How can employers with gender pay gaps reduce Equal Pay claims?

how employers explain gender pay gap claims

A report produced by the Chartered Management Institute (CMI) has found that, on average, female managers in the UK earn £12,000 less than their male colleagues. Will Clift, an employment solicitor at Winckworth Sherwood, looks at how employers reduce the risk of Equal Pay claims.

The recent finding comes during a year where the gender pay gap has been hotly debated, after the BBC revealed that many of its male stars earn significantly greater sums than their female counterparts.

This year also saw Regulations come into force which require large employers to publish gender pay gap reports on an annual basis. As a result, gender pay is again at the forefront of public consciousness, meaning employers are arguably at greater risk of Equal Pay claims from workers and employees. So, what should employers be aware of in relation to Equal Pay claims?

The Right to Equal Pay

Workers are entitled to have contractual terms (including pay) that are as favorable as those of a “comparator” of the opposite sex, if they perform work that is:

“Broadly similar”; or

“Rated as equivalent”, i.e. the employer has carried out a job evaluation, and determined that both jobs have an equivalent grade or band; or

“Of equal value”, i.e. the workers carry out different roles which are, nevertheless, of equal value “because of the demands made” on the individual.

The “comparator” must be a current or former employee of the same organisation, or a different organisation where “common” terms of employment apply. Unlike in discrimination claims, the comparator must be an actual person and not “hypothetical”.

In private organisations, most Equal Pay claimants assert that they are carrying out work that is of equal value to a more highly paid comparator (as it is often not possible to find a comparator who does broadly similar work).

When assessing if one job is of equal value to another, the Employment Tribunal (ET) will typically appoint an expert to compare the roles by reference to a very broad range of factors including knowledge required for the role, degree of experience and training, level of responsibility (e.g. for other staff, equipment, clients, training, and data), interpersonal skills, concentration and accuracy, and a large number of other factors.

Defending an Equal Pay Claim

If the ET finds that there is a pay disparity between comparable workers, the employer can defend the claim by showing that a “Material Factor” was the reason for the difference in pay, rather than the sex of the worker. Material factors can include different hours of work, market forces, rewarding productivity, and recognising additional responsibilities.

If the employer cannot show that a Material Factor is responsible for the difference in pay, then it will lose the claim. The ET can then order the employer to pay the claimant up to six years of back pay (plus interest), as well as require it to carry out an equal pay audit.

How can employers reduce the risk of Equal Pay claims?

Given the importance of being able to demonstrate exactly why one employee is paid more than another, employers should consider producing a paper trail which clearly records and explains all of its decisions regarding pay. In that way, any differences can be readily explained by reference to documentary evidence.

Employers should also consider producing a written pay policy. That way, pay decisions are more likely to be made by reference to objective criteria, which may help to avoid creating pay disparities that cannot later be justified.

If an employer is particularly concerned about litigation, it could carry out an equal pay audit in order to identify any potential claims that might exist, and take corrective action. This should mimimise the risk of complaints, and reduce potential liability going forwards. Such a pay audit should always be undertaken with the help of an expert (such as a lawyer or HR professional) who can ensure that roles are assessed objectively and fairly, and that any corrective action taken achieves the business’s stated aims.

What about gender pay gap reporting?

Under the Equality Act 2010 (Gender Pay Gap Information) Regulations, private and voluntary sector organisations with  250 or more employees must publish a gender pay gap report by no later than 4 April 2018, and every April thereafter.

The report must contain overall gender pay gap figures by reference to average hourly pay, the proportion of men and women in four different pay bands (drawn from the employer’s overall pay range), the average difference between men and women’s bonuses in the previous 12 months, and the proportion of men and women who received bonuses in the same period. Employers also have the option of explaining why any pay gaps exists, and what action it intends to take in order to address these disparities.

The report must be published on the employer’s website and be publically accessible for at least three years, as well as on a government website.

Under the Regulations, employers cannot be penalised for not complying with their reporting obligations. Despite this, there is clearly a reputational advantage in publishing an annual report, and being seen to be actively trying to narrow the gender pay gap in your organisation.

In that regard, large employers should consider compiling all of the necessary data as soon as possible, in order to give them time to prepare a coherent narrative regarding any gaps, and to set out any steps that it plans on taking in order to address any disparities.

So will gender pay gap reporting have an impact?

A number of studies commissioned by the EHRC have shown that organisations with narrower gender pay disparities tend to have greater pay transparency. Further, countries such as Sweden have seen a fall in the gender pay gap after introducing similar measures.

However, in Sweden, employers can be fined for not taking steps to close the gap, whereas there are currently no equivalent penalties under the UK system. On balance, the evidence suggests that the reporting regime will have a positive impact, but there is probably scope for giving the regime more teeth if progress is minimal.

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