By Murray Simpson
BLOG OVERVIEW: Many employers that conduct annual pay equity studies skipped 2025 due to legal or economic uncertainty. Here are the most important considerations when planning to start again in 2026.
Employers may have taken a hiatus in 2025 from assessing their compensation practices for gender- or race-based differences in pay for a variety of reasons. Concerns over whether such an assessment constitutes “illegal DEI” may have fostered a pause in undertaking a pay equity study until more clarity was forthcoming about what is and is not “illegal DEI.” The rescission of Executive Order 11246 by President Trump relieved federal contractors of both the requirement to evaluate their compensation systems annually for gender, race, or ethnicity-based disparities and the risk that their compliance with such a requirement would be subject to audit by the Office of Federal Contract Compliance Programs (OFCCP). As economic uncertainties and disruptions expanded during the year, a growing list of employers engaged in reductions-in-force, which, in turn, rendered a pay equity study less meaningful and informative because of the challenge in identifying stable groups of similar employees whose pay should be compared.
For employers who took such a hiatus in 2025, there are good reasons to resume your annual pay equity study in 2026. First, the U.S. Department of Justice (DOJ) released a memorandum in late July that provided much-needed clarity on policies and practices that constitute unlawful discrimination (i.e., “illegal DEI”), as well as recommendations on best practices to comply with federal antidiscrimination laws.[1] The positive news here is the presence of a common theme across the recommended best practices: base employment decisions on “measurable skills and qualifications directly related to job performance,” “merit,” and “non-discriminatory performance metrics.”[2] A well-constructed pay equity study measures the degree to which differences in pay are explained by differences in skills, qualifications, merit-based factors, and performance in order to avoid attributing such pay differences incorrectly to differences in gender or race. Accordingly, undertaking such a study in 2026 is not an act of engaging in “illegal DEI” but instead conforms to best practices recommended by DOJ.
Secondly, while federal contractors are no longer subject to audits of their compensation practices by OFCCP, they still must comply with federal anti-discrimination laws, including Title VII of the Civil Rights Act of 1964 and the Equal Pay Act of 1963, as well as an increasing number of amended equal pay laws that states are more aggressively enforcing. In contrast to assessing compensation practices by affirmative action plan (AAP) establishment or functional AAP for the purpose of anticipating what OFCCP may uncover in an audit, federal contractors should turn their attention in 2026 to undertaking both company-wide and state-based pay equity studies. Doing so will bring to light any pay disparities that may pose legal risks under both federal and state anti-discrimination laws.
Lastly, reductions-in-force change the composition of workers across an employer’s job classification structure and may be accompanied by changes in compensation policies, such as revised incentive plans with different eligibility requirements and modified target levels. Resuming a pay equity study in 2026 following a 2025 reduction-in-force allows one to identify (i) if the reduction-in-force itself left behind a workforce characterized by pay differences that now need to be remedied, (ii) whether employee comparison groups for the study need to be re-aligned to accommodate changes in the classification of jobs and how employees are distributed across those jobs, and (iii) whether analysis plans should be updated to accommodate a pay equity evaluation of new or revised compensation policies.
For the reasons given above, employers who took a hiatus in 2025 should plan to resume their annual pay equity studies in 2026. In preparation for re-launching those studies, consider what forms of compensation (e.g., base pay, bonuses, long-term incentives, etc.) should be assessed in 2026, whether any state-based analyses are needed to mitigate corresponding legal risks, how groups of similarly situated employees should be formed to make pay comparisons, and what new data elements may be needed to ensure “merit” factors can be properly taken into account.
Whether you are an existing DCI client or interested in becoming one, our pay equity experts can partner with you in 2026 to plan and implement studies that are designed to withstand scrutiny by DOJ, provide meaningful insight into legal risks, and enable effective remediation strategies where needed.
[1] Office of the Attorney General, “Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination,” Washington, DC, July 29, 2025.
[2] Office of the Attorney General, “Guidance,” pp. 8-9.
