Pay Equity vs. Pay Equality: What’s the Difference?

You’ve likely heard of the gender pay gap, or maybe you’ve seen articles around mid-March about Equal Pay Day—celebrated each year on March 15, Equal Pay Day shows how far into the next year women have to work to make as much as men have the previous year.

The unfortunate reality is that pay gaps based on gender, along with race or other protected characteristics, are still very present for your employees. Globally, women make only 77 cents to every dollar men make.

To recognize and solve such equity gaps, we need to understand the difference between pay equity and pay equality. These terms are often used interchangeably but actually mean different things.

Both pay equity and pay equality are important and necessary for solving equity gaps. Read on to discover the differences and how your company can approach achieving both.

What Is the Definition of Pay Equity?

Pay equity is the process of reducing salary disparities among employees based on race, gender, and other factors.

In practice, pay equity means paying employees with similar job functions comparably similar wages, regardless of their identity. Within a company, this means employees in similar job roles, like two engineers or two customer service representatives, will receive similar compensation because they provide substantially similar work. The employer pays them based on their job role and not the person doing the role.

For example, if a firm employs male warehouse workers and female clerical assistants, both should be paid the same–unless there is a compelling reason to pay them differently. Pay disparities might instead be explained by factors such as aptitude, tenure, credentials, and so on.

The expanding pay equity platform attempts to eliminate wage inequities across a variety of sociopolitical identification markers. The objective of pay equity advocates is to build workplaces that inspire employee loyalty, excitement, and confidence in the businesses that employ them by fostering an environment of transparency, openness, and fairness in compensation and opportunity.

What Are the Benefits of Pay Equity?

Equitable pay is a competitive advantage. Employees now have more methods than ever to study and share information regarding how firms compensate and promote their personnel. Social media, employer review sites, and a growing realization that businesses cannot prohibit employees from discussing their pay contributes to a climate where employees have the ability to influence an employer's pay practices.

There is evidence that fair pay may boost company brand perception while also improving employee morale, performance, and retention. Ensuring your employees are paid market rates and that those rates are the same as other employees doing similar work will have a range of benefits, including:

• Boosting morale
• Increasing retention rates
• Improving performance

Paying employees equitably is the best way to attract and retain top talent. Fair wages can also help avoid internal friction, low morale, and employee turnover if employees find they are being paid differentially for the same responsibilities.

When employers show they care about issues that affect their employees, like pay equity, employees are more likely to want to help their employer succeed.

How to Calculate Pay Equity: 3 Steps

1. Begin by gathering data. This data needs to track compensation, gender, race, education, experience, performance, job descriptions, and whatever else your company may use to calculate compensation.
2. Analyze the data. Control for different factors like gender or educational background to see where and why pay inequities may exist.
3. Find and correct unequal pay. Discrepancies in pay that can’t be explained by legitimate reasons need to be examined and corrected.
4. Work toward pay equality. Once you’ve established a foundation of pay equity, you can begin to analyze how to achieve pay equality. Because you’ve already begun gathering data for pay equity, you can now start to dig deeper into the external issues that are preventing your company from creating truly equal opportunities for employees across a spectrum of experience, capabilities, potential, and performance.

What Laws Govern Pay Equity?

Equal Pay Act of 1963

The Equal Pay Act's basic principle is that employers must pay equal pay for equal effort. The Equal Pay Act (EPA) guarantees that women in equivalent positions within an organization are paid equally to men in similar roles. The basic assumption is that men and women with equal work should be compensated equally. Before you start a pay compliance effort, as an HR executive, you should verify to see if the legislation applies to your company.

The EPA, signed in 1963, established a legal precedent prohibiting sex from justifying greater pay. The Equal Pay Act, which was originally designed to add to the Fair Labor Standards Act, encourages companies to compare positions based on quality rather than titles.

Civil Rights Act of 1964, Title VII

The Civil Rights Act of 1964, Title VII protects employees from discrimination based on race, color, ethnic background, gender, and religion.

Employers are prohibited from discriminating based on any term, condition, or privilege of employment under Title VII. Recruiting, hiring, promoting, transferring, coaching, punishing, dismissing, allocating work, assessing performance, and giving perks are all areas that might lead to breaches. Firms with a minimum of 15 employees in the commercial and governmental sectors are subject to Title VII. It also applies to the federal government, labor groups, and employment agencies.

The Equal Employment Opportunity Commission is enforcing Title VII of the Civil Rights Act of 1964.

EEO-1 Wage Reporting

An EEO-1 report (Equal Employment Opportunity) is an annual conformance survey that some employers are required to complete. The EEO-1 report is also known as Standard Form 100. Employers who qualify must register it with the Equal Employment Opportunity Commission (EEOC).

Title VII requires the EEO-1 report of the Civil Rights Act of 1967. Some employers are required by the legislation to disclose their employees' racial/ethnic and gender makeup. To be deemed an equal opportunity employer, all firms in public and private sectors with at least 15 employees must comply with Title VII of the Civil Rights Act of 1964.

Data from a workforce snapshot period must be included in EEO compliance reports. This period includes any pay period throughout October, November, and December of the current survey year. Only consider employees on payroll during the workforce snapshot period when counting employees for the period.

Is Unequal Pay Illegal?

The simple answer is no—employees performing similar jobs won’t necessarily be paid exactly the same wage.

It’s perfectly reasonable and legal for employers to consider the following factors when determining compensation:

• Education
• Work experience
• Responsibilities in the position
• Longevity within the company
• Your company’s overall financial stability

For example, going back to the two engineers, if one engineer has a decade more experience than the other engineer, their employer would be within their right to offer the more experienced engineer a higher wage since that employee would presumably be able to take on more responsibilities or require less supervision.

Unequal pay becomes a problem—and illegal—when you eliminate all these factors and see pay discrepancies that can only be accounted for based on race, gender, or other protected characteristics.

When employers discover these discrepancies, the Equal Pay Act requires they raise the salaries of the affected employees, rather than cutting salaries for other employees in the business, to achieve pay equity.

What Is the Gender Pay Gap?

A gender pay gap occurs when two employees who are alike in every aspect except their gender are paid unequally.

To illustrate the concept of pay equality, let’s compare our two hypothetical engineers again. This time, let’s add in gender, with one being a woman and the other being a man. If they both have the same level of experience and education, they should be paid the same—that’s pay equity.

If these engineers aren’t paid the same, that’s both illegal and an example of unequal pay. It also fits in under the larger umbrella of pay equality. While both pay equity and pay equality point to systemic bias against certain employees, pay equality is concerned with the ways in which that bias prevents people from even getting the opportunity to attain certain positions, staying in those positions once they get them, and from advancing at a commensurate rate with other demographics.

If pay were equal, you’d not only see female engineers being paid at similar rates as their male peers with similar backgrounds, but you’d also see women across all occupations being paid equal wages to men across all occupations. But that’s not really the case, which is why it’s so important to pay attention to this aspect of pay inequality.

Due to persistent bias and societal pressures, women earn less than men in general (82% less in the U.S.), and they also accumulate less wealth. There’s also fewer women and historically underrepresented minority groups in leadership roles, which creates a discrepancy in overall pay rates. While women make up approximately 51% of the college-educated labor force in the U.S., less than 25% of C-suite jobs in the top 1000 companies are held by women.

Again, these differences in pay and career attainment come from biases and prejudice that go beyond just a single bad employer. For example, one myth surrounding the pay gap is that women just need to ask for pay raises more often, but women who ask for raises are seen as demanding and are less likely to receive them. Likewise, in a phenomenon referred to as the motherhood penalty, men who become parents are seen as more reliable while women get marked as unreliable, unproductive, and unfit to take on leadership activities.

How to Correct a Gender Pay Gap

To implement pay equity and close gender pay gaps, start by looking at the salaries of women in your organization, regardless of role, and compare them to the salaries of men in your organization (and also compare the salaries of white employees to those of employees of color). Are the rates equal? Is there a difference? If there’s a difference, that’s pay inequality.

Discovering these pay discrepancies doesn’t lead to quick and easy solutions. Companies will need to examine why these discrepancies across gender, race, and roles may have happened and look at long-term solutions to fix them. For example, if women aren’t being promoted as frequently as men, you can dig deeper into why that is by asking:

• What’s driving promotional opportunities?
• Do we make data-based or person-based decisions?

You might think your promotional process is already ironclad, but there’s plenty of room for bias to creep in. According to research from MIT, though women receive higher performance ratings than men, they’re promoted less frequently because they’re seen as having less potential, which then results in fewer women being promoted.

That’s why promotions are the number one thing you need to change if you want to move toward greater pay equality. Base promotions on performance and tenure, not potential. Basing your promotions on an employee's potential opens the door for unconscious bias because it’s not based on observable behavior.

Other ways to create more equal opportunities include:

• Offering mentorship programs
• Implementing diverse hiring practices
• Supporting both genders in caregiving duties
• Providing on-the-job training for underserved populations

As employees move through these programs, are promoted, and begin to hold more positions across the pay spectrum at the company, that’s when you’ll see pay disparities begin to shrink.

Examples of How Companies Address Pay Disparity

What do you do if you find a pay disparity in your organization? It’s a problem many companies face. The good news is that it likely won’t be hard to fix.

Adobe

When Adobe did an internal pay equity audit, they found pay disparities affected less than 5% of its global employees, and they were able to provide an equity adjustment in salaries that accounted for less than 0.2% of its annual payroll costs.

Intel

Intel also did a pay equity analysis. By 2018, Intel achieved pay equity based on salaries alone. But as Intel continued to audit its compensation strategy, it found large equity gaps due to some employees receiving company stock shares. By 2020, they achieved pay equity based on full compensation, including stock grants and other benefits.

Next Steps: Create a Plan to Maintain Pay Equity

Once you’ve adjusted your current employees’ compensation to ensure all employees are compensated fairly, you can begin to address how to ensure pay disparities won’t become a problem in the future.

Tackling both pay equity and pay equality can feel like an overwhelming task, but working to solve these problems can pay huge dividends for your company. According to research by McKinsey:

• Organizations with more diversity outperform peers by 36%.
• A lack of diversity isn’t just a neutral characteristic—the least diverse organizations, both in terms of gender and ethnicity, are 27% more likely to underperform on profitability.
• Diversity also increases innovation and teamwork, and it improves decision-making, recruiting, and retention.

So, making sure you solve any pay equity or pay equality disparities within your organization is an important step.

Here are some ideas for getting started:

• Publish salary ranges within job listings. This creates greater pay transparency for other organizations hiring for similar positions and employees looking for market rates to compare their salaries.
• Don’t ask for a salary history. This prevents carrying over pay inequities.
• Create a structure for salary negotiations. As much as possible, take bias and intuition out of the decision-making process by relying on set criteria for raises and on ratings in interviews.
• Tie raises and bonuses to quantifiable performance metrics based on specific job roles to remove the possibility for unintentional bias.

If your company is looking to address wage gaps, work on pay equity first. It’s a specific and quantifiable way your company can track whether you’re removing biases in compensation practices. While pay equality is important, it cannot be achieved until you’ve created a foundation of pay equity throughout your organization.