How to Conduct a Pay Equity Analysis in the Workplace

Pay equity is all about equal pay for equal work, but often, that’s not the case. One employee starts on a higher salary because they asked for more money, while another gets paid less for the same job because they didn’t. 

That’s not fair, and a pay equity analysis is the best way for companies to uncover, and then resolve, these kinds of inequities. Ensuring pay equity also means companies can attract and retain top talent, build a strong company reputation, and comply with pay transparency laws. 

If you’re ready to find out how to conduct a pay equity analysis, you’re in the right place. We’ve included a step-by-step guide, best practices, common challenges (and how to solve them), plus everything else you need to know. 

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What is Pay Equity Analysis?

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A pay equity analysis uses data collection and statistical analysis to identify inequities. By comparing employee pay across factors such as gender, age, ethnicity, performance, and seniority, companies can ensure that employees are paid fairly. 

This analysis brings many benefits, including:

• Solves pay inequities: Helps identify unjustified pay gaps, leading to fair pay for all employees.  
• Promotes fairness: Fosters an equitable and transparent workplace culture, where employees feel valued. 
• Ensures pay equity compliance: Helps companies follow pay transparency laws and avoid the risk of non-compliance fines. 
• Boosts employer brand: Helps position companies as inclusive, ethical champions of fair pay.

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When and Why Should You Conduct a Salary Equity Analysis?

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In 2026, the EU Pay Transparency Directive comes into force, meaning companies in Europe have to report on gender pay gaps. Starting the analysis process now makes the reporting process much easier, because you’ll already know what to do.  Most companies should complete a pay equity analysis annually, but other times when a pay equity analysis should be conducted include:

• Company audits
• Mergers or acquisitions

Pay equity analysis isn’t just about complying with local or national laws, though. The most compelling reason is that it helps drive the kind of transparent, equitable pay practices that are essential for your employees to feel valued, and your company to perform. 

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Steps to Conduct a Pay Equity Analysis in the Workplace

Ready to start your first pay equity analysis? Here’s your step-by-step guide to getting it right. 

Step 1: Collect relevant data

During this step, you’ll need to collect all the data you need. Most of this will be within your human resources information system (HRIS) or other HR databases. The level of data you’ll need to collect depends on how detailed your analysis will be, but usually includes some or all of the following:

‍Salary information

• Benefits
• Bonuses 
• Starting salary
• Current base salary 
• Variable compensation 

‍Position information ‍

• Team
• Job title
• Department 
• Job description 

‍Employee demographics

• Age
• Tenure 
• Gender 
• Ethnicity 
• Seniority
• Potential
• Promotions
• Performance 
• Weekly working hours 

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The more variables you include, the more accurate your analysis will be. During this process, it’s crucial to protect your employees' privacy. Consider how their data will be protected and explain this process to them so they know their data is safe. Follow any relevant data rules and regulations for your region, such as the General Data Protection Regulation (GDPR), which applies to companies within the European Union. 

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Step 2: Define comparable groups 

Now, it’s time to split employees into different, comparable groups. These could include:

• Job role and responsibilities 
• Skills and qualifications
• Seniority 
• Location  

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Step 3: Identify pay disparities

Analyse your data to uncover inconsistencies, pay gaps, or other inequities. Depending on the size and structure of your company, this could be an internal process or completed with the help of external experts.For accurate results, choose statistical methods like:

• Descriptive statistics
• Compensation ratio analysis
• Regression analysis:
• T-Tests and ANOVA 

These can be completed using software such as Microsoft Excel, Google Sheets, Python, or RStudio. Some HR analytics software also offers statistical analysis.   

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Step 4: Investigate root causes 

If any disparities are identified, now is the time to figure out why. Some common reasons include:

• Bias
• Lack of salary bands 
• Unequal starting salaries 
• Outdated salary structures 
• Differences in career progression 

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Step 5: Develop an action plan

Now your analysis is complete, it’s time to decide how to address any inequities and discrepancies. Short-term actions include making pay adjustments to increase the salaries of underpaid employees and creating standardised salary bands for each role and level. 

Longer-term actions include revising your hiring practices, for example, creating inclusive job adverts, not asking employees about their salary history, and ensuring that managers and HR are trained to avoid unconscious bias.   

Once the EU Pay Transparency Directive comes into force in 2026, companies with a pay gap of over 5% must complete a pay audit and action plan, showing how these discrepancies will be resolved. 

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Step 6: Monitor and report progress

Pay equity analysis isn’t a one-off deal. For best results, this process should be conducted annually or biannually. To comply with the upcoming EU Pay Transparency Directive, companies with over 150 employees must complete a gender pay gap analysis every three years. Companies with over 250 employees need to report their gender pay gap annually. 

To boost transparency, sharing these findings with your employees is a good idea. Many companies publish information about their pay gaps and how they plan to resolve them. 

A compensation communication plan can help outline how to share results with your employees, plus let them know who to contact if they have any questions. This kind of transparent approach can help boost trust and positively impact employee engagement, performance, and retention. 

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Pay Equity Best Practices

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As pay equity experts, we’ve gathered these best practices together, to help make the process a little easier:

• Use reliable data: High-quality, accurate, and recent compensation benchmarking data is essential to identify any discrepancies or inequities properly. 
• Involve diverse stakeholders: Leadership, HR, finance, and legal teams need to work together to ensure a comprehensive, compliant review process. Employees should also be kept involved through regular meetings. 
• Maintain confidentiality: Employee data needs to be handled with care, ensuring compliance with laws like the General Data Protection Regulations (GDPR). 
• Leverage technology: HR tech like Figures can help automate calculations, identify pay gaps, and ensure a transparent, equitable analysis. 

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Common Challenges and How to Overcome Them

Pay equity analysis might seem straightforward on paper — but the reality can be a little more complicated. Here are some common challenges, plus how to solve them. 

Resistance from leaders

If your senior leadership team doesn’t understand the purpose of a pay equity analysis, they’re unlikely to support the additional time and resources your HR team needs.

‍Solution: Build a case for business transparency using our six-step guide. 

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‍Incomplete or inaccurate data

Data collection forms a significant part of a pay equity analysis, but if your data is inaccurate or incomplete, it’ll impact the accuracy of your analysis. 

‍Solution: Regularly review and update compensation data to prevent any gaps, and use HR tools (like Figures!) to find and correct any gaps or inaccuracies. 

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‍Lack of tools or expertise

The statistical procedures needed for a pay equity analysis can be complicated. It can be a major roadblock if you don’t have the right tools or know-how to complete this.

‍Solution: Work with external experts or use an HR tech platform to assess and resolve any inequities. 

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‍Tools and Resources for Pay Equity Analysis

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Pay equity analyses are complicated and require a fair amount of data collection. That’s before you’ve even thought about how to run the actual analysis. The good news is that plenty of HR tools and software are designed to make the process much easier. These include:

• Figures 
• Payscale
• ADP DataCloud
• Mercer Pay Equity Calculator 

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Conducting Pay Equity Analysis Doesn’t Have to be Hard Fair, equitable pay is arguably one of the most important things for HR teams to get right. That’s because it impacts every element of the workplace, from employee trust and retention to company performance and profitability.  

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