What Is Internal Equity and Why Does It Matter?


Running a small business is a very rewarding experience, but it is not without its challenges. One of the biggest challenges people experience when it comes to their small business is the question of salary and pay. 

Often, people struggle when deciding how to pay and keep the best talent in their line of work. Small business owners question how to pay everyone their worth while also making sure all staff feels respected at work. 

However, there is a solution to this problem, and it is known as internal equity! In this article, we will discuss everything you need to know about internal equity and why it matters. 

So, if this is something that would help you with your small business, then read on for more! 

Also read: How to Engage Employees

Table Of Contents

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What Is Internal Equity?

Internal equity is all about paying equal pay for the same work. To put it another way, internal equity is when all of your staff members who are in similar positions or have a similar set of skills, are paid in similar ways. This compensation can either be reflected in their salary or in any incentives or benefits that are included with their position. 

Not only is internal equity a good thing to do, but treating your employees with equality and fairness is actually mandated by law. In the Federal Equal Pay Act of 1963, it is stated that there is to be no discrimination between women and men who work in the same organization, and who are doing jobs that require a similar responsibility, skill level, or effort. This also includes bonuses, expense accounts, and more. 

There are actually many ways you can ensure you are complying with the law in this way. For example, your internal-pay structure could look a little like this:

All employees who are the head of their department, no matter the department, are all paid a similar salary, or a salary within a pay range that has been predetermined. You must also ensure they have the same set number of sick and vacation days. 

So, while the everyday tasks for these employees may look different, their job titles and responsibilities may be alike enough that you must offer a specific pay rate for each of them.

Also read:  Becoming a Successful Talent Scout

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Are Internal And External Equity Different?

Yes! Internal and external equity are different. As we have discussed, internal equity prioritizes equal pay across a workplace. External equity is about taking into consideration what the wider market is paying for jobs similar to that of your employees inside your industry. 

So, when it comes to external equity, it is important to constantly explore data from the market in order to stay on top of the current pay rates for the various roles in your company. So, if you are a leader of a business then you need to be working constantly with your HR department to make sure you understand the changing market rates and reflect this in your benefits and competitive pay for any potential employees. 

When it comes to the equity market, then it is a good idea to compare both industry and region-specific data. It is also important to note that the salary expectations for a small business are going to look different from the salary expectations of a business in a big city or metropolitan area. However, you can make up for this by offering other benefits that make your company an excellent place to work. 

Also read: Skill Assessment is Important During Hiring the Process


Why Is Equal Pay Important?

Equal pay in the workplace has many advantages. Here are a few examples!


  1. Employees Are More Likely To Stay 

In today’s society, it is not as taboo to talk about money, so it is a lot easier for your employees to find out how much everyone else in the company, and in the wider market, is earning. 

So, if members of your staff find out they are being underpaid, they are very likely to move on to other jobs. As an owner of a business, you should always be thinking about retention and how you can ensure your staff are happy and want to work for you.

 Not only that, but it is much more expensive for your business as a whole to hire new employees than it is to continue to employ existing ones. So, you need to make sure that pay is transparent and fair to ensure your employees do not jump ship! 


  1. You Are Helping Fight The Race And Gender Pay Gap 

A study by the Bureau of Labor Statistics found that the annual earnings for women in 2020 were only 82.3% of a man’s annual earnings. To put it simply, for every dollar a man makes, a woman in a similar position to them will make 82 cents. 

However, it’s not just an issue of gender. There is also an issue of equal pay surrounding races, too. It is estimated that Latina women and Black women will have a loss of earnings of over $1 million over a career lasting 40 years. 

Naturally, there is a long way to go and a lot to do before we can safely say that everyone is paid equally in the workplace, but by making sure that everyone employed by you is paid appropriately, you show a commitment and a step taken in the right direction for inclusion, diversity, and equality. 

Also read: 7 Employee Benefits and Compensation Ideas 


  1.  It Reduces The Risk Of Discrimination Laws 

Employees are able to file lawsuits against their employers within 180 days of their last paycheck, according to the 2009 Lilly Ledbetter Fair Pay Act. So, if you want to prevent a lawsuit from being brought to your door regarding pay discrimination in the workplace, it is good to understand external and internal equity and work with your HR department to ensure all of your employees in similar positions are paid fairly. 

Also read: Give Feedback To Employees

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Final Thoughts 

Internal equity is the term used to ensure that everyone in your workplace is paid a similar wage if they have similar roles within the company, no matter their sex, gender, or race. Equal pay is mandated by law, so it is important to understand both internal and external equity to be within the confines of the law. Not only that, but it helps to keep your employees happy and willing to work for your business. 

Pay for employees is very important but it is also very important to have a system to show them their pay stubs. Our pay stub generator can ensure that employees receive quality pay stubs on time.

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What Is Internal Equity and Why Does It Matter?
Samantha Clark

A Warrington College of Business graduate, Samantha handles all client relations with our top-tier partners. Read More

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