Compulsory Equal Pay Audits – giving equal pay law more bitePrint publication
The UK’s gender pay gap has received a lot of political and media attention recently. In an attempt to address the issue, the draft Equality Act 2010 (Equal Pay Audits) Regulations 2014 (the ‘Regulations’) are due to come into force on 1 October 2014. They will give existing equal pay law a new set of teeth designed to tackle existing pay inequalities and will apply both in the public and private sectors.
The Regulations will require Employment Tribunals to order an employer to carry out an equal pay audit where it is found to have breached equal pay law, i.e. where the employer has lost at Tribunal on all or part of the equal pay claim. The Regulations emphasise the importance of transparency and employers will be required to publish the results of their equal pay audit on their website for at least 3 years for all to see. This is enough to cause trepidation in even the most hawkish of respondents and there is no scope for obfuscation – every employee whose pay details were included in the audit must be advised where they can obtain a copy.
Without a doubt, these Regulations will influence the way equal pay claims are conducted. Employees will have (or will perceive that they have) greater leverage in settlement negotiations. Employers will have to factor in the increased litigation risk of being ordered to conduct an audit, the potential consequences for employee relations and organisational reputation and the additional cost and management time that an audit would involve.
More generally, the Regulations will bring the issue of pay equality to the fore in many organisations. It is important to check that pay arrangements and policies are in line with equal pay law and that any gender pay imbalances are identified and, where possible, addressed.
In this article, we look at the Regulations and highlight the key considerations for employers.
When will the law change?
The Regulations are set to come into force on 1 October 2014 and will apply to Employment Tribunal claims submitted on or after that date. Claims already in the system prior to that date will not be affected so we won’t start to see the way in which Tribunals are dealing with compulsory audits, (for example, how they determine the scope of audits or the applicability of the exemptions), until next year.
When can a Tribunal order an equal pay audit?
The Employment Tribunal must order an audit where the employer is found to have committed sex discrimination in relation to an employee’s pay. Note that this includes claims relating to all types of pay, not just basic salary, so includes commission, bonus payments, shift premiums, overtime payments and so on.
There are several exemptions as follows:
- the employer has completed an appropriate equal pay audit in the last 3 years. ‘Appropriate’ means that the audit must comply with the four-pronged approach detailed below
- it is clear without an audit whether or not any action is required to avoid existing or future equal pay breaches
- the breach was a ‘one-off’ and there is no reason to think there will be any further occurrences
- the disadvantages of an audit outweigh the advantages
- the employer is a micro (i.e. fewer than 10 employees) or a new business.
What must the audit include?
The audit is four-pronged. It must:
- include relevant gender pay information for the descriptions of employees specified by the Tribunal
- identify any pay differences between these staff
- provide reasons for those pay differences
- set out a plan for eliminating the pay differences.
The Tribunal will have discretion to set out the exact scope of the audit and also to set a time period for it to be completed.
How will this be policed?
The Employment Tribunal will be the arbiter of whether an audit has been completed correctly and in line with the order. It will have the power to order a financial penalty of up to £5,000 (payable to the Secretary of State) if the employer does not comply and can make this order repeatedly in the event of ongoing breaches.
Historically, there has been a tendency to see equal pay claims as an issue for the public sector but this is no longer the case. The last few years have seen an increase in such claims against private sector employers including, for example, large group litigation against a major retail chain in which female store workers are comparing themselves with their male warehouse worker colleagues. This trend may be linked to depressed wages caused by the economic situation, workers becoming better informed about their rights or the recent and significant growth in trade union membership (especially since the introduction of Tribunal fees) but the result is that private sector employers can no longer be complacent.
Pay equality and equality generally are major considerations for those employers involved in public procurement. Commercial expediency requires such employers to ensure they are operating in line with equal pay law.
Some public sector employers may well have carried a pay audit out in the last 3 years and will therefore be potentially exempt under the Regulations. Being exempt means there is no requirement to publish audit results online. Is it therefore worth considering carrying out a pre-emptive audit to provide this assurance? The answer will depend on each organisation’s circumstances and, of course, how any adverse findings would be dealt with. It could be akin to opening a Pandora’s Box or, conversely, it could provide welcome reassurance that all is in good order. The reality for many employers is likely to be somewhere in between but there is a lot to be said for grasping the nettle at this stage.
The question of whether to carry out a voluntary audit now (or at least a review of pay arrangements and policies) or to adopt a ‘wait and see’ approach is a question that many employers will wish to explore further.
If you would like further advice or information on any of the points in this update please contact David or Andrew.