation to DEI goals and ensuring pay equity considerations are part of all hiring, promotion, and compensation decisions.
• Establish ongoing transparency and communication. Share relevant audit findings with stakeholders and employees while maintaining legal protections for sensitive information. Regular communication about pay equity efforts fosters trust and demonstrates the organization's commitment to fair compensation practices.

"If you want to get at the root issue of pay gap issues, it's a combination of activities. It's holistic," Joanna Colosimo, VP of Workforce Equity and Compliance Strategy at DCI Consulting Group, told SHRM. "It's not just pay equity, it's recruitment, how talent is distributed, promotional activities. Are we putting women or minorities in higher-paying positions? Are we funneling them through the system?"

Pay equity in the global workforce

Global organizations face unique challenges when ensuring pay equity across international teams. These complexities require sophisticated strategies that balance local market conditions with consistent adherence to fair principles.

• Currency and cost-of-living variations. Exchange rate volatility can affect salary values and create unexpected costs, while cost-of-living differences mean that identical salaries provide vastly different pay standards across locations. Organizations must use accurate cost-of-living indices and consider implementing currency hedging techniques or local currency payments to ensure employees have comparable purchasing power.
• Country-specific labor laws and reporting requirements. Each jurisdiction maintains distinct regulations governing minimum wages, benefits structures, and compensation disclosure requirements that organizations must navigate carefully. Modern HRIS and global payroll platforms help automate compliance by applying country-specific regulations and maintaining current legal requirements across multiple tax codes and languages.
• Cultural expectations around pay transparency. Different cultures hold varying perceptions of fairness and transparency in compensation, with some prioritizing benefits over salary and others expecting open salary discussions. Younger generations increasingly expect transparency from day one and actively share compensation information through digital platforms, requiring organizations to proactively manage these conversations.
• Unified global compensation framework. A consolidated technology infrastructure enables real-time oversight through global dashboards that track compensation trends, equity ratios, and benefit adoption across regions. These systems integrate HR, legal, and finance data to automatically apply local regulations while maintaining consistent global standards.

Streamline payroll with Pebl

Your employees are the lifeblood of your business, and treating them equitably is the best way to retain them. Analyzing payroll systems (especially legacy systems) for systemic issues in compensation can be difficult and time-consuming.

Pebl's comprehensive Employer of Record (EOR) service combines payroll processing, compliance management, and benefits administration into a single integrated solution that ensures accuracy and compliance. Deep AI integration means our payroll system can catch discrepancies (such as potential equity issues) before they happen, keeping your business and your employees safe and happy. Contact us today to learn more.

Disclaimer: This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided "as is," and no representations are made that the content is error-free.

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