If businesses do not close the gender pay gap voluntarily, the government will soon force them to - and FMs must take heed.
24 March 2014
The legal framework requiring equal pay for equal work between men and women has been in place since the Equal Pay Act 1970 came into force in 1975.
But statistics from the Office for National Statistics (ONS) at the end of 2013 suggested that the pay gap between the sexes had actually widened for the first time in five years with the difference between full-time male and female employees increasing from 9.5 per cent in 2012 to 10 per cent in 2013. This means that despite there being more women in work than ever, there remains a significant difference in what they are paid compared with men.
Against this backdrop the government has made it clear that the causes of gender pay gaps must be addressed to "maximise women's contribution to economic growth". Its current initiative for mandatory equal pay audits, due to take effect from October 2014, is intended as a tool to determine whether pay systems are non-discriminatory aiding in the enforcement of equal pay provisions, and tackle historic pay inequalities, so that men and women are paid equally for "equal work". This reform will go with other equality-friendly initiatives such as the recent overhaul of the parental leave system to modernise our workplaces. So what does this actually mean?
From October 2014, where an Employment Tribunal (ET) finds an employer has discriminated on the grounds of sex in relation to pay, it will be required to order a mandatory equal pay audit (EPA). This can be either an equal pay claim or a dispute over a non-contractual payment, such as a bonus.
An EPA is defined as "a systematic investigation into the causes of any gaps in pay between men and women who work for the same employer and do equal work" - the key point in the latter being that they do not have to be employed in the same job, but be doing work of an equal value (as assessed through job evaluation or in terms of the demands of the jobs).
When reforms are enforced, micro and start-up businesses will be exempt for a period of grace - it would appear that the government intends to test equal pay audits on other businesses before rolling it out universally.
For non-exempt businesses, a tribunal must not order an audit if it finds that:
- The employer has already carried out an audit within the past three years that meets the standards set out in the regulations;
- The employer's current pay arrangements are sufficiently transparent to identify whether any action is needed to prevent continuing or further equal pay breaches - without the need for an audit;
- There is no reason to believe the employer's breach of equal pay is a systemic problem - this covers a breach which may be a one-off occurrence; or
- That the disadvantages of an audit would outweigh the benefits; where the associated costs could tip the business into liquidation.
What will an audit entail?
Audits should aim to establish whether, irrespective of gender, employees undertaking work of equal value are being paid equally. An audit would involve:
- Identifying terms and conditions of men and women doing equal work and all aspects of their pay, whether it is contractual, non-contractual, relating to incentives and overtime;
- Whether as a result of identifying terms and conditions, any pay differences between men and women can be explained; and
- Devising action where there are unjustified pay inequalities based on sex to eliminate them.
From October 2014, ETs will have the power to impose a £5,000 penalty for non-compliance with an ordered audit. This would be based on some form of monitoring of the EPA, and it is thought this would be through independent auditors, or equal pay tribunal judges trained to review compliance and sign off satisfactory audits. We await confirmation from the government on this point.
The consideration of who gets to see an ordered equal pay audit will be a significant concern for larger employer businesses because of potential further equal pay claims or the disclosure of commercially sensitive information, among other things. The consultation appears to recognise this and so it has been recommended that businesses only publish results on a voluntary basis.
But those employees covered by the audit as well as unions and the tribunal would have a right to see the audit results. The question of monitoring the spread of audit results outside the circle of employees poses further difficulty.
Although the provisions determine that an equal pay audit order must be made if a clear breach is found, the broad exceptions are likely to accommodate many situations. Given that claims take years to come before the tribunal, with many settling before hearings, employers may find this a convenient way to avoid potential audits. Similarly, this may prove a useful bargaining tool for claimants.
The intended £5,000 penalty for non-compliance may therefore not be a realistic deterrent to large organisations whose ordered audits are likely to exceed that cost.
And in the FM sector, where TUPE transfers are common, organisations must be aware that where there are historic pay inequalities transferring over, simply confirming terms and being protected will not be a valid justification if an equal pay claim is brought before a tribunal. Even inadvertent discrimination can be unlawful and carry liabilities, and this is something that must be considered at the point of due diligence and consultation during TUPE scenarios. The government should finalise the requirements in July 2014.
Tar Tumber, HR consultant, Workplace Law