value-income-balance
mohamed_hassan (CC0), Pixabay

When developed with risk management in mind, pay equity audits can be key to mitigating long-term legal costs and possible blows to the organization’s reputation. But what’s the best way to go about it?

Here’s what you need to know about implementing an effective pay equity audit.

The Issue

Growing businesses in particular face economic and reputational fallout from claims of pay inequities. That’s why pay equity audits are so important.

An audit essentially involves comparing the pay of employees performing “like for like” work and investigating the causes of any pay gaps or differences that can’t be justified. Last year, some 38% of employers planned to conduct some form of pay equity analysis.

The following are ways your company can implement a quality audit.

Tightly Customize Your Audit Methodology

Before launching an audit, employers should take time to pinpoint its goal, then narrowly craft the audit approach to meet the planned purpose. For instance, if the aim is confined to looking into prospective liability exposure, the pay equity audit should be restricted to a basic dive into any possible pay disparities.

By contrast, if the company’s goal is to go beyond the “what” to the “why” of pay disparities, a satisfactory audit would have to include recruitment methods, pay policies, and starting salary policies and practices. By tightening your audit approach, your company can get around generating liability by uncovering info you are not currently aiming to address.

Get a Communications Strategy Going

It’s hardly ever a company’s specific intent to discriminate against workers. However, audits frequently reveal disparities employers never expected, either due to policy modifications, the management, or special circumstances.

Note that if you do not protect your internal communications, they may be discovered. By incorporating an appropriate communications plan, attorney-client privilege gives extra protections against inadvertent disclosures that produce liability exposure. Communications with non-management employees concerning data and results risk waiving attorney-client privilege.

Even if an audit indicates that the company is totally compliant, plaintiffs’ lawyers might try to challenge results by taking a secondary approach to assessing underlying info.

Craft a Plan to Fix Disparities  

If the audit process uncovers disparities, your company should ready a remediation plan to address them. In creating such a plan, think about what role timing could play in capping liability. For example, remediation efforts could be timed with regular pay hikes, being mindful that employers are not permitted to lower higher-paid employees’ compensation to fix any disparities.

Your company’s remediation strategy could include policy and operational modifications such as re-thinking compensation-based interview questions, improving education and training, and creating and instituting pay equity policies, including starting salary policies. Be aware, though, that some cities and states do not allow salary history questions for all applicants.

Consider All Forms of Compensation

You want to avoid having a false positive or negative audit. To make sure you don’t, your company’s audit should include all pertinent types of pay. For instance, many new companies offer employees stock options. Your company should also consider including in the audit overtime pay, commission, bonuses, other incentive-propelled compensation, and employee benefits such as paid time off, insurances, and retirement plans.

As you can see, implementing an effective pay equity audit requires significant strategic planning and forethought. In a tight labor market, doing so can save your company legal costs and possible reputational damage.