This checklist covers the various types of pay levels and the risks you should be aware of for each.
With one in three claims to employment tribunals now being an equal pay claim, what can employers do to minimise the risk of having claims taken against them? And what are the key features of a pay system that demonstrably provides equal pay for equal work?
Let’s take the last question first. A low risk pay system is transparent, systematic, inclusive and well-managed. It measures job demands and takes these into account. A low risk system is also congruent with current corporate objectives – you are paying people in accordance with your current objectives, not those that existed several years ago. A low risk system is:
The pay practices listed below are common throughout medium-to-large sized private and public sector organisations, but despite their perceived benefits to employers, they actually increase the risk that at some point the organisation will be confronted with equal pay claims. The fact that equal pay claims have not yet come up does not mean that they will never do so. As the Courts have made clear that employers are responsible for ensuring that their pay systems are free of sex bias, and should not wait until they are confronted with an equal pay claim, such pay practices are best avoided.
If your organisation operates any of the pay practices listed below, follow the link to find out more about the risks you are facing and how to reduce or eliminate these. In some instances, we may recommend that you undertake an equal pay audit but in most cases it will involve carrying out a few straightforward checks or reviewing a relevant policy. Please note that where we recommend undertaking an equal pay audit this is because in this instance, it is the only way to reduce or eliminate the risk.
High risk practices include:
Risks of equal pay challenge generally arise, not out of any intention to discriminate, but through pay systems not being kept under review and up to date. Symptoms of a high risk pay system include pay drift (unplanned and ad hoc increases to earnings), or employees regularly querying pay anomalies.
In the context of a pay system, transparency means providing enough information for employees and managers to understand how the pay system operates, but some organisations, especially those in the private sector, provide employees with little or no information. Research carried out for the Commission in 2009 found that 19% of private sector organisations surveyed reported data on the gender pay gap to audiences other than their human resource professionals, and 18% discouraged or forbad discussions about pay between colleagues. The Equality Act 2010 has now made secrecy unenforceable when the discussion relates to equal pay. Employees may also bring a claim of victimisation if they have been disciplined, dismissed, or otherwise had action taken against them for discussing equal pay.
The law says that transparency is the cornerstone of a non-discriminatory pay structure.
In the case of Handels-og Kontorfunktionaerernes Forbund i Danmark v Dansk Arbejdsgiverforening (acting for Danfoss) [1989] IRLR 532 ECJ the European Court of Justice said:
“The EC Equal Pay Directive must be interpreted as meaning that when an undertaking applies a pay system which is characterised by a total lack of transparency, the burden of proof is on the employer to show that his pay practice is not discriminatory, where a female worker establishes, by comparison with a relatively large number of employees, that the average pay of female workers is lower than that of male workers.”
This is noted in the Code of Practice on Equal Pay, which explains:
'Transparency means that pay and benefits systems should be capable of being understood by everyone (employers, workers and their trade unions). It should be clear to individuals how each element of their pay contributes to their total earnings in a pay period' EHRC Code of Practice on Equal Pay, 2011, paragraph 102)
In a move designed to encourage more transparent pay systems and encourage openness about pay within an organisation, the Equality Act 2010 introduced limits to the enforceability of pay secrecy (or ‘gagging’) clauses in workers’ contracts. Secrecy clauses are not totally banned and an employer will still be able to prohibit employees from disclosing their pay to people outside of their organisation – to a rival company perhaps, or to an inquisitive journalist. However, it is important to note that if you take action against workers for discussing equal pay they can claim victimization.
For more information about the law on pay secrecy and the protection of pay discussions that relate to equal pay, see the Commission’s guidance on 'Protected discussions with colleagues and others pay discussions'.
The risks of a non-transparent pay system are that:
Step 1: Ask yourself how much your employees know about your pay system. Do your employees know how each element of their pay packet contributes to their earnings? Do your managers know what the people they manage have to do to earn what they earn? Do you publish salary scales, performance targets, criteria for earning any discretionary payments, and criteria for contractual terms and conditions such as annual leave? Are you confident that your managers can explain these provisions to the people who work for them?
The law requires that organisations should be open about how pay is made up between different elements, for example: basic pay and any market-based, performance, bonus, or time-based or regional payments. It should be clear what proportion of pay would change if any one of the elements changed. The basis for determining each element of pay should be clear. For example, employees should be able to understand what pay someone with particular skills or experience operating at a certain organisational level or grade can expect to receive, and how that would change if an individual took on additional responsibilities, was promoted, worked overtime, or switched to a different shift pattern.
One indication of transparency is where an individual receiving a pay rise understands which elements of the rise result from increases earned through improved performance and which from market supplements and/or cost of living increases. This means managers themselves being clear about their reasons for pay increases. It also means managers knowing and making known the gender distribution of employees across the various pay levels and the average pay for men and women on each grade or pay band. This gives everyone in the organisation an idea of where women are in relation to men in terms of both current and potential earnings capacity.
If you are confident, that’s good, all you need to do is keep it that way, and keep your documentation up to date.
Step 2: If you’re not confident that your pay structure is transparent, then you will need to carry out an equal pay audit. The Commission's equal pay audit kit provides a good starting point and is based on the one recommended in the Part 2 of the Code of Practice on Equal Pay. The Commission recommends that you carry out your equal pay audit jointly with your recognised trade unions and/or employees. However, it is better that you do it as a management exercise than not do it at all.
Step 3: The audit will show you where your pay system is lacking in transparency (for example, you might be clear about basic pay, but be paying a plus payment for a reason that no-one can now remember). Draw up an action plan in the light of the findings from the equal pay audit. Your aim should be to be able to provide robust responses to the questions in
Step 1. Carrying out an equal pay audit and implementing its findings will help you to rebut any tribunal presumption about pay discrimination on account of your historic lack of transparency.
A commercial research organisation published only limited information about its loose grading and pay structure, and employees were unaware of colleagues’ salaries. The human resources manager, who did have access to this information and was aggrieved about her own position on the pay scale compared to that of male scientists and researchers, left the organisation and submitted equal pay and sex discrimination claims, including constructive dismissal and victimisation. She obtained disclosure of all the pay structure information, much of which was made public at the employment tribunal hearing.
The claimant lost her equal pay claim, but was successful in all other aspects of the claim, because her line manager had not treated her complaint sufficiently seriously [McGiffen v Campden & Chorleywood Food Research Association: case no. 1402487/2006]. The claimant obtained a substantial award for sex discrimination and unfair (constructive) dismissal. Senior management of the organisation suffered extreme embarrassment in relation to both its own employees and its clients.
Discretionary pay systems link the pay of an employee to some measure of individual, group or organisational level performance. They include, for example:
Many organisations, particularly in the private sector, but also across civil service departments and some other parts of the public sector, choose to have a discretionary element in their pay systems with a view to incentivising, improving and rewarding performance.
It is valid to operate a discretionary pay system provided it does not result in sex discrimination.
The European Court of Justice has said that there is every reason to expect the performance of women to be as high as the performance of men. The pay system should therefore, all things being equal, deliver equivalent performance payments to women and men across a group, although obviously an individual woman might perform less well and therefore receive less performance related pay than an individual man. If men are consistently better rewarded than women, this would suggest the discretionary pay system is discriminatory.
In Hartlepool Borough Council & Another v Dolphin & Others UK (EAT/0007/08) the male comparators, who included refuse workers, road sweepers, gardeners, joiners, labourers/drivers, and painters, had benefited from a variety of incentive schemes since the 1970s. None of the female claimants, who were employed by the council as care assistants, office cleaners, school escorts and school kitchen assistants had access to such schemes. The tribunal could see no reason why similar schemes could not be applied to the claimant work groups and upheld the women’s claims. The council’s appeal to the Employment Appeal Tribunal was rejected.
In Barker and others v Birmingham City Council (ET 1305819/2006) nearly 5,000 women workers at the council, mainly employed as cooks, cleaners and care assistants, took the local authority to an employment tribunal after they discovered their male counterparts were earning significantly more money for work at the same grade. They successfully argued that women were unlawfully excluded from bonuses worth up to 160 per cent of basic salaries.
The risks are that challenges will occur in relation to:
Your organisation will be particularly vulnerable where men and women are doing equal work and:
The risks are increased where discretionary payments are consolidated into basic pay, rather than being paid as non-consolidated lump sums because any unjustifiable inequalities are perpetuated indefinitely, and compounded by percentage pay increases.
Assessment of performance and merit can be highly subjective and there is always the risk of bias creeping in. If the bias is a bias against women (or more rarely, against men), or the particular type of work they do, then there is a risk of an equal pay claim.
Take the following steps where men and women undertake equal work:
Step 1: Compare access to each form of discretionary pay by gender. If male groups have access to schemes that female groups are excluded from (or vice versa) the risk of challenge, where men and women are doing equal work, will be high unless their exclusion can be justified.
Step 2: Compare schemes (eg bonus schemes) that apply to different groups of staff. If schemes applied to predominately female groups are not as beneficial as schemes applied to predominantly male groups (or vice versa) the risk of challenge will be high unless the use of different systems can be justified.
Step 3: Where payment is based on performance assessments, compare the distribution of performance awards by gender for a convenient period (e.g. the last financial year). If the distribution of performance awards is not broadly proportionate between men and women the risk of challenge will be high. If there has been no proper monitoring and recording of performance, the risk of challenge will also be high.
Step 4: Compare the average payments received by men and women in the same scheme for a convenient period, say one year. If this reveals significant (i.e. 5% or more) gender related differences in average payments, the risk of challenge will be high.
Review the design, implementation, impact and access to discretionary pay systems to ensure they do not give rise to challenge from groups undertaking equal work.
Design – audit the performance criteria/objectives/targets of each scheme to ensure they are not discriminatory. Are they equally achievable in jobs typically done by women and men? Do they avoid any criteria that could be indirectly discriminatory, for example, those related to attendance or flexibility in hours of work, or the way productivity is measured? Ensure the performance criteria/objectives/targets do not place part-timers at a particular disadvantage compared to full timers. Also audit the apparent justification for discretionary payments – if payments are meant to be self-financing can you demonstrate that this is in fact the case; if payments are meant to reflect market forces does the evidence support this?
Implementation – where managerial discretion applies, ensure there are clear guidelines on the exercise of discretion; the more objective the criteria, the lower the risk.
Access – if any predominantly female groups are excluded from discretionary pay systems ensure their exclusion can be justified. If different schemes apply to employees undertaking equal work, ensure they benefit from them equally unless the use of different systems can be justified.
Impact – monitor and review the distribution of performance or merit assessments and discretionary payments for gender bias on a regular basis (e.g. annually) within and between schemes. If the results reveal significant gender differences, investigate the causes further. For example, are managers’ assessments consistent with each other and in respect of their treatment of women as compared to men and part-timers as compared to full timers?
Record keeping - check that you have accurate contemporary performance records.
Training - consider refresher training for managers operating such schemes so as to ensure they are operated consistently; include training on equalities issues and on the avoidance of bias and stereotyping. Ensure managers are aware of the risks of undervaluing the contribution of part-timers.
Transparency - ensure details of the schemes and how they operate are published to all staff and that each employee receives information about her or his individual performance ratings and how they convert into pay.
Payment - consider converting consolidated discretionary payments into annual lump sums.
A large organisation in the finance sector operated a performance related payment system for its higher graded staff. Staff were appraised by their line managers annually against a pre-determined set of performance criteria, performance payments being dependent upon each individual’s assessment rating.
An equal pay audit revealed that average payments to men were significantly (i.e. more than 5%) greater than average payments to women. Further analysis revealed that the problem stemmed from two particular departments.
The organisation responded by undertaking an independent review of the previous year’s assessments in these particular departments, revising its guidelines on the exercise of discretion over performance appraisal, arranging for line managers to attend a training course on the operation of the scheme, and putting in place a system for monitoring the exercise of managerial discretion. A review of the following year’s assessments revealed that there was less than a 3% difference in the average payments to men and women.
A common pitfall for employers can be the payment of bonuses to women on maternity leave. This section considers the rights of women on maternity leave to contractual or discretionary bonus or other incentive payments.
The most probable explanation is that the organisation does not appreciate that it may be unlawful not to do so.
It can depend on whether the bonus is contractual or discretionary, the type of bonus and the period it relates to. Further information on these issues is in the Code of Practice on Equal Pay paragraphs 91 to 99.
Pay accrued or acquired prior to or after the end of maternity leave is protected. Thus a women 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, irrespective of when the bonus is payable. Therefore in all cases where the bonus relates to a period during which a woman was working, it must be paid and it must be paid when it would have been paid if she hadn’t been on maternity leave.
If it relates to a period when she was working and partly to a period on maternity leave, she should at least be paid it pro rata.
Compulsory maternity leave - a woman should receive that proportion of a bonus that relates to her period of compulsory maternity leave (i.e. the two weeks immediately following birth). Thus she should be paid for this period as if she had been working.
In GUS Home Shopping Ltd v Green & McLaughlin [2001] IRLR 75 the Employment Appeal Tribunal held that it is sex discrimination to exclude from a loyalty bonus women absent because of pregnancy or maternity leave. The bonus in question was a discretionary loyalty bonus paid for the effective transfer of a department from Worcester to Manchester, the worker's cooperation and goodwill and the worker remaining in employment throughout. In this case the bonus was not linked to workers' individual pay and productivity so could be distinguished from actual pay.
In Hoyland v Asda Stores Ltd [2006] IRLR 468 employees were paid an annual bonus based on the sales achieved by the workforce as a whole; it was not related to individual productivity but was to reward employees for their work during the calendar year. Payments were reduced in respect of any absences of more than 8 consecutive weeks, including periods of maternity leave. The Court of Session held that a contractual bonus was not payable in respect of the maternity leave period. The court distinguished Gus Home Shopping saying it was a very different case. The main difference appears to be that the bonus in Gus was discretionary whereas in Hoyland it was contractual. It is likely, however, that the decision in Hoyland may also apply to discretionary bonuses.
Where a bonus is a single discretionary payment to those in active employment as an incentive for future performance or loyalty, the European Court of Justice held in Lewen v Denda [2000] IRLR 67 that it is not a breach of Article 141 of the EU Treaty to exclude workers on parental leave. The Court implied that the same principle would probably apply to women on maternity leave.
If you fail to pay women on maternity leave bonuses they are due, this could give rise to claims for equal pay and/or sex discrimination and/or unlawful deduction from wages.
Review relevant pay policies and practices. If you do not have such policies, introduce them. If necessary, seek legal advice on the operation of your bonus schemes.
Monitoring - ensure the implementation of your policies are monitored on a regular basis.
Transparency - the policy should be communicated clearly to managers and employees. Ensure details of the bonus schemes and how they operate are available to all staff and that each employee on maternity leave receives information about her individual entitlement.
Organisation D paid a Christmas bonus to reward employees for their work and contribution to the financial performance of the business over the year. It was a term of the bonus scheme that, to be eligible for a bonus payment, employees should be actively in work at the time when the bonus was paid i.e. 31 December. Three members of staff were on maternity leave on 31 December 2008 and did not receive a bonus payment. One of the women raised a grievance for the non-payment of the bonus. After taking advice, organisation D paid all three women a pro-rata bonus in respect of the periods when they were in work and the fortnight of compulsory maternity leave. A proportionate reduction was made to reflect absence on ordinary and additional maternity leave. Organisation D subsequently amended the terms of the bonus scheme to include pro-rata payments to women on maternity leave.
Examples of different non-basic pay terms and conditions for different groups of employees (all of which come from actual organisations) include:
Why would an organisation introduce different non-basic pay terms and conditions for different groups of employees?
Organisations often have pay practices or residual elements of practices introduced some time ago in order to solve a particular problem in relation to a particular group, but then retained without review or consideration as to whether it is still justifiable or even necessary.
Julie Hayward, a cook employed by Cammell Laird, claimed equal pay with male shipboard craft workers. The jobs were found to be of equal value. The company then argued that Julie Hayward received better holiday and sickness arrangements than the craft worker group and also free meals. The House of Lords confirmed that each term or condition was to be considered separately, so an equal pay claim can relate to any individual term (where the claimant and comparator jobs are of equal value) (Hayward v Cammell Laird Shipbuilders Ltd [1988] IRLR 257 HL).
In Hartlepool Borough Council & Another v Dolphin & Others UKEAT/0007/08, the male comparators, who included refuse workers, road sweepers, gardeners, joiners, labourers/drivers, and painters, had benefited from a variety of incentive schemes since the 1970s, introduced to improve productivity and attendance. None of the female claimants, who were employed by the council as care assistants, office cleaners, school escorts and school kitchen assistants had access to such schemes. The tribunal found that the incentive schemes were a ‘sham’ in that they had long since ceased to achieve their purported objectives. Further, the tribunal could see no reason why similar schemes could not be applied to the claimant work groups. In the circumstances, the tribunal concluded that the incentive schemes did not justify the difference in pay between the male and female groups. This decision was upheld by the Employment Appeal Tribunal.
The risk is that a female employee is able to argue that she carries out work of equal value to a male colleague receiving a non-basic pay allowance or payment; for example, that she does not receive a productivity bonus or attendance allowance, or that her night shift payment is inferior to that of a male who also works nights, and that you are not able to objectively justify the different treatment.
Step 1: Make a list of all non-basic pay allowances and payments and ask yourself if these are made to some but not all employees in similar circumstances. Try to identify the reasons for each of these payments, and why they are paid to some employees, but not others.
Step 2: Analyse the recipients of each allowance or additional payment by gender and focus on those payments which are received by employees who are disproportionately of one gender compared to the workforce as a whole.
Step 3: Calculate total average earnings for males and females separately in each of your current grades or pay groupings. Investigate any significant (5% or more) differences to identify whatever payment or allowance is causing the gender pay disparity.
Step 4: Consider what the objective justification is for any differences in treatment; that is, what business need the non-basic pay allowance or payment fulfils. If you think there is a genuine business need, what evidence do you have for this? If there are gender differences in the non-basic pay term or conditions and the justification is not immediately obvious, then there is a high risk that a tribunal will consider the pay practice indirectly discriminatory.
Organisation G carried out an equal pay audit and found that there were no significant gender grade pay gaps in relation to basic pay, but there were in two grades when total earnings were compared. Further investigations revealed that the source of the disparity was a system of contractual overtime payments for technicians (predominantly male), originally introduced to reward those who came in early to set up equipment or stayed late to clear it away, but now paid to all technicians whether or not they did this.
Organisation G considered that this might lay them open to equal pay claims from female administrative staff in the same grades as the technicians. They set up a joint working party to consider alternative means of dealing with requirements to come in early or stay late to be applied across all occupational groups. Contractual overtime was eliminated for new starters and phased out for existing employees, being gradually replaced by flexitime arrangements.
Historically in the UK, organisations in both public and private sectors had different grading and pay systems for different groups of employees, depending on collective bargaining arrangements, technological and work organisation features, skill sets and so on. Before the Agenda for Change reforms in the health service, for example, there were more than 20 separate grading and pay systems.
Multiple grading and pay systems are usually a historical legacy. Over the last 30 years many organisations have re-structured, often on account of technological developments rendering traditional work organisation systems redundant, but sometimes on account of equal pay legislation. They have moved towards a single grading and pay system or at least a smaller number than formerly.
However, the historical legacy remains and even organisations which have re-structured in this sense may still have more than one pay system. For instance, the high street banks moved away from multi-pay systems in the 1980s but most still have separate senior management structures. Local authorities have been undertaking what are called ‘single status’ reviews to bring together former separate manual and administrative and clerical pay systems, but these often exclude chief officers (senior managers and executives), craft workers and some other smaller groups, such as youth and community workers.
Sometimes organisations maintain more than one grading and pay structure because they do not want union involvement in determining the pay of, for example, senior managers.
In claims taken by speech therapists in the health service, the employers argued that the fact that national collective bargaining arrangements for the claimants were distinct from those of their comparator groups, hospital pharmacists and clinical psychologists, albeit conducted by some of the same parties and within an overall Whitley framework, should be a defence to the claims.
The European Court of Justice said:
“The fact that the respective rates of pay of two jobs of equal value, one carried out almost exclusively by women and the other predominantly by men, were arrived at by collective bargaining processes which, although carried out by the same parties, were distinct, and conducted separately and without any discriminatory effect within each group, is not sufficient objective justification for the difference in pay between those two jobs.” (Enderby v Frenchay Health Authority and Secretary of State for Health [1993] IRLR 591 ECJ)
Unless the different grading and pay structures are underpinned by a common job evaluation scheme that ensures employees receive equal pay for equal work, the risk is that a female covered by one grading and pay system will be able to identify a male covered by another grading and pay system, with whom she is undertaking work of equal value but who is higher paid than herself. This is a risk even if each grading and pay system is in itself fair and non-discriminatory.
The risk is particularly significant if employees covered by the different systems work at the same establishment or share common terms and conditions.
The risk is not eliminated by having different bases for pay in the different systems, for example, a piece rate payment system for production workers and a salaried system for administrative staff.
Step 1: List your distinct grading and/or pay systems; include in your list any individuals or groups (for example cleaners or IT consultants) paid differently from everyone else. Other things being equal, the more separate payment systems, the greater the risk.
Step 2: Identify the gender dominance of the employees covered by each of the payment systems on your step 1 list. The risk is greater where you have separate structures with opposite gender dominance where there is likely to be work of equal value, for example, predominantly male production workers and predominantly female clerical employees.
Step 3: Carry out some ‘equal value checks’ on female and male jobs covered by different pay systems which you think might be of equal value [link to step two of equal pay audit kit]. The risk is high if you are able to identify jobs of equal value carried out by opposite genders in different structures.
Consider bringing together into a common grading and/or pay system all groups with jobs of equal value, preferably on the basis of a single job evaluation scheme, so that you can be sure that jobs are paid correctly in relation to each other. Although this may involve a considerable investment of time and resources, it will have the long term advantage of simplifying your pay system and making it more transparent.
Where you assess the risk of challenge as minimal, for example because all the jobs in one structure are clearly more demanding than all the jobs in another structure, it would nevertheless be prudent to introduce a procedure for assessing the most demanding jobs on the lower structure against the criteria for the higher structure. Then you will have a mechanism for transferring jobs from the lower to the higher structure if and when this becomes appropriate.
Local authority N decided to include craft workers in its single status grading review even though they were not formally covered by the relevant national agreement. The authority felt that it would be better to deal with the issues arising in a constructive negotiated way, rather than wait for equal pay claims, which would have a very negative impact.
Many organisations in both private and public sectors have adopted relatively long pay scales or ranges, sometimes many thousands of pounds from minimum to maximum or with large numbers of incremental points.
Such systems have been introduced for a number of reasons, for example:
In Crossley v ACAS [1304744/98] male conciliators were towards the top of a long pay scale as the result of an historical assimilation process following a job evaluation exercise. More recently recruited female conciliators were clustered towards the bottom of the pay scale. Male and female conciliators had similar performance assessments. A tribunal found that the pay system indirectly discriminated against the women and could not be objectively justified on the facts. In the light of the tribunal’s decision, ACAS reviewed its pay structure and introduced shorter pay scales.
In Cadman v the Health and Safety Executive [2006] IRLR 969 ECJ], the European Court of Justice accepted that greater experience could justify differences in pay on a relatively long pay scale ‘unless the worker provides evidence capable of raising serious doubts in that regard’.
There are many similar situations in private sector organisations.
Pay and benefits based on length of service are covered specifically by the Equality Act 2010. This permits benefits to be awarded on length of service up to and including five years, and allows a length of service criterion of over five years where the employer reasonably believes that this fulfils a business need. For further information about these exceptions for age-related benefits see the Code of Practice on Employment (Chapter 14).
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. This will occur where women are clustered towards the bottom of the pay scale/ range and men towards the top and the scale/range is long enough to result in significant gender pay differences.
This looks like systemic gender pay discrimination, especially if the significant differences also occur in other pay scales. You may then find it difficult to justify the gender pay differences.
Step 1: Calculate average male and female basic pay and total earnings on a full time equivalent basis for each pay scale or range (grossing up part time salaries to their full time equivalents, where necessary). If average female pay is not significantly lower than average male pay, there may still be some risk of individual claims and you should review relevant pay policies (see step 3 below).
Step 2: If average female pay is significantly (more than 5%) lower than average male pay, there is a high risk that an employment tribunal will consider this symptomatic of systemic pay discrimination (as in Crossley v ACAS, above). In this situation, you should undertake further investigations to identify the source of the pay disparity and assess the level of risk, for example:
If none of the above explains the significant gender pay gaps, review a sample of personnel files, especially those with the highest and lowest salaries within each pay range to investigate other possible causes.
Step 3: Undertake a full equal pay audit in accordance with the EHRC model to see whether any other of your organisation’s pay practices are contributing to gender pay differences.
Review relevant pay policies or practices. If you do not have such policies, introduce them and ensure that they are followed, for example:
Starting salaries policy – all new recruits/ promotees to be appointed to the minimum of the relevant pay scale, unless they meet the established criteria for progression to a higher salary within the range, in which case they should be appointed to that salary, whether or not they asked for a salary above the minimum. See managerial discretion over starting salaries.
Experience-related (time served) pay progression – to be applied consistently; specific justification, in terms of the demonstrable needs of the business, to be provided for increments beyond six or salary ranges of over 10%.
Performance/competence/contribution related pay progression – progression criteria to be as objective as possible and the application of the system monitored regularly by gender, ethnicity and disability. See discretionary payment systems
Length of pay scales – are long pay scales or ranges still necessary to meet the business needs of the organisation? Could they be reduced in length? If not, monitor and review pay scales on a regular basis as part of an equal pay audit or as a standalone exercise to check the distribution of employees by gender across each scale.
Contractual status – ensure that all employees are treated in the same manner, regardless of their contractual status.
Merged organisation E introduced long pay scales in order to accommodate all employees from predecessor organisations without immediate cost. When it undertook an equal pay audit two years later, it found that for most grades average female salaries were significantly lower than average male salaries (the exceptions were the bottom grade, where the reverse was the case, and the top two grades, were there were no significant gender differences).
Analysis of the jobs in the middle grades with the largest gender pay gaps showed that those jobs paid higher salaries were in fact more demanding than those paid the lower salaries and had higher market salaries when these were tested by a market survey company.
So the organisation had two options. It could divide the middle grades into two; or it could introduce market supplements where these were justified by the market and recruitment data. As it had relatively few grades, organisation E chose the former option and developed shorter pay scales to go with each of its new grades.
It is not uncommon for organisations to have overlapping pay scales, that is, where the maximum of the lower pay scale or range is higher than the minimum of the next pay scale or range.
Such systems have often been adopted to minimise the cost of introducing a new pay structure (because the ‘old’ pay of most of the employees to be assimilated to each grade was already within the new, broad pay scale, so employees could simply be moved across on their previous pay, thus minimising the year one costs).
Some organisations have introduced overlapping pay scales and broad banded structures to increase local management discretion over the pay of their subordinates.
Where there are overlapping pay scales or ranges it is not uncommon for those at the bottom of an overlapping scale to be undertaking work of greater value to those at the top of lower grade. In Murphy v Bord Telecom Eireann [1988] IRLR 267, the claimant’s work was found to be of greater value than the work of her comparator. The European Court of Justice confirmed that a claimant is entitled to equal pay in circumstances where s/he undertakes work of greater value to their comparator.
Step 1: Identify the numbers of men and women in each of the overlap areas on each of your overlapping pay scales.
Step 2: Compare the numbers of each gender in the overlap areas with the numbers in the pay grade or range as a whole. If the group in the overlap area at the bottom of the higher grade is disproportionately female and/or the group in the overlap area at the top of the lower pay scale is disproportionately male, there is a real risk that an employment tribunal will consider this to be evidence of indirect pay discrimination and require your organisation to provide objective justification for relevant pay practices. If you are unable to do so, an equal pay claim is likely to be successful (assuming that the claimant’s job is of greater or equal value to that of her comparator). The greater the disproportionality of the groups in the overlap areas, the greater is the risk.
Step 3: If the group in the overlap area at the bottom of a higher pay scale is disproportionately female and/or the group in the overlap area at the top of a lower pay scale is disproportionately male, investigate how this has occurred; for instance, is it the result of a historical assimilation process? Or a programme to fast track women into higher grades in the organisation?
Step 4: Assess whether the cause of the disproportionality is temporary or transitional by rolling forward the current situation, assuming that all current employees remain in their present roles and taking into account expected pay progression of all employees in each pay scale or range. The longer the disproportionality will last, the greater and more enduring the risk.
Step 5: Undertake a full equal pay audit in accordance with the EHRC model to see whether any other of your organisation’s pay practices are contributing to gender pay differences.
Organisation L had just introduced a new grading and pay structure with overlapping pay scales to minimise the introductory costs. It found that in two of the seven new grades, the overlap group at the top of the scale was predominantly male, although the overlap group at the bottom of the next higher grade was not disproportionately female.
It considered the risk of challenge to be relatively low and reducing over time, but nevertheless agreed with its recognised trade union to eliminate the overlap by rolling up the bottom point of each scale in each of the next two years.
The entry rate of pay on joining an organisation may be determined by set criteria or simply by an amount agreed by the parties. In either case, it is very common for managers to be permitted a degree of discretion in determining the salary at which individuals are recruited to the organisation. Discretion may also be exercised in determining the salaries of:
Many organisations consider that a degree of discretion is essential in order to attract the best candidates in a competitive labour market with the required experience, skills and expertise.
This is particularly the case when organisations operate in a global market or need to recruit specialist skills, senior managers, a new Chief Executive or Managing Director. In other cases, discretion may be exercised simply to match the previous higher salary of a favoured candidate in a recruitment process. However, this flexibility opens up the possibility of different rates being applied to male and female recruits and promotees, and pay discrimination, however unwitting, can occur. There is research evidence to suggest that men can be more assertive in exploiting this flexibility than women, and so achieve higher starting salaries.
Where specialist skills are scarce or in short supply, employers may offer payments known as ‘golden handshakes’ and ‘golden handcuffs’ in order to attract and retain employees with the specialist skills that they need. Strictly speaking, these are a form of market payment. Further information about market payments is available here [link to market based pay heading below]
The law does not inhibit employers from exercising discretion in these circumstances provided differences in starting pay between employees undertaking equal work are justified.
For example, in Benveniste v University of Southampton [1989] IRLR 123, CA a women was appointed to a lower point on a salary scale than men doing like work due to financial constraints. It was held that the employer could no longer justify the lower salary once the reason for the lower payment i.e. the financial constraints were removed.
In Compton v St Regis Paper Company Ltd (1201178/99), a sales representative had been given a higher salary from the outset of his employment. The tribunal held that the employer could not justify the position simply because he had asked for more money.
In Brunhoffer v Bank der Osterreichischen Postsparkesse AG [2001] IRLR 571, the European Court of Justice held that an employer may not justify a difference in pay on appointment between persons performing equal work by reference to performance after appointment.
Individuals may receive different starting salaries for very good reasons, but if there is an element of discretion in the decision making process care must be taken to ensure it is exercised properly. There is always the risk where employees can be rewarded differently that men are more likely in practice to receive a higher starting salary than women. The greater the degree of discretion, the greater is the risk of discrepancies in starting salaries occurring. Unless the exercise of discretion in each case is transparent and justifiable, an employer will be at risk of a challenge.
Over time, even with relatively small differences being awarded on recruitment, the award of annual percentage increases will magnify any gaps and over a number of years can create a significant shortfall in earnings for female job-holders. Monitoring starting salaries can alert you to the fact that the gender pay gap is not only an historic legacy. The Commission’s analysis of salaries for new employees, carried out as part of our inquiry into the gender pay gap in the financial services sector, showed that the gender pay gap continued to be reproduced.
An imbalance in starting salaries can also indicate bias in those human resource processes which feed into the pay system, such as interviewing techniques and selection criteria, the design of competency frameworks, the training of line managers in recruitment, the makeup and operation of promotion assessment panels and so on.
Step 1: Calculate average male and female starting salaries, promotion salaries and transfer salaries over a convenient recent period (e.g. the last two years) to see whether women are being appointed at lower salaries within the relevant pay range. If average pay is not significantly lower than average male pay, there may still be some risk of individual claims and you should review your starting salaries policy (see below).
Step 2: If average female starting salaries are significantly (more than 5%) lower than average male starting salaries for the same or similar jobs or jobs of equal value, the risk is high that an employment tribunal will consider this symptomatic of systemic pay discrimination. In this situation, you should undertake further investigations to identify the source of the disparity and assess the level of risk, for example:
If none of the above explains the significant gender pay gaps, review a sample of personnel files, especially those with the highest and lowest starting salaries within each pay range to investigate other possible causes.
Review your starting salaries policy or practice. If you do not have such a policy, introduce one and ensure it is applied consistently across the organisation.
The policy should include:
Rules - to reduce the risk of a challenge, all new recruits /promotees/ transferees should be appointed to the minimum of the relevant pay scale, unless they meet established criteria for progression to a higher salary within the range, for example, on the basis of relevant experience, skills and competencies, in which case they should be appointed to that salary (even if they do not ask for it). Establish clear criteria for the operation of managerial discretion.
Recording - reasons for all starting salaries to be recorded in employee files, in case of any subsequent query or challenge and to enable reviews to be carried out.
Monitoring - starting salaries to be subject to regular monitoring over a convenient recent period, for example, the last financial year either as a standalone activity or, or as part of regular equal pay audits. If the results reveal significant gender differences, investigate the causes further. For example, check managers are consistent with one other and in respect of their treatment of women as compared to men.
Transparency - the policy should be communicated clearly to managers and employees.
Merged organisation E introduced long pay scales in order to accommodate all employees from predecessor organisations without immediate cost. When it undertook an equal pay audit two years later, it realised that, not only were there historical gender pay anomalies, but that these were being perpetuated among post-merger recruits.
Investigations revealed that recruiting managers were appointing men to higher points on the long pay scales and women closer to the minimum because ‘the women didn’t ask for any more’ (and the men did) and they wanted staff ‘who would be up and running immediately’ (which they associated with males coming from similar jobs elsewhere).
Following the audit, the organisation responded by restricting salaries for new recruits to the lowest quartile of each pay scale and then improving their pay progression opportunities. Interestingly, there were no significant recruitment problems and the organisation found it could recruit male and female candidates of sufficiently high calibre at the lower salaries.
Market based pay can take a number of different forms but what is common to all systems is that pay is linked to the external labour market. For example:
Market based pay enables an organisation to respond to external changes in the labour market on a national, regional or local basis and to maintain competitive rates of pay that will attract and retain employees of the appropriate calibre. Payments such as ‘golden handshakes’ and ‘golden handcuffs’ are used to recruit specific individuals or employees with specialised skills and/or to lock them into the organisation for a defined period.
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, you will have to prove the market forces that you allege, and that they are the reason for the pay differential.
In Enderby v Frenchay Health Authority and the Secretary of State for Health [1993] IRLR 591, it was determined that some part, estimated at 10% of the difference in pay between the claimant speech therapists and their hospital pharmacist comparators was attributable to pressure from higher private sector salaries paid to employees of pharmaceutical companies and in retail pharmacy. The European Court of Justice said that market forces could justify the differences in pay between the two groups but only to the extent of 10%. Thus 90% of the difference in pay could not be justified on this basis.
However, it is not legitimate to exploit the weak market position of some female dominated groups in response to commercial pressures. In Ratcliffe and Others v North Yorkshire County Council [1995] IRLR 439 HL, following the introduction of compulsory competitive tendering, the council decided that if the school meals staff (who were exclusively female) were to remain competitive with commercial organisations bidding for school meals contracts, they could not continue to be paid on local government rates of pay. The women were given notice of dismissal and offered re-employment at lower hourly rates of pay. The House of Lords accepted that the wages of the school meals staff were reduced by the council in order to compete with employers in the private sector who paid their employees less because they were women doing traditionally ‘women’s work’. The women’s pay was reduced precisely because they were women.
Where a pay system lacks transparency, it will be harder to prove that a pay differential is genuinely due to market forces.
If you determine salaries solely by reference to market rates, there is a high risk that you will be vulnerable to challenge. This is because with a solely market based pay system you have no way of ensuring employees are receiving equal pay for equal work.
Even if the pay structure is underpinned by job evaluation or another system for determining relative value, organisations can still get caught out where:
This is particularly so where employers are tempted to go for a quick fix in response to short term market pressures. While a decision to pay individuals more in response to market pressures may seem justified at the time, it may become increasingly difficult to justify over time.
Where there is occupational segregation you may be open to the challenge that you have set the pay of female dominated jobs or job families in order to exploit the weak market position of these groups. This is compounded in those sections of the labour market where competitors often pay similar rates.
Step 1: Conduct a review of all market payments to determine whether they are still justified. This will involve a review of the evidence on which the decision to make the payment was based – see below.
Step 2: Review the coverage of such payments. Are they paid to all those in the same circumstances?
Step 3: If you operate a market based pay system that is not underpinned by job evaluation, carry out an equal pay audit in accordance with the EHRC model to assess your risk to equal pay claims.
All organisations have to respond to market pressures. The issue is how the organisation responds to these pressures.
Where pay is determined solely by reference to market rates, the pay system should be underpinned by an analytical job evaluation scheme. This will determine whether jobs are, or are not, equivalent in value. Having identified equal work, the rate for the job should be set by reference to the job evaluation outcomes and the market rate.
The risks associated with occupational segregation (see the case of Ratcliffe above) can be reduced significantly by adopting polices that address the causes of occupational segregation, for example encouraging flexible working, offering training to employees to enable them to undertake non-traditional jobs and encouraging the recruitment of non-traditional recruits. Chapter 12 of the Employment Code of Practice gives advice on the scope for positive action to overcome occupational segregation.
Organisations wishing to respond to market pressures through the use of market supplements should draw up a suitable policy. This should cover:
Evidence - the most obvious and best evidence justifying payment of market supplements is evidence of attraction and/or retention difficulties for particular types of work. Additional or alternative evidence justifying market supplements could come from labour market surveys, nationally and regionally, provided the quality of the data is sufficiently robust, and you are confident that the data itself is free of sex bias. Information from a small number of recruitment advertisements is unlikely on its own to be sufficiently robust to justify a market supplement, as it is limited and partial.
Duration - the duration of market supplements should be determined at the outset and conveyed to the relevant employees in writing. In theory, all market supplements should be regarded as short term, in that labour markets should respond relatively quickly, with higher rewards attracting more individuals into relevant occupations. In practice, this is not always the case, especially where there are time lags for training those moving into a particular occupational group, or where demands for these types of labour are foreseen as continuing to grow. In such cases supplements, although regularly reviewed, may be regarded as long rather than short term.
Coverage - once it is agreed that a market payment is justified by the evidence, it should be paid to all those in the same circumstances, even if they are not threatening to go elsewhere for a higher salary.
Recording - the amount and reasons for the payment should be recorded in employee files, in case of any subsequent query or challenge and to enable reviews to be carried out. It is easier for organisations to justify and monitor market payments where they can be separately identified.
Monitoring - the policy should cover:
Transparency - the policy should be communicated clearly to managers and employees.
Organisations wishing to respond to market pressures through the use of golden handshakes and golden handcuffs should have a policy for these types of payments as well covering the evidence required to justify such payments, recording and monitoring procedures.
In 2006 an organisation advertised for an IT manager to join a team of three IT managers. The post had been vacant for some time because a previous recruitment exercise had failed to attract any suitable candidates. The preferred candidate at interview (a male) had a higher salary from previous employment than that at which the job was advertised. To accommodate him, he was appointed to a higher pay range than would otherwise have been the case.
Two years later, the other members of the team (who were female and who had been with the organisation longer than him) discovered that he was on a higher salary range.
The organisation responded by reviewing regional market data for IT managers to determine whether the higher salary could still be justified. It discovered that he was paid more than the going rate. It was decided therefore to protect his salary for a short period and then reduce it to the market rate. The women’s salaries were increased to the appropriate market rate.
Organisations invest a great deal of time and resources into introducing job evaluation schemes but, sometimes standards slip once the initial exercise is over. 'Streamlined' procedures are adopted, short cuts are taken and record keeping becomes less thorough, and the original evaluation records may become difficult or impossible to access as paper documents are archived or shredded and computer systems changed.
Organisational priorities and personnel change. Human resource procedures may become subordinate to commercial imperatives (or imposed targets in the public sector); managers may start taking grading and pay decisions outside of job evaluation procedures; central HR may struggle to retain control of the systems; job evaluation procedures may appear cumbersome and obstructive. Those with relevant expertise may move on and not be replaced.
A job evaluation scheme may provide a defence to an equal pay claim, because it will already have compared the relative values of male and female dominated jobs, and may show that the claimant is not doing equal work with her comparator. However, the scheme must be fair and non-discriminatory in both design and implementation.
In Bromley v J&H Quick Ltd, the Court of Appeal [1988] IRLR 456 CA the job evaluation study commissioned by the employers involved a full evaluation of a benchmark sample of jobs. Jobs not evaluated in this process were then slotted into the rank order on a felt-fair basis, that is, in line with the general expectations as to the value of the job. The claimant and comparator jobs were not benchmark jobs, so were slotted into the rank order. The Court of Appeal held that the method used for the study was not analytical, so did not meet the requirements of the Equal Pay Act (now replaced by equivalent provisions in the Equality Act 2010).
Again, in Thomson v Diageo EATS/0064/03 the employment tribunal in Scotland rejected the company’s job evaluation scheme defence on the grounds that it had not followed its own evaluation procedures. When she raised a grievance over her pay, the claimant’s job was evaluated by her line manager and another male manager, who had no training in the scheme, rather than by the joint trained panel provided for in the procedures. The company could not produce contemporary records of the evaluations of either claimant or comparator jobs. The Employment Appeals Tribunal in Scotland endorsed the tribunal’s approach.
That the job evaluation scheme will no longer provide a defence to at least some equal pay claims and the initial investment will therefore be wasted, for instance:
Step 1: Check whether all your evaluations are up to date and you have a clear evaluation record sheet (either on paper or electronic) for every current job in the organisation.
Step 2: Check whether your evaluation procedures are being correctly followed and you have sufficient trained evaluators or analysts to deal with new and changed jobs and re-grading requests.
An organisation with around 100 employees commissioned external consultants to carry out an equal pay audit. The recently appointed HR manager believed that its grading structure was soundly underpinned by a job evaluation system introduced four or five years previously, but, when the consultants asked for the job evaluation scores, she was unable to find the records for a small number of jobs.
The consultants recommended and the organisation agreed to re-evaluate these jobs to prevent them falling outside the scope of the scheme.
Pay protection is the practice of protecting the pay of employees whose jobs are downgraded following, for example, an internal reorganisation, a pay/grading review, implementation of a new job evaluation scheme, an ill health transfer, or a TUPE transfer.
Where it is necessary to reduce pay in order to equalise it, employers in both private and public sectors commonly adopt measures to assist relevant employees (usually male) to adapt to reduced pay. The practice is intended to cushion existing employees from the adverse consequences which a sudden drop in pay would otherwise cause. Some employers in these circumstances offer indefinite or lengthy pay protection to ensure employees are not disadvantaged over the long term.
Pay protection arrangements that preserve discriminatory rates of pay will be difficult for an employer to justify. The Equality Act 2010 says that the long-term objective of reducing inequality between women’s and men’s pay is a lawful aim. However, an employer has to show that this is the reason for the pay protection and that the actual pay protection measures are ‘proportionate in the circumstances’ (see Code of Practice on Equal Pay), Lengthy pay protection arrangements where women continue to be disadvantaged are unlikely to meet this test.
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 has the benefit of lengthy or indefinite pay protection.
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, as is commonly the case where pay protection is linked to the introduction of job evaluation. The longer pay protection in such circumstances is in place, the greater the risk that the arrangement will be challenged. The risk will be compounded if the individuals who are benefiting from pay protection continue to have annual pay rises and/or incremental points consolidated into their pay during the protected period. This is because the difference in pay between the two groups will become even greater over time.
Conversely, the risk of challenge will be low if there is no evidence of sex discrimination at the inception of the arrangement or subsequently i.e. where the composition of the protected group is not disproportionately gender dominated in comparison to the workforce as a whole and/or the female comparator group in particular. Bear in mind that, what may appear low risk at the outset of an arrangement may become high risk if the gender composition of the two groups changes over the course of the protected period.
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