Step 1 : Protect the Process With Legal Privilege

Before you open any pay equity analysis tool, loop in legal counsel and set up the analysis under attorney-client privilege. This single step is easy to skip and expensive to regret, since an unprotected analysis can become discoverable evidence in a lawsuit even if the findings were preliminary or later corrected, as this guide to conducting a pay equity analysis explains in its first step.

This isn’t about hiding anything. It’s about giving your team room to investigate honestly, flag uncertain results, and revise conclusions without every draft becoming a permanent, subpoena-ready document.

Step 2 : Define Scope and Pull a Clean Employee Census

Decide upfront which employees, locations, and compensation elements the analysis will cover, base salary at minimum, plus bonuses and other cash compensation if you’re including them. Then pull a full employee census from your HRIS or payroll system: job title, department, hire date, tenure, performance ratings, education, location, and demographic data like gender, race, and age.

Getting this data genuinely clean matters more than people expect. Outliers, inconsistent pay periods, or mismatched currencies will quietly distort every result that follows, and a pay equity analysis tool can only work with what you feed it. If your workforce data still lives across disconnected spreadsheets at this stage, pairing this process with a proper HRIS and HRMS platform makes pulling a clean, complete employee census far easier from the start.

Step 3 : Build Comparator Groups That Actually Make Sense

Group employees doing substantially similar work, or work of equal value, based on job family, level, and location, not just job title, since two people with the same title can do meaningfully different work. Most methodologies recommend keeping groups reasonably sized, generally at least five people per group, so the statistical comparison holds up rather than reflecting one or two individual salary decisions.

Getting this step wrong is one of the most common reasons a pay equity analysis tool produces misleading results: comparing genuinely different roles as if they were interchangeable skews everything downstream.

Step 4 : Identify the Legitimate Factors That Explain Pay

For each comparator group, list the factors that legitimately justify pay differences: tenure, years of relevant experience, specialized skills or certifications, documented performance, and any formal market or retention adjustments. This is also the moment to watch for what’s sometimes called a tainted variable, a factor that sounds neutral but actually correlates with a protected characteristic in a way that quietly launders bias into the results.

Document the rationale for including each factor before you run anything. If a factor can’t be justified on paper, it probably shouldn’t be in the model.

Step 5 : Run the Regression and Read Both Models

This is where the actual math happens inside your pay equity analysis tool. Run an unadjusted model first, comparing raw pay by demographic group alone, then run an adjusted model that controls for the legitimate factors identified in Step 4. Comparing the two tells you something important: whether a gap that exists in the raw numbers shrinks, disappears, or persists once legitimate factors are accounted for.

A persistent, statistically significant gap in the adjusted model is the signal worth investigating further. A gap that fully explains itself through tenure or performance differences is a different conversation entirely, though still one worth documenting.

Step 6 : Investigate Outliers Before You Act

Don’t treat every flagged gap as an automatic pay adjustment. Review individual cases: hiring records, promotion history, retention offers, and any documented reason for a specific salary decision, and categorize each flagged gap as explained, partially explained, or unexplained.

This step protects you from two opposite mistakes: adjusting pay for someone whose gap is fully justified by a documented factor you simply hadn’t coded into the model, or dismissing a real disparity because it superficially resembles an explained case.

Step 7 : Build and Document the Remediation Plan

For gaps that remain unexplained after investigation, calculate specific adjustment amounts, prioritize by gap size and urgency, and set a realistic timeline and budget with finance and leadership sign-off. Then go a step further: update hiring, promotion, and raise practices so the same disparities don’t quietly reopen next review cycle.

Finally, communicate a clear compensation strategy to employees and commit to reviewing pay equity on a recurring schedule, not just whenever the topic resurfaces. A pay equity analysis tool that only gets used once a year tends to miss the gaps that open up in the months between audits.

Quick Reference: The Seven-Step Sequence

If building this entire seven-step process internally feels like more than your team can take on alone, our strategic HR consulting team can help you run it correctly the first time.