Most employers believe that they do not have an equal pay problem, but few can prove it. Andrew Gordon and Gary Bowker advocate carrying out an equal pay review to reduce the risk of litigation and contribute to your reputation as an employer of choice
Despite the fact that the Equal Pay Act has been in operation for more than twenty-five years, the pay gap between men and women still persists. Women in full-time employment are paid an hourly average of nearly 20% less than men.
The causes of this gender pay gap are complex. Occupational segregation is a key factor. Women are concentrated in just 10 occupations, which include sales, healthcare, administration, childcare and catering. Most of these occupations have lower than average pay. Another factor is the unequal impact of women's family responsibilities. Career interruptions frequently lead to loss of occupational status, which has a negative impact on women's future earnings and pensions.
A third factor is sex discrimination in pay. A report published in 2001 by the Equal Pay Task Force, an employer-led body set up by the Equal Opportunities Commission (EOC), estimated that discrimination accounts for between 25% and 50% of the pay gap.
Sex discrimination in pay is unlawful. Under the Equal Pay Act, in combination with European Community law, women and men in the same employment who are doing equal work are entitled to be treated equally in pay and other benefits. 'Pay' has a wide definition and includes basic salary and other benefits such as occupational pensions, health insurance, holiday pay, sick pay and cars.
Employees have the right to equal pay from the first day of employment; there is no service qualification. Where there is a pay gap between a woman and her male counterpart, the employer may defend the claim if it can show, in essence, that the difference is not due to sex discrimination. The right allows comparisons not only between women and men who are doing the same or similar work, but also where the work is different but of equal value in terms of the demands of the jobs, whether there is a job evaluation scheme in operation or not.
Bad for business
If you factor in adverse publicity and the fact that equal pay proceedings are notoriously expensive and time-consuming, then litigation is not just bad for business, it is very bad for business.
But this is not just a litigation issue; it is also a productivity issue. Fair, transparent and non-discriminatory pay systems are likely to encourage maximum productivity from all employees. It is also a recruitment and retention issue. Fair and equitable treatment in pay is likely to reduce turnover and reduce absenteeism.
Equal pay sends positive messages about your values and ways of working. If you want to recruit the brightest and best in a competitive labour market you need to be able to demonstrate that you provide equal pay. According to the recently published results of a survey commissioned by the EOC, 49% of young people (and 71% of women) said that their choice of job would be affected by whether an employer could show that it was an equal pay employer.
'No problem here'
If you ask a group of employers if they have an equal pay problem, the chances are that the vast majority will say that they do not. Ask them whether they have carried out an equal pay review and most will also say no. So how do they know they are legally compliant? They don't.
You cannot know you are an equal pay employer unless you carry out an equal pay review (EPR). Without a review of this kind, you cannot be sure that your pay policies and practices pay women and men equally for like work and work of equal value. An EPR will help you determine the extent of equal pay problems, if any, within your organisation.
Some employers will avoid taking steps to minimise the risks of equal pay claims because they are afraid to open a Pandora's box. As with any business decision there is an element of risk. But that risk is reduced if you are in the process of looking at the way the pay system in your organisation works, and are taking steps to correct any disparities.
Equal pay review
EPRs are not mandatory and so can take many different forms. However, the essential features will be the same:
These two features are at the core of the five-step model recently launched by the EOC. This model is likely to prove influential, not least because it will form the core of a draft statutory code of practice on equal pay that the EOC is to issue this autumn. Once in effect, the code will be admissible in evidence in proceedings under the Equal Pay Act.
Step one: Decide the scope of the review and identify the data required
Though the EOC model is aimed at dealing with the pay gap between men and women, you may also want to look at ethnicity and disability. Race and disability bias in pay is also unlawful. You also need to decide which employees are going to be included in the review. Bear in mind that a partial review may increase the risk of equal pay claims.
Step two: Identify where men and women are doing equal work
This is the foundation of the review. Determine where women and men:
Step three: Collect and compare pay data to identify any significant equal pay gaps
This is done by calculating separate figures for the average basic pay and earnings of all women and men doing equal work and comparing the figures. In addition, compare access to and amounts received of each element of pay for women and men doing equal work.
Step four: Establish the causes of any significant pay gaps and assess the justification for them
Explore the reasons for any pay differences. These may include length of service, starting salaries, or performance pay. Establish whether there is a genuine reason for difference in pay that has nothing to do with the sex of the jobholder.
Step five: Develop an equal pay action plan
Where the review shows that some employees are not receiving equal pay for equal work and the reasons cannot be shown to be free of sex bias, then you must develop a plan for dealing with this. You must change pay policies and practices that lead to sex bias and cannot be objectively justified. Even if sex bias is found to be absent, the plan should include the setting up a system of regular monitoring and clear managerial accountability to ensure the pay system continues to be free from sex bias.
Take action now
Last December, the EOC set the goal that 50% of employers with more than 500 workers would have done a pay review by the end of 2003, and 25% of the remaining smaller employers by the end of 2005. If this comes to nothing, there will be increased pressure to require employers to carry out pay reviews. Most employers would rather be in control of a review than have one imposed upon them. The justification for taking action now is clear. It makes good risk and business sense.
OPENING UP THE PAY SYSTEM TO SCRUTINY
Many employers have attempted to reduce the risk of equal pay claims by reliance on the traditional British reluctance to discuss who is paid what and why. However, all this is about to change.
The Government is preparing regulations that will, by way of a 'questionnaire procedure', make it easier for individuals who believe that they are not receiving equal pay to obtain key information to help them decide whether or not to bring a claim. Such information could include the rates of pay of other employees who are employed on equal work within the organisation, and the reason why these jobs are paid in the way they are.
The questions that the individual puts, and the response she receives, will be admissible in evidence in any subsequent employment tribunal proceedings. If a tribunal considers that the employer deliberately, and without reasonable excuse, failed to reply within a prescribed period, or that the reply was evasive or equivocal, it can draw whatever conclusion it considers just and equitable, including the conclusion that the employer has breached the equal pay law.
Andrew Gordon and Gary Bowker are head of employment law and senior consultant respectively at Mercer Human Resource Consulting, Tel: 020 7488 4949, E-mail: firstname.lastname@example.org