Creating a fairer Britain
Many organisations group jobs into pay grades or bands. Jobs in the same band or grade are then treated as being equal, and have the same pay and other contractual terms and conditions of employment applied to them, either because they have been evaluated with similar scores under a job evaluation scheme, or because the organisation sees them as broadly equivalent.
The grade structure is usually either a series of grades with pay ranges attached to each one, or a single pay spine divided into grades at specified incremental points on the spine.
You need to look at the average pay of men and women in each pay grade or band. Any difference will need to be explained. There should be a real and significant reason for the difference that justifies it.
Company A wanted to move from its traditional incremental pay system in which people entered on a certain point in the grade and progressed through to the maximum based on their length of service. The company had been advised that using length of service as a criterion for determining pay could be discriminatory because women's breaks from work to have children were disadvantaged by the requirement for long service. The company had also realised that ethnic minority employees were losing out. In seeking to overcome this problem they needed a method to assimilate people to a new structure and ensure they progressed fairly.
Company A decided on a new structure with no overlapping grades, where people would progress from the minimum to the maximum point for their grade within a shorter time. Progress would be based on satisfactory performance in the grade. At the point when the new system was introduced there was no performance assessment on which to differentiate salaries for jobs in the same grade so all salaries at a given point were at the same level in the grades, with clear paths of progression following on.
Company A was concerned at the cost implications and negotiated with the union a phased approach to the new system. Whilst this would not stop an individual taking a tribunal case because of an existing pay gap with someone of the opposite sex, the steps the employer was taking to address equal pay problems would be taken into account by the tribunal.
The answers to the following questions can help you find out what lies behind any pay differences. As well as looking at differences between men and women, remember to think about other aspect of equality such as race, disability, age and contractual status.
The perception of the 'going rate' for the job - the market rate - may lead to pay rates being increased whenever there is the opportunity to do so. You might, for example, move people to a higher point in the pay range or provide additional payments as a result of real or perceived market forces. Remember to check that such actions do not inadvertently have an adverse impact on protected groups. If such instances are widespread, it is probable that the whole system needs updating.
There is no one grading system that suits all organisations. If you are updating a grading system or designing a new one, you have some choices:
Before you can decide how your new structure will work you need to look at the workforce as it stands and where individuals would fit into a new structure. Computer software can help you to do this.
Make sure the system used has been checked for gender/race bias.
If managers have discretion over how people are graded, then this should be centrally monitored. Managers may not always realise the potential impact of their decisions on equal pay. The greater the degree of managerial discretion, the greater the need to ensure that managers are trained in how to avoid bias.
Make sure that decisions on pay are properly documented.
It makes good business sense for employees to understand why they are paid as they are. It is also good risk management, because if you should ever be challenged in an employment tribunal, documentation will be essential. Properly documented decisions will enable you to explain your reasons.
A transparent pay system is one where employees understand not only their rate of pay but also the components of their individual pay packets. A transparent pay system avoids uncertainty, perceptions of unfairness and reduces the possibility of individual claims.
A grading structure provides a framework for managing a pay system. Used properly a grading structure should ensure jobs of equal value are paid equally. You can align the grading structure to market rates for your sector and individual employees can progress through the points within their grade. If this results in recruitment or retention difficulties for some specialist roles, you can pay a market supplement to attract and retain their services, as long as you do this in accordance with good equal opportunities practice. (See checklist 9 on market forces).
Whilst every effort has been made to ensure that the advice given in this note is accurate, only the courts and tribunals can give authoritative interpretations of the law.
Equal pay in action checklists