Employers should conduct equal pay audits

Amid the focus on culling diversity, equity, and inclusion (DEI) programs and initiatives over the past year, employers must distinguish DEI efforts from core compliance activities, such as equal pay audits. Compensation reviews and audits should remain a routine best practice for organizations to ensure compliance with federal, state, and international laws.

Additionally, such audits mitigate exposure to formal legal actions alleging violations of compensation discrimination laws and help organizations maintain fair, competitive compensation structures.

Compliance with federal, state, and international laws

At the federal level, Title VII of the Civil Rights Act of 1964 and the Equal Pay Act (EPA) continue prohibiting compensation discrimination. Further, a growing number of states, as well as the European Union, are implementing pay transparency and pay reporting requirements on employers.

For national and multinational organizations, there exists a patchwork of regulations that go beyond federal standards by broadening what constitutes comparable work, what is included in pay data reports to regulatory agencies, and what must be disclosed to applicants and employees about pay ranges.

By using a standardized audit process, employers can ensure consistent equal pay reviews across their operations, while tailoring the analysis to comply with each specific jurisdiction’s unique legal obligations.

Mitigate exposure to litigation and/or enforcement actions

Because both government agencies and private litigants will continue pursuing pay discrimination claims, equal pay audits are a proactive step toward mitigating potential legal exposure. Although such audits and any subsequent remediation may not prevent lawsuits or regulatory enforcement actions, these measures can evidence an employer’s good-faith efforts at legal compliance and help mitigate potential damages or penalties.

Before initiating an equal pay audit under attorney-client privilege, however, employers should first develop a strategy for addressing any pay disparities revealed by the audit. Specifically, an employer should evaluate whether it is financially positioned to implement corrective measures, determine whether corrective action would be retroactive or prospective, and consider whether the timing of any adjustments would align with the regular performance and salary review cycle. With a thorough audit strategy, employers can reduce scrutiny from both regulatory agencies and private litigants.

Avoid the pitfalls of settlement agreements

By conducting proactive equal pay audits, employers can reduce the risk of losing control over the scope and timing of any necessary corrective actions. For example, in 2025, Google agreed to a $28 million class-action settlement to resolve race-based pay equity claims, and Disney reached a $43.25 million class-action settlement to resolve sex-based pay equity claims. Both legal actions were based on California’s Equal Pay Act, and neither company admitted to wrongdoing. But these settlements serve as case studies into the potential consequences that extend beyond hefty financial repercussions for pay disparities.

Specifically, these settlement agreements require ongoing third-party monitoring and multi-year reporting obligations, resulting in the organizations’ loss of autonomy when setting their employees’ compensation. Further, these employers must adhere contractually to rigid compensation systems for several years. While these compensation structures may be reasonable at the time an agreement is reached, they can quickly become outdated, constrain future pay decisions, and potentially result in different inequities later down the line.

Maintain competitive and fair compensation

In addition to mitigating legal exposure, equal pay audits can reveal whether employees performing comparable work are compensated fairly to reduce the risk of dissatisfaction and morale issues among employees. Employers can also benchmark equal pay audit data against market data to ensure the organization is attracting and retaining top talent.

In sum, employers should conduct pay equity audits because they allow organizations to demonstrate good-faith compliance with laws spanning various jurisdictions, identify potential risks, take corrective action before risks escalate to formal complaints or legal actions, and maintain competitive and fair compensation structures.

Sarah Mugmon is an associate at FortneyScott LLC in Washington, D.C. You can reach her at smugmon@fortneyscott.com.