Equality and Human Rights Commission

Length of service remains one of the most frequent explanations for pay gaps. You should therefore calculate average service for the groups under consideration and you may need to consider service for particular individuals or sub-groups.

Even if you can see some relationship between length of service and pay, it may not be entirely clear whether service explains the pay gaps and an element of judgement may be required in making that decision.

Whether longer service constitutes a justification for higher pay is another matter, particularly in respect of averages in an equal pay review. The use of length of service as a method of increasing pay and recognising service is generally accepted as a valid reason for differences in pay. Therefore employers do not need to provide specific justification for using length of service as a criterion in a pay system, even where that results in unequal pay as between men and women.

However there may be some situations in which using length of service must be specifically justified by the employer. But that is only required where an employee provides evidence capable of raising serious doubts as to the appropriateness of awarding pay increases based on length of service to reward experience, having regard to the particular job in question. In such circumstances the employer will be required to prove that what is true as a general rule - namely, that length of service goes hand in hand with experience, and that experience enables the worker to perform his or her duties better - is also true with regard to the job in question.

There is less correlation between length of service and improved performance for some jobs than in others (especially beyond a certain period), and this is a factor which it is worth giving consideration to, in case of being called upon to justify the use of length of service in determining pay.

Download example tables: Organisation A: Average basic pay by ethnicity by grade and Exploring significant gaps by ethnicity - comparison of average lengths of service

Commentary

There is a pattern of gaps favouring BME staff – 4 of the 5 comparisons. Any gaps favouring BME staff over 3% - and any in either direction over 5% - are therefore significant. The gaps at grade 5 and grade 2 favouring BME staff are significant. The table shows an inconsistent relationship between pay and length of service. More investigation is therefore needed of possible other causes.

Download example tables - Organisation B: Basic pay comparison – marketing department by gender and grade and Exploring significant gaps - comparison of average lengths of service by gender: marketing.

Commentary

• Women comprise 56% of all Marketing employees. Marketing represents the most gender-mixed part of the organisation (though the distribution of men and women by grade is uneven) and is a department in which it could be expected that there would be relatively little historical gender segregation by job type or reason to expect pay inequality. 
• In the 4 grades where both men and women are found, pay gaps are in both directions, but the gaps are relatively large in all 4 compared top other parts of the company.
• At grade 3 the 3 men are paid c.12% less than the 15 women. The women have longer average service.
• At grade 4 the gap is c.7% favouring the 7 women over their 13 male colleagues. Again, the women have longer average service.
• At grade 5 it is also c.9%, but this time in favour of men. The men have longer average service.
• At grade 7 the gap is c.7% in favour of the 5 men compared to the 2 women, yet the women have longer average service.
• All these gaps need further investigation of other factors such as market factors and time in grade which may explain - and possibly justify - the pay gaps. 

Download example tables

Commentary

• The pay gap in favour of men at grade 6 is largely due to the impact of the 3 male Finance Managers’ relatively high salaries and the higher salaries of the male Operations Managers compared with women in that role.
• There is a large variation in salaries by job type – the male R& D Manager is the lowest earner.

If, at step 3, your analyses identified a significant pay gap between protected groups doing equal work, you need to establish in which elements of pay the gaps are occurring (basic pay, performance pay, amount of overtime etc). You also need to establish what pay practice is causing the gap (starting pay, performance assessments, differences in acceptance of overtime opportunities between various groups etc). You can then assess whether the gap is justifiable and, if not, plan to close it.

There are five checklists to enable you to check the design, implementation and impact of your pay policies and practices. The process supports step 4 and step 5 of the kit.

As pay arrangements vary widely, some checklists, or parts of them, will not apply to every organisation. They do, however, provide general guidance and detailed tips on how to review pay systems in detail in most situations to establish the cause of pay gaps and where they are occurring.

If you have not identified significant pay gaps, these checklists should still be used to help ensure your current and future pay policies and practices reflect equal pay principles.

The checklists are:

• Checklist 1: Starting pay, pay protection and pay progression
• Checklist 2: Performance related pay
• Checklist 3: Market factors
• Checklist 4: Benefits
• Checklist 5: Working time payments

As the considerations in respect of possible inequality regarding starting pay on, pay protection and pay progression are similar, one checklist is provided to cover your pay policies and practices in these areas.

You should apply the checks in turn to starting pay, pay protection and pay progression policies and practices. It is possible that you will need to ask other questions particular to your organisation. Some of the considerations are as follows:

Starting pay

Typically, employees will join a pay grade or job as a new recruit, a transferee, on promotion, on re-entry after a career break, or following a restructuring of a pay and grading system.

Starting pay on joining a job/grade may be determined using a set formula/rule or simply be an amount agreed by the parties. Where a formula is used, the impact should be tested to ensure that its operation is not producing different outcomes by gender, ethnicity or disability. Where there is managerial discretion over starting pay, the impact of decisions should also be regularly checked by gender, ethnicity and disability.

You can find out if there is a problem in your organisation by looking at the amount you paid on recruitment, on change of job, and on promotion, to men and women, people from different ethnic groups and those with a disability compared to those without, over the past year. If your records show that there is a tendency for people from one group to be favoured over another, then you need to find out why this happening.

Pay protection arrangements

‘Red circling’ is a widely-used pay protection technique for protecting the pay of an individual or group whose job is downgraded following, for example, an internal reorganisation, grading review or implementation of a new job evaluation scheme, or following a relocation.

The use of red circling, which maintains a difference in pay between protected groups over more than a reasonable phase-in period of time will be difficult to justify. You should check that your pay protection arrangements are in line with prevailing case law.

Pay progression

Differences in pay between protected groups resulting from pay progression within a grade or job, whether by traditional increments or an alternative progression mechanism, may be objectively justified by the benefits to the organisation of increased experience ensuring greater expertise. But this justification erodes after an appropriate period of time.

Problems, however, may arise from the legacy of past incremental progression systems, which appear to lie at the root of, for example, some gender-based pay differences.

It is essential that any new pay progression arrangements are rigorously scrutinised both for their impact on protected groups, and for the strength of the ‘increased expertise and value’ justification. The argument is likely to be stronger if progression is linked to the achievement of pre-determined criteria.

The checklists below will assist in identifying potential equal pay issues. If you answer ‘no’ (or you do not know the answer) to any of the questions in the checklists you will need to further investigate the pay data and pay practice to ensure that it is free from discrimination.

Download Checklist 1: Starting pay, pay protection and pay progression

Starting pay: Action - what you can do to put things right

Have a clear policy – and follow it

A starting salaries policy should state that new appointees to a post or grade (whether new recruits to the organisation or internal promotees) will commence at the minimum point of the relevant pay scale or range unless the individual meets the criteria for a higher point on the scale, in which case they will be placed at that point.

Do not rely too much on previous salary. Skills and experience (consistent with criteria for pay progression) should be the only criteria for appointing at above the lowest point on your pay scale.

If the market rate for the type of work can be demonstrated to be higher than the salary in accordance with the starting salaries policy, then the most transparent solution is to pay the additional amount as a separate market supplement. For more on market forces see Equal pay in practice note 9.

Pay progression: Action - what you can do to put things right

Is your pay progression system is contributing to inequality in pay?

Different methods can be used to achieve and then to maintain equality. These include:

• Shortening the scales – long pay scales can lead to unequal pay. Women and those from ethnic minority groups joining at a lower point than a white man can take years, if ever to catch up. Shorter pay scales, which accurately reflect the time needed to become fully competent at a job, are a positive step.
• Guaranteeing that employees will reach the maximum within a reasonable timeframe through, for example, accelerated incremental progression.
• Setting time limits within which employees will reach each pay point.
• Setting target pay points for all staff to reach within a specific time. This means that you guarantee all workers currently employed will have reached a certain point e.g. 70% of the maximum, by a set date providing this is equitable across protected groups. Progressing beyond that target point to the max must also be equitable.
• Setting competency and experience criteria for workers to reach each pay point. If operated fairly, these will then provide a justification for position on pay scale.
• Differentiating awards by the employees' existing position in the pay band; e.g. giving those at the bottom of the pay band a higher percentage pay increase than those at the top.
• Where a scheme has equity shares, reducing the differential between them. This means lessening the difference between awards for employees receiving different performance marks.
• Reducing the number and range of performance and box markings. Performance or box markings introduce an element of managerial discretion and may increase the risk of bias against groups of employees. Reducing the range of markings cuts down the number of possible differences in individuals' pay within the grade or job, thereby, leaving less scope for possible discrimination.
• Underpinning increases. This means giving minimum cash increase to all workers e.g. 4% or £500, whichever is the greater. This enables lower paid workers to move up the scale.

There is no one best method of progression through the pay bands. Different methods will be appropriate depending upon the size of organisation and the composition of staff. Even in the same organisation, methods may vary depending on the circumstances at the time.

All these methods assume that changes are made to the existing pay systems. Consideration should also be given to introducing a new structure that takes equal pay into account at all stages e.g. introducing short pay bands with clear and fair progression through a number of points.

Pay protection: Action - what you can do to put things right

Pay protection is often the most sensible and practical way of realigning rates of pay for employees after others have been found to be doing equal work but, as with any other aspect of the pay system, it needs to be well thought out and kept under review. Protection is a sensitive area and you may need to check prevailing case law.

Answering the questions in the checklist will help you to decide whether you need to take remedial action or not. The answers will also suggest some possible solutions.

Consult your employees and their workplace representatives. They will have views as to the acceptability of any proposals and they may also be able to suggest alternatives.

Look for alternative solutions. If the protection is likely to carry on for longer than three years, consider whether a one off non-consolidated lump sum to buy out the pay may be the better option.

Make sure that decisions on protection are properly documented. It makes good business sense for employees to understand why they receive benefits, but if you should ever be challenged, documentation will be essential. Properly documented decisions will enable you to explain your reasoning.

Transparency is a key feature of tackling equal pay problems. A transparent pay system, including clarity on pay protection, avoids uncertainty and perceptions of unfairness and reduces the possibility of individual claims.

This checklist covers all forms of performance-related pay (PRP) systems, including those with a competence-based element. It also deals separately with incentive-based pay systems, such as bonus arrangements.

There is some legal guidance on performance pay systems derived from the European Court of Justice (ECJ). It is generally accepted that the ECJ guidance applies to all forms of performance and competence related pay. The ECJ said that there is every reason to expect the performance of women overall to be as high as the performance of men overall.

A performance / competence measurement and pay system should, all other things being equal, generally deliver equal average performance payments to women as to men.

Some issues of concern regarding equal pay in performance / competence based pay systems are:

• Groups of workers being excluded from the system or bonus arrangement.
• Applying different performance/competence pay systems to different groups of employees.
• Using performance/competence criteria that are potentially indirectly discriminatory by, for example, being more characteristic of male than female behaviour.

The first part of the performance pay checklist identifies those aspects of any performance/competence pay system where problems could arise. The remaining parts of the checklist deal with specific aspects of particular types of performance pay systems.

In order to work through this checklist you will need:

• Copies of the performance/competence appraisal/measurement guidance and instructions.
• Analyses of performance/competence assessments, or equivalent, overall and by grade/band and by gender, ethnicity, disability.
• Analyses of performance/competence payments, overall and by grade/band and by gender, ethnicity, disability.

The checklist below will assist in identifying potential equal pay issues. If you answer ‘no' (or you do not know the answer) to any of the questions in the checklist you will need to further investigate the pay data and pay practice to ensure that it is free from discrimination.

There have been particular issues in relation to performance payment systems and ethnicity of employees. Even if your data is not sufficiently robust to carry out a full equal pay audit in relation to ethnicity, it may be worth using whatever data you have to analyse performance payments by ethnicity.

Download Checklist 2 - Performance related pay

Action – what you can do to put things right

Answering the questions in the checklists has probably already highlighted where some of your problems may lie and what needs to be done.

• Ensure performance assessments are monitored and that access to performance pay is fair across the organisation.
• Ensure the criteria for rewarding performance are clearly defined and achievable and that targets are fair across departments in the organisation.
• Look to link performance to a quantifiable target, which can be seen as objective. However, 'softer skills’ - which may be primarily done by women - may be harder to quantify but they should not be excluded from access to performance pay.
• Ensure training in diversity and the avoidance of bias for all involved in assessing performance and awarding pay.
• Limit the element of discretion in appraisal
• Explain the system to employees so everyone understands it.

Consider whether your performance pay scheme is contributing to the problem

Most pay systems are influenced to some extent by rates of pay in the external labour market. The main ways in which this may apply to you are:

1.    You may use general or sector-related market survey data as the main determinant for setting pay levels for employees generally. Market data is usually bought in from a supplier and used to set and maintain the organisation’s pay line at a particular level within the relevant market (just above the median, for example, or at the upper quartile). As the market data covers organisations similar to themselves, it should reflect similar workforce compositions by gender, ethnicity, disability and part-time working, so equality issues should not arise. However, if you use market data in this way you should complete the market data checklist below to check that you are not importing pay discrimination through this route. You should also check whether any of the other uses apply in your organisation.

2.    You may use specific market data to determine the pay levels for some or all individual employees, often senior managers but also employees in international banking, treasury services, software engineering and other sectors where there is intense competition for the relevant types of employees. If this applies to your organisation, you should complete the market data checklist below, but you should also undertake equal value checks to ensure that market factors account for all of the differences in pay between protected groups.

3.    You may set your pay levels through collective bargaining and/or review of market data for your sector, but acknowledge that the salary levels will not recruit and retain employees in roles from other sectors of the labour market, for example, IT jobs in a non-IT company, helicopter pilot jobs in a police force, and that additional payment will be required. Current good practice suggests that such payments should be made as supplements on top of basic pay, but this has not always been the case in the past and market elements may have been incorporated into basic pay. If your organisation makes additional market-related payments to some employees, you should complete both the market data checklist and the mark et supplement checklist.

Market factors are a major determinant of pay in a growing number of pay structures, so most organisations will need to complete at least one of the market checklists.

Market data checklist

This is a complex area, but practices of particular concern regarding equal pay in market based pay systems - notably in relation to gender and possibly also in relation to ethnicity - include:

• Over-reliance on data from sex segregated jobs
• Failure to ensure that a representative sample of male and female jobs from organisations of a comparable size is included in the database
• Internal and external jobs are not accurately matched for ‘size’

The checklist below will assist in identifying potential equal pay issues. If you answer ‘no’ (or you do not know the answer) to any of the questions in the checklist you will need to further investigate the pay data and pay practice to ensure that it is free from discrimination.

Download market data checklist

Differences in labour market rates can be a defence to an equal pay claim, but only in specific circumstances where it can be shown:

• That market factors were genuinely taken into account when setting the higher comparator rates, and not simply put forward as a post hoc justification for the pay difference.
• That the market factors are still relevant at the date of any claim; and
• That market factors account for the whole of the differences attributed to them. If not, the courts must determine what proportion of the difference is accounted for by market factors. Hence the need to consider market supplements as additions to basic pay.

Market supplements / payments checklist

Differences in labour market rates within the same employing organisation can be a defence to an equal pay claim, but only in specific circumstances where it can be shown that:

• Market factors were genuinely taken into account when setting the higher comparator rates and not simply put forward as a post hoc justification for the pay difference
• The market factors remain relevant at the date of any claim
• The market factors account for the whole of the difference attributed to them. If not, the courts must determine what proportion of the difference is accounted for by market factors.

The checklist below will assist in identifying potential equal pay issues. If you answer ‘no’ (or you do not know the answer) to any of the questions in the checklist you will need to further investigate the payments and pay practice to ensure it is free from discrimination.

Download Mark et supplements / payment checklist

Market supplements: Action - what you can do

If you are satisfied that you need to pay more to recruit to a particular role, the additional payment will be most easily defended if:

• You pay the additional amount as a separate market supplement, rather than consolidating it into basic pay;
• You record the evidence that led you to pay the market supplement;
• You review the evidence and the payment regularly to check whether payment is still justified;
• If it is no longer justified, you do not pay the market supplement to new recruits to the role.

You may provide a range of benefits as part of your remuneration packages. In terms of equal pay law, each element of the pay package must be treated separately. So your equal pay review needs to consider access to and the amounts received of each benefit separately, by gender, ethnicity and disability.

Issues of concern regarding equality in benefits include: 

• Unequal access - for example the exclusion of part-time workers from a benefit where the majority of part-time workers are women
• Providing different levels of benefit to different categories of employee
• Providing different levels of benefit according to length of service

You can adapt the benefits checklist below to review the benefits provided by your own organisation.

Download benefits checklist.

Some pay systems include a number of work-related premiums in addition to basic pay. These might include:

• Working time premiums, such as overtime, shift pay, on-call payments
• Working conditions allowances, such as ‘dirty money’
• Miscellaneous payments, such as travel-time payments

Recent trends in pay and flexible working have led to many employers reducing the number and range of these additional payments. Where they continue, it is often in long-established, traditional pay systems that may be more prone to discrimination.

Equal pay problems with work-related premiums primarily arise from unequal access, for example, where:

• Premium payments are restricted to certain jobs/grades which excludes proportionately more female jobs, or jobs held mainly by ethnic minority or disabled staff.
• Overtime is restricted to certain grades or jobs, or allocated on a discretionary basis.
• Working conditions allowances are paid to those in male dominated jobs as a result of past collective agreements or ‘industrial muscle’.

If women performing jobs of equal value to men do not receive equal access to working time/other payments this may be discriminatory. Objectively justifying differential access or payments can present a considerable challenge to employers.

You can adapt the items in the checklist below to analyse whatever work-related premia operate in your own pay system.

The checklist below will assist in identifying potential equal pay issues. If you answer ‘no’ (or you do not know the answer) to any of the questions in the checklist you will need to further investigate the pay data and pay practice to ensure that it is free from discrimination.

Download checklist 5 - Working time payments

Working time payments: Action - what you can do to put things right

Analyse the types of payments you provide to reward unsociable hours
Payments need to be compared, and the value of each type of payment calculated and monitored. This is particularly important if you have more than one pay structure and unsocial hours payments are different between the different structures. Access and take up of each need to be reviewed by gender, race and disability. Consideration needs to be given to whether the payment is meeting the objectives it was originally designed for.

Be clear about which patterns of working attract special payments and why
Are the payments you make still relevant and necessary? Or are you rewarding people for a practice that died out some while ago? Are there a few individuals enjoying overtime rates and why? When looking at pay, think about access to the payments, not just who receives it. You may wish to consider flexitime arrangements or 'annual hours working' where employees work a specific number of hours a year to cover peaks and troughs in hours required to be worked.

Consider whether your pay system is contributing to the problem
Organisations may have different ways of rewarding different groups of employees, manual/non-manual, for example, or collective agreements covering different groups. It is sometimes hard to compare different groups, clerical staff with production workers, for example.

Make sure that decisions on working time payments are properly documented
It makes good business sense for employees to understand why they receive payments, but if you should ever be challenged in an employment tribunal, documentation will be essential. Properly documented decisions will enable you to explain your reasoning.