CSR - equal pay audits
This article first appeared in Company Secretary's Review, 3 August 2011.
Gender equality issues have come to the fore in recent months. In February 2011, Lord Davies published the "Women on Boards" report which recommended, amongst other targets, that FTSE 100 boards should aim for a minimum of 25% female representation by 2015. The European Commission is also currently being urged to propose legislation by 2012 to increase female representation in corporate management bodies to 30% by 2015 and to 40% by 2020.
However, female representation is not the only issue on the agenda. In May 2011, the UK Government published a "Consultation on Modern Workplaces", which includes a proposal seeking to address the gender pay gap and improve enforcement of equal pay legislation. The proposal requires employment tribunals which have found an employer to have discriminated because of gender in contractual or non-contractual pay matters to make that employer conduct an equal pay audit.
Equal pay audits involve comparing the pay of men and women who are doing equal work, investigating the causes of any discrepancies and planning to close gaps that cannot be justified on grounds other than sex. They can help to identify, and eliminate, pay inequalities. However, they can be complex to undertake and require careful planning.
Notwithstanding the Government consultation, the Equality and Human Rights Commission (EHRC) guidance and the Equal Pay Statutory Code of Practice already provide guidance on how to undertake equal pay audits. The EHRC recommends a five step approach:
Step 1: Decide the scope of the audit
This is particularly important, especially for organisations undertaking their first audit. Issues to consider include:
- which employees should be included? If a comprehensive audit is not possible or appropriate, a sample of roles may be audited or the audit could potentially be carried out in stages.
- what information will be required? This will vary depending upon the type of organisation and on the particular pay and grading system.
- who should be involved? Input may be required from people with different expertise (e.g. those who understand the pay and grading arrangements and the payroll/HR systems). Trade unions or other employee representatives may also need to be involved.
Step 2: Determine where women and men are doing equal work
Employers need to check whether women and men are doing:
- like work, i.e. work that is the same or broadly similar
- work rated as equivalent, under a valid job evaluation scheme
- work of equal value, considering factors such as effort, skills and decision making
The EHRC states that this check is the foundation of an equal pay audit.
Step 3: Compare pay data
Employers need to collate and compare pay information to identify inequalities. The EHRC recommends that employers:
- calculate average basic pay and total average pay.
- compare access to and amounts received of each element of pay.
Employers should then review the pay comparisons to identify any gender pay inequalities and decide if further investigation is required.
Step 4: Establish causes of pay gaps
Where significant pay gaps exist, employers should establish which aspects of the pay system are contributing to the pay gaps and why. Employers should also check the pay policies and practices that determine basic pay (e.g. starting pay, service, pay progression, protection and market factors).
Step 5: Develop equal pay action plan
If employers find any pay gaps for which there is no justification, they should:
- plan to provide equal pay for current and future employees as soon as is practicable.
- change any pay policies and practices that contribute to unequal pay.
- publish an equal pay policy that commits to providing equal pay.
Employers should also consider introducing an ongoing review and monitoring of pay outcomes, to ensure the pay system remains free from bias.
The Government acknowledges in its consultation that whilst tribunals should be able to require those who have broken the law on equal pay to conduct an equal pay audit, this may not always be productive. The requirement may also impact on small businesses. It therefore proposes that tribunals should not order that an audit be conducted where:
- an audit has been conducted in the last three years.
- the employer has in place another appropriate means of ensuring that the pay structure is non-discriminatory.
- it would not be productive to do so (e.g. where it would serve no useful purpose, such as in the case of micro-employers).
The Government's consultation closes on 8 August 2011. Whatever the outcome, equal pay audits remain a key tool in identifying, and remedying, equal pay issues in the workplace. Although they are currently proposed for employers who breach equal pay legislation, the audit process can be a valuable exercise for many employers and can minimise the risk of equal pay litigation from the outset.