Creating a fairer Britain
The principles and techniques for an equal pay audit are equally applicable to carrying out an equality impact assessment on proposals to change pay policies, especially new grading and pay structures.
This guidance note looks at how an equality impact assessment in relation to pay can be carried out.
An equality impact assessment is an analysis of a proposed change to an organisational policy to determine whether it has a disparate impact on one gender, ethnic group, those with disabilities or those working part-time. It applies both to external policies, (i.e. those having an impact on the customers - or clients - of the organisation) and to internal policies (that is those affecting the organisation’s employees).
An equality impact assessment in relation to pay is a statistical analysis of an organisation’s proposals to change one or more aspects of its grading and pay structures, with potential impact on one or more groups of its employees.
An equality impact assessment in relation to pay involves:
Under the Gender Equality Duty 2007, public authorities were required to assess how employment policies, including pay policies, impacted on men and women in the workforce. As from April 2011, the Gender Equality Duty has been superseded by the public sector equality duty set out in the Equality Act 2010. The duty is made up of a general equality duty supported by specific duties set out separately in the regulations. The purpose of the specific duties is to improve performance on the general equality duty, and while the Equality Act 2010 no longer uses the term 'equality impact assessments', the change in terminology from 'equality impact assessment' to 'analysis of the effects on equality' is intended to focus more attention on the quality of the impact analysis and how it is used in decision-making, and less on the production of a document, which some may have taken to be an end in itself.
The Commission's guidance on the equality duty also makes clear that if you are a public sector employer you need to ensure that your pay system is designed to achieve equality between men and women, where the work of an employee and his or her comparator - a person of the opposite sex - is equal. This will enable you to meet the general equality duty to have due regard to the elimination of discrimination. The most effective way in which you can address this in relation to gender pay gaps is by undertaking an equal pay audit for gender. Whilst not mandatory, it demonstrates appropriate action to identify and eliminate gender pay discrimination. Well over 40 per cent of public bodies are already auditing their pay systems for sex bias¹. An equal pay audit can also be used to assess pay gaps due to other protected characteristics. When changes to a pay system are at issue, then you will need to impact assess the effects of those changes.
However as all employers are under a continuing duty to avoid sex discrimination in pay², irrespective of whether you are in the public, private, or not-for-profit sectors, unless you have taken appropriate steps to monitor pay arrangements, you will be unlikely to be able to defend an equal pay claim by arguing that ignorance of past discriminatory pay practices is genuine and reasonable. If your proposals, or any aspect of them, will not deliver equal pay for equal work, and you do not amend them to eliminate the offending aspects, then you will face the ongoing risk of equal pay claims. And your trade union or workforce representatives would be extremely unwise to recommend acceptance of any proposals that they know (or should know) do not meet equal pay principles, as they too could be challenged in the courts.
This step is often easier than for an equal pay audit because the scope of the equality impact assessment is determined by the coverage of the proposed changes to pay policies, and the data should already have been assembled in order to cost the proposals.
The assessment should include all those employees covered by the pay and grading proposals. Employees in other collective bargaining structures, outside the scope of the proposals, will be included in the first post-implementation equal pay audit.
As with an equal pay audit, the principles and techniques for an equality impact assessment derive from the Equality Act 2010 and relate to gender. The same principles and techniques can be applied in relation to race and disability.
In some organisations sufficiently detailed data on ethnicity or disability may not be available at the time of introducing the new pay structure. If this is the case, it may be better to collate the data and include the relevant areas in the first equal pay audit after implementation of the new structure.
An equality impact assessment requires input from a range of people in the organisation including:
Most of these people are likely to have been involved in negotiations leading to the proposed new grading and pay structure. If they have not, they will need briefing on the background to and development of the proposals.
All the data required for an equality impact assessment should already have been assembled in spreadsheet form in order to cost the grading and pay structure proposals. The spreadsheet should include every individual employee covered by the proposals (identified by name or employee reference number), together with:
In order to make comparisons between those covered by the new pay structure, it is necessary to bring all the data to common units of hours and pay. These adjustments should have already taken place when the proposals were costed. If such adjustments have not yet been made to the data, they will need to be made at this stage. So, if one group works different normal hours or if normal hours of work will change under the new pay structure, it is necessary to convert basic pay to a common hour’s base.
It is also necessary to bring full time and part time employees to a common salary basis. This will entail grossing up the basic pay of part-timers to their full-time equivalents, excluding overtime.
If it has not already been done as part of the negotiations over the new structure, it is helpful to prepare a frequency table of the relevant employees by gender and by other personal characteristics and proposed new salary grade/band. This information will be useful when it comes to analysing the proportions of employees receiving ‘old’ and ‘new’ pay/benefits/working time payments etc by grades.
The second step in an equality impact assessment involves calculating and comparing average basic pay, for example for men and women on a ‘before and after basis’ where they are doing equal work to identify any significant pay gaps.
Equal work is defined in exactly the same way as for an equal pay audit. For more information on this see equal work.
As most new grading and pay structure proposals are based on new or previously existing job evaluation exercises, the ‘work rated as equivalent’ definition of equal work is the most useful one for the purposes of an equality impact assessment.
The agreed job evaluation points ranges for each grade, band or pay scale, should provide the basis for ‘work rated as equivalent’ assessments of equal work. So all the calculations relate to each of the proposed new grades.
The exception is where the proposed new grading structure has broad bands. In this case it may be necessary to identify sub-zones within each broad band in order to identify equal work and undertake the ‘work rated as equivalent’ calculations.
If your organisation is proposing new grading and pay structures which are not based on job evaluation, then you need to be sure that you can demonstrate that the new structure delivers equal pay for work of equal value. For example, some organisations construct their grades/pay bands on NVQs/SVQs or a similar competence measure and would then justify differences in pay on the basis of differences in skill level requirements. Unless it has such a justification, your organisation will be vulnerable to equal pay claims. For more information, see assessing equal value.
These are exactly the same as for an equal pay audit, but relate to each proposed new grade and to both existing ‘old’ pay and proposed ‘new’ pay (see table below).
Significant differences are determined as for an equal pay audit. Any difference of 5% should be further investigated. Patterns of 3% differences favouring one protected group should also be investigated, as they may be indicative of discriminatory features of the proposals.
Download pay structure table.
The table reveals:
In the context of an equality impact assessment it is also useful to calculate the overall pay gap, as the expectation is that new grading and pay structure proposals will move towards greater overall pay equality.
The table shows that the overall gender pay gap does narrow to 20% as a result of introducing the proposed new structure. If this had not been the case, it would have indicated disproportionate numbers of male up-gradings and/or female down-gradings, which would have required further investigation.
There are some useful supplementary checks in relation to proposed changes to basic grading and pay structures:
It has been standard practice in the UK for employees to be assimilated to a new grading and pay structure as follows:
Note that this standard policy can result in previously lower graded women clustered towards the bottom of the new pay scale and previously higher paid men clustering towards the top of the grade. This will contribute to remaining pay gaps, but could also be open to legal challenge, where, for example, the women on the minimum point of the scale have similar experience and/or performance levels to men on the maximum point of the scale. This is an area of law on which specific legal advice should be sought.
In a grading and pay review with the aim of moving towards equal pay for work of equal value, the general expectation is that the green circles will be disproportionately female (reflecting the correction of historic under-valuation and pay of typically female jobs) and the red circles are likely to be disproportionately male (reflecting the historic position of men in the workforce in most organisations). Where this is the case, men are likely to be clustered towards the top of the new pay scale and women towards the bottom. This often explains remaining significant pay gaps in the new structure, a situation that is compounded if the pay scales are relatively long.
Where the expected pattern of ‘green’ and ‘red’ circles does not prevail, there should be an obvious reason, for example, a group of historically undervalued male workers.
You can assess the impact of the assimilation policy by considering the numbers of males and females subject to red and green circling or pay protection under the proposals as they currently stand by grade and overall.
You can also check the positioning of the proposed grade boundaries using the following checklist. If you cannot provide the requested information or justifications, then the positioning of your grade boundaries could contribute to the risk of equal pay challenge.
Download Proposed grade boundaries checklist.
Proposed new or changed pay policies can be checked using the checklists in the toolkit.
The pay policies you are most likely to need to review when proposing new basic grading and pay structures are:
Particular attention needs to be paid to protection arrangements used to cushion the impact of the new arrangements for a transitional period on those individuals whose jobs are downgraded as a result of the grading and pay structure review.
This is a complex and ever changing area from a legal perspective and legal advice should be taken.
Pay protection may be applied to basic pay as well as other terms and conditions affected by the proposals.
Where pay protection results from the introduction of a job evaluation scheme and/or a new pay and grading structure, it is important to identify those employees who were entitled to equal pay before the restructuring was introduced and to ensure that the pay protection policy does not have the effect of continuing historic discrimination between these groups.
For example, it has been held that the red circling of certain bonus payments to male work groups was discriminatory in circumstances where the payments could not be justified historically in relation to certain female work groups undertaking equal work. The appropriate course in these circumstances would have been to extend the bonus payments to the female comparators during the protected period. Provided the policy does not perpetuate historic discrimination, it should be capable of justification, at least for a limited period of time.
One question that is often asked is how long pay protection arrangements can stay in place before becoming discriminatory. There is no clear answer to this question.
Early case law suggested that it is relevant to take into account all the circumstances of the case, including the length of time that has elapsed since the protection was introduced and whether it accords with good industrial practice in relation to the continuation of the protection.
Recent cases suggest, however, that indefinite pay protection arrangements may be justified where there is no evidence of sex discrimination at the inception of the scheme 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. However, where there is evidence of disparate impact on one sex, it is suggested that the practice may only be justified for a limited period of time in order to cushion the effect of the drop in pay. Because there is a risk that indefinite pay protection agreements may become discriminatory over time, such arrangements are generally considered to be contrary to good practice.
The checklist below will assist in identifying any equal pay issues in your protection arrangements. If you cannot answer ‘yes’ to the questions in the checklist you will need to review the policy to ensure it is non discriminatory.
Proposed changes to other pay-related terms and conditions should also be subject to equality impact assessment, for example:
In terms of the equal pay legislation, each term must be considered separately and any disparate impact identified. This can be done in the following way:
Disparate impact may be justifiable, for example removal of attendance allowances paid only to male manual workers may be justifiable as a move towards equal pay for work of equal value.
Disparate disadvantage to female employees in relation to a particular term of employment, for example removal of weekend premium payments, even if compensated for by increases elsewhere in the package, may not be easy to justify without reference to the gender of the group affected.
The relevant pay policies should also be reviewed in accordance with the equal pay audit checklists, for instance:
If the equality impact assessment reveals any gender or other bias in the grading and pay structure proposals which cannot be satisfactorily explained and justified, steps should be taken to amend the proposals to eliminate the bias.
An action plan should include arrangements to:
Subject to the operation of the pay protection policy, the introduction of equal pay for equal work should take place immediately. Any delay will increase the risk of equal pay claims to the organisation and may also expose the union to challenge under discrimination legislation.
Under the Equal Pay Act 1970, employees may be entitled to up to six years back pay. The action plan should make clear how the organisation is going to compensate employees who may be entitled to back pay.
Where it is necessary to amend the grading and pay proposals because they result in unequal pay, it is recommended that an equal pay audit is undertaken a year after the proposals have been brought into effect in order to ensure that any amendments to the proposals are having the desired effect.
Once you are satisfied that the changes to the proposals have eliminated any bias in the new pay structure, it is recommended that an equal pay audit is undertaken every two to three years.
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