Beware the new regime of Equal Pay audits
This article first appeared in the August 2014 issue of Payroll World Magazine.
Final draft regulations have been published on mandatory equal pay audits for successful equal pay claims made from 1 October 2014. Whilst public sector organisations have followed developments closely, recent publicity about equal pay claims against Asda show the private sector will also need to be ready, particularly in the light of a new requirement to publish such equal pay audits on the employer's website for three years.
When will an equal pay audit be ordered?
Equal pay (to the opposite sex) for 'equal work' can include wages and salaries, non-discretionary bonuses, holiday pay, sick pay, overtime, shift payments, occupational pension benefits, and non-monetary benefits such as company cars and leave entitlements (unless a difference is due to a 'material factor' unconnected with gender). Claims may also be brought for non-contractual pay differences, such as discretionary bonuses or pay rises, under sex discrimination law.
For both types of claim made after 1 October, Employment Tribunals (ETs) must order the employer to conduct an equal pay audit where there has been an 'equal pay breach' (i.e. the employer has lost the case) unless:
- An audit carried out by the employer in the 3 years prior to the ET ruling is already compliant,
- It is clear, without an audit, whether action is needed to prevent recurrence,
- The breach found gives no reason to think there may be other breaches, or;
- The disadvantages of an audit would outweigh its benefits.
The audit must include relevant gender pay information, identify any differences in pay between men and women, identify the reason, as well as a plan to avoid breaches in future. The ET will determine which section of the workforce should be covered (or all of it), how long is given for compliance (at least 3 months), and then whether the employer has complied. If not, a penalty of up to £5,000 could be imposed, repeatedly if necessary.
The regulations specify when and for how long existing micro-businesses (fewer than 10 employees) and 'new businesses' (broadly, one which is set up in the year before the claim is brought) will be exempt.
How will this affect employers?
An equal pay audit will be costly both financially and in terms of time, and could trigger more claims. Moreover, the employer will not only have to make the audit available to everyone whose gender pay information was included, but also publish a copy on its website for 3 years.
This requirement has gone under the radar and goes against the Government's view, in May 2013, that "since there is clearly a risk of unforeseen consequences to an employer in making this information public…we will not be requiring publication". Publication isn't limited to a company intranet, the regulations simply say 'website' – i.e. visible to everyone. If the ET does not impose limits, this could clearly damage business reputation and provide competitors with sensitive information about pay. There appears to be no sanction for failure to publish.
If the employer believes that full or part publication would breach a legal obligation (e.g. data protection or human rights law if it effectively identifies an individual's pay details), the ET will decide if publication should go ahead.
Developing a strategy
Whilst in the private sector equal pay claims are not widespread, recent cases show they are gathering momentum, and claims could go back many years. It may be an area that trade unions will particularly pursue from October. Employers should consider their strategy. Will it be to avoid compulsory audits in the future – and publication of it to the world – by conducting a voluntary audit now? In practice this would need to cover the entire workforce, and its effect could be alerting staff to inequalities and potential claims. Or will it be to settle every equal pay case? This option may no longer be attractive to employee representatives who are confident of winning. With October not far away, employers need to look carefully at their pay practices as soon as possible.
- If an employer is found to be in breach of equal pay, it could be ordered to conduct an equal pay audit;
- Such audits will be disclosed to the workforce and made public via the employer's website for 3 years, which could trigger many more claims;
- Pay practices must be reviewed ahead of October to ensure equality, and that strategies are adopted to minimise exposure.
We can support you in reviewing current pay structures, policies, and incentives to ensure best practice and, where necessary, implementing and completing Equal Pay audits to comply with equality laws. Our team comprising experienced solicitors and HR professionals has significant experience of helping employers in both the public and private sector in these areas, as well as defending Equal Pay claims involving single or multiple claimants. We provide an exceptional service that is totally confidential and also covered by legal professional privilege.