Pay Equity and Internal Payroll Audits (September 2025 TogetHR Times)
Pay Equity and Internal Payroll Audits
By Alison T. Bruns
For years, businesses have been told that “compliance is key.” And while compliance certainly matters, modern HR and payroll leaders know that compliance alone doesn’t guarantee fairness or protect a company from risk. One area where this is particularly true is compensation. Pay equity has become both a legal requirement and a cultural expectation, and internal audits are one of the most powerful tools for ensuring organizations are keeping pace.
Let’s explore the importance of pay equity audits and payroll internal audits and how your organization can implement them, or partner with TogetHR to complete them, in a way that strengthens compliance, culture, and employee trust.
What Is a Pay Equity Audit?
A pay equity audit is a systematic review of compensation practices designed to identify and address disparities in pay among employees performing similar work. Unlike a simple pay study that looks at salary averages, equity audits dig deeper, examining whether differences in pay are explainable by legitimate business factors—such as tenure, education, or experience—or if they point to bias, oversight, or systemic inequities.
A thorough audit typically involves:
Collecting compensation data across roles, departments, and demographics.
Reviewing pay bands, hiring rates, raises, and bonuses.
Comparing employees performing similar work to identify unexplained disparities.
Documenting findings and recommending adjustments.
The goal is not only to ensure legal compliance with federal and state equal pay laws but also to build an environment where employees can trust that compensation decisions are fair, consistent, and transparent.
Why Pay Equity Matters
Compliance. Equal Pay Act, Title VII, state pay transparency laws, and salary history bans are just a few of the regulations companies must navigate. Employers who ignore equity run the risk of lawsuits, fines, and reputational damage.
Talent Attraction & Retention. Employees today are more aware than ever of pay inequities. A company that demonstrates pay fairness strengthens its employer brand and retains high performers.
DEI. Pay equity is not just a compliance issue—it’s a diversity, equity, and inclusion (DEI) issue. Auditing pay practices shows a tangible commitment to equity, rather than just verbal promises.
Culture. Nothing erodes employee trust faster than discovering that peers in similar roles are paid significantly more for no clear reason. Proactive audits prevent this kind of cultural damage.
Internal Payroll Audits: A Broader Compliance Tool
While pay equity audits focus on fairness, internal payroll audits look at compliance and accuracy across the entire payroll function. Payroll is one of the most heavily regulated and risk-prone areas of HR, errors can lead to penalties, back pay, employee dissatisfaction, and even litigation.
A payroll internal audit often includes:
Reviewing employee classifications (exempt vs. non-exempt, contractor vs. employee).
Verifying overtime pay calculations.
Ensuring tax withholdings, garnishments, and benefits deductions are accurate.
Checking compliance with state-specific rules on minimum wage, sick leave, or meal/rest breaks.
Validating data security measures against risks like payroll fraud or phishing.
When paired with pay equity audits, payroll audits create a comprehensive compliance net, ensuring pay is not only fair but also legally sound and operationally accurate.
Practical Steps for Conducting an Audit
Assemble Your Data
Gather detailed payroll and HR data, including salaries, bonuses, job titles, tenure, performance reviews, demographic information, and classification categories. Clean and verify this data for accuracy before moving forward.Establish Legitimate Comparison Factors
Identify the criteria that are valid justifications for pay differences in your organization. Examples include years of experience, certifications, or performance ratings. This step ensures you’re comparing apples to apples.Run the Analysis
Use statistical tools—or an external consultant, if needed—to identify pay disparities that can’t be explained by legitimate business reasons. For payroll audits, run compliance checklists against state and federal laws.Document and Report Findings
Transparency is key. Summarize your findings in a clear report, including both the disparities discovered and the compliance risks identified.Take Corrective Action
For pay equity: adjust salaries where inequities exist and ensure pay bands are aligned going forward. For payroll audits: correct misclassifications, adjust processes, and retrain staff.Establish Ongoing Monitoring
One-time audits are not enough. Build audits into your annual HR and payroll cycle so that fairness and compliance are continually reviewed.
The opportunity to mitigate risk through internal audits is one that businesses should not miss. When the potential consequences not only hit the bottom line but also expose the company to legal action, reputational harm, increased turnover, and irreversible consequences to the culture, the decision is clear. Building internal audits into your business’s strategy is a wise investment in operational health.
If your organization hasn’t yet conducted these audits, now is the time to start. The longer inequities and errors go unchecked, the harder, and more expensive, they become to correct. By making audits a recurring part of your payroll and HR strategy, you position your organization not just to survive, but to thrive in a world where fairness and compliance are non-negotiable.
