Are you at risk?
It’s quite possible that as an employer, you are at risk of an equal pay claim without even knowing it, because equal pay claims very often result from an organisation’s lack of awareness, not deliberate discrimination.
The problem may come from having a pay system that isn’t regularly reviewed and updated which leads to ‘pay drift’. This is where unplanned or ad hoc increases are made to earnings without considering the equal pay implications.
Some pay practices increase the risk that at some point you’ll be faced with an equal pay claim. Below you will find information about how to reduce this risk.
Low risk pay systems
It is your responsibility as an employer to ensure your pay system is free from discrimination between men and women. Low risk pay systems are transparent, systematic, inclusive, well-managed, sensitive to job-demands and monitored. This helps your pay system keep up-to-date with changes in your organisation. Not only is it in everybody’s interests, it enhances your brand and reputation as an employer.
Adopting a low risk pay system will reduce the risk of an equal pay claim being made against you as issues of pay can be addressed before they become a problem.
It will also help you to meet your legal obligations under the Equality Act.
Key features of a low-risk pay system
A low-risk pay system is one that demonstrably provides equal pay for equal work. It will be:
Transparent: employees understand the pay system and the processes used to determine each element of their pay. The greater the transparency, the less likely you are to be challenged - and if you are challenged, the more likely you are to be able to defend your systems and address any potential problems.
Systematic: The more systematic and simple your pay and bonus system is the easier it will be for people to understand it, and the lower the risk will be that gender imbalances will creep in. It helps if you have a clear pay structure and publish it.
Inclusive: a single reward structure for all employees reduces the risk of challenge.
Well-managed: In order to manage risk it’s important to keep the pay system and any under-pinning job evaluation processes up-to-date, and, regularly monitor pay outcomes for men and women across your organisation. This allows action to be taken before something becomes a problem.
Sensitive to job demands: For equal pay claims, two jobs are considered ‘equal work’ if the demands are the same, regardless of their title or tasks. It is important employers consider not just job roles, but other factors such as the effort, skill and decision-making a job requires when deciding pay structures. For many medium to large organisations this requires implementing a non-discriminatory, analytical job evaluation scheme.
Risky practices that may lead to unequal pay
Click on a risky practice to find out more.
Transparency in a pay system means providing enough information for employees and managers to understand how it operates.
See Code of Practice on Equal Pay for more detail on this.
The courts have made it clear that they will not look favourably on employers that do not have transparent pay structures when considering an equal pay claim. If a tribunal decides that a pay system is not transparent, it may become the employer’s responsibility to show that their pay practice is not discriminatory.
These are pay systems that link the pay of an employee to some measure of individual, group or organisational level performance. For example:
- performance-related pay
- merit pay
- discretionary bonus schemes
Many organisations have a discretionary element in their pay systems in order to incentivise, improve and reward performance. The law says it is valid to operate such a system, provided it does not result in sex discrimination.
You can reduce the risk of discrimination occurring by ensuring performance is linked to quantifiable and easily explained measures of performance, and measures don’t favour either male or female employees.
Consider having a group of managers who have training on equality and avoidance of bias to reach consensus on performance pay, rather than relying solely on decisions by individuals. Transparency is important, it should be clear to staff how decisions have been made.
The pay system should deliver equivalent performance payments to women and men across a group, although obviously the pay levels of individuals will differ. If men are consistently better rewarded than women, this would suggest the discretionary pay system could be operating in a discriminatory way.
Organisations can invest time and resources in a job evaluation scheme but it needs to kept up to date.
An out of date job evaluation scheme might no longer provide a defence in equal pay claims. If procedures are not followed for new or changed jobs – or if contemporary evaluation records cannot be produced - a tribunal might not accept that a job has been adequately evaluated. You should review job evaluations to ensure they are kept up to date. It is useful to provide periodic training on job evaluation to ensure skills and knowledge are fresh and reflect best practice, and the necessary job evaluation skills/understanding are not lost as staff move on.
Depending on the type of bonus or incentive payment, whether it is contractual or discretionary, and the period it relates to, women on maternity leave may still be entitled to receive it.
- Pay accrued or acquired prior to or after the end of maternity leave is protected. Thus a woman is entitled to a bonus (contractual or discretionary) which relates to work done either in the period before maternity leave began or after the maternity leave ends.
- If it relates partly to a period when she was working and partly to a period on maternity leave, it should be at least be paid pro rata.
- With compulsory maternity leave, a woman should receive that proportion of a bonus that relates to her period of compulsory maternity leave (that is, the two weeks immediately following birth), as if she had been working.
A clear policy on this will help avoid potential challenges. The policy should ensure staff and their managers understand their entitlements and you should monitor the policy regularly.
Some organisations still have pay practices originally designed to solve a particular problem in relation to a particular group. These practices may have been retained without review or consideration about whether they are still justifiable.
- attendance allowances paid to some employees but not others (introduced because of a sickness absence problem among some groups of workers)
- bonus payments to some employees but not others (introduced because of low productivity in some groups, but not others)
- contractual overtime arrangements with some employees but not others (introduced to resolve a historical workflow problem)
- different ways of rewarding unsocial hours working for different groups (for example, rotating shift payments for some employees, night allowances for others), and
- market supplements for some job families, such as IT, but not others (introduced because of recruitment difficulties).
Inconsistencies in pay and conditions of this kind can leave you open to an equal pay claim.
In order to defend any difference in pay and contractual conditions you would need to be able to demonstrate that the difference is due to a material factor which has nothing to do with a difference in sex. If the factor however puts women at a particular pay disadvantage compared to men, it must be objectively justified.
A pay system with numerous grading structures can become confusing and create opportunities for inequality to creep in unnoticed. For example, where different pay grades are not agreed by a common job evaluation scheme.
Historically, many organisations in Britain have used different grading and pay systems for different groups of employees. These may have depended on:
- negotiations between employers and a group of employees, commonly represented by a trade union
- technological and work organisation features, or
- skillsets within the organisation.
These are now less common, but still persist, particularly in certain industries, leaving employers more exposed to the risk of an equal pay claim.
Many organisations have long pay scales or bands, sometimes with many thousands of pounds difference from minimum to maximum, or with a large number of incremental points.
Long pay scales may be introduced, for example, to increase management flexibility in determining pay on recruitment, or to allow for the introduction of performance related pay progression systems.
An employee’s greater experience can be given as a reason for a higher level of pay and this can sometimes be justified – but not always.
The risk is that the average pay of women on each pay scale or range will be significantly lower than the average pay of men on the same pay scale or range. Check if women are clustered at one end of the scale, and men at the other. This can result in significant gender pay differences which looks like systemic gender pay discrimination and can leave you open to potential equal pay claims.
Further information can be found in the Code of Practice on Employment.
It’s not uncommon for organisations to have overlapping pay scales, where the maximum of one scale is higher than the minimum of the next higher scale.
One reason for this is to give the organisation’s local management more discretion over the pay of their employees.
The risk here is that a woman at the bottom of an overlapping scale may compare herself with a man on a higher salary towards the top of a lower pay scale, arguing that her job is of the same or greater value as his but she receives less pay.
Managers are often permitted a degree of discretion in determining the salary at which individuals are recruited to the organisation. Some organisations consider this essential to attract the best candidates with the required experience, skills and expertise.
Discretion may also be exercised in determining the salaries of:
- employees who transfer from another part of the organisation, and
- employees who are promoted (temporarily or permanently).
Individuals may receive different starting salaries for very good reasons, but the greater the degree of discretion, the greater the risk of discrepancies in starting salaries occurring. Unless the exercise of discretion in each case is transparent and justifiable, you will be at risk of a challenge.
If you do not have one already, a starting salaries policy can be a useful way to set out how decisions on starting salary will be made. It’s important to ensure when people are new to a post they start at the bottom of the relevant pay scale unless they meet particular criteria for a higher point on the scale.
Is your process of negotiating salaries fair? You could introduce relevant training for managers and all staff involved in recruitment.
In pay systems where pay is linked to the external labour market, it’s common practice to pay supplements on top of base salary to address recruitment and retention difficulties.
This can become formalised into a structure where some female dominated ‘job families’ are paid on a lower scale than other male dominated job families. For example, IT and skilled manual workers are typically on a higher pay scale than those in administration or retail.
Some organisations don’t have formal internal grading structures, instead basing the pay of all or most of their employees on the market rate for the particular type of work.
The law says that market-based pay is valid, provided differences in pay between employees undertaking equal work are properly attributable to pressures in the labour market, such as skill shortages or competitive pressures in a sector, and you can provide evidence for them. If challenged, the employer will have to prove the market forces they allege, that these are the reason for the pay differential and have nothing to do with a difference in sex. If however the market-based pay puts women at a particular pay disadvantage compared to men, the employer must also objectively justify its use.
Organisations cannot pay women less than men for equal work just because the market traditionally pays ‘women’s work’ less.
Pay protection is the practice of protecting the pay of employees whose jobs are downgraded. This can be as a result of:
- an internal reorganisation
- a pay/grading review
- implementation of a new job evaluation scheme
- an ill health transfer, or
- a TUPE transfer.
Where it’s necessary to reduce pay in order to equalise it, employers commonly adopt measures, such as pay protection, to assist employees (usually male) to adapt.
But indefinite or lengthy pay protection that preserves discriminatory rates of pay will be difficult for an employer to justify.
The risk is that a woman who does not benefit from pay protection will bring an equal pay claim comparing herself with a man doing equal work who does have this benefit. The risk of challenge will be particularly high if the group that benefits from pay protection is predominantly male and the group without pay protection is predominantly female.
Where differences in pay have resulted from treating women less favourably than men because they are women (rather than, for example, as a result of occupational segregation) then continuing that discrimination through pay protection will be unlawful.
Take action now to minimise the risks to your organisation
In addition to the above suggested actions there are a range of software tools available that can help you check that your pay systems provide equal pay. Training is a useful way of ensuring that employees across the organisation are aware of equal pay issues and get the relevant skills and expertise they need and that they are kept up to date.
If you’re not totally confident that your current pay system meets all the requirements of equal pay legislation, go to the How to implement equal pay section of this site.
If you are involved in an employment dispute or are seeking information on employment rights and rules, you can contact the Advisory, Conciliation and Arbitration Service (Acas):
Freephone: 0300 123 1100 (8am-8pm Monday to Friday and 9am-1pm Saturday)
Text Relay service: 18001 0300 123 1100.
Last updated: 16 Aug 2016