Equal pay audit step 4: causes of gender pay differences

Your equal pay audit might reveal significant differences between the pay (which includes contractual benefits), of men and women doing equal work. If this is the case, you need to identify which aspects of your pay system are causing the differences – and why. 

As a general rule differences of 5% or more, or any recurring differences of 3% or more merit further investigation. This is not definitive and does not mean that other differences are not significant or that you are protected from equal pay cases being taken against you. However, such patterns are a good starting place for you to consider.

A significant difference within an equal work band – depending on the specific nature of what you find – may again merit further investigation within that grouping.

1. Check the differences in basic pay

You should check the pay policies and practices that determine basic pay. These might include starting pay, service, pay progression, pay protection and market factors.

These need to be checked in two ways:

• how these are being applied in practice
• the statistical impact on men and women

There are some common reasons behind most gender pay differences, usually due to deficiencies in the pay system.

Learn more about pay systems.

It’s how pay policies and practices actually affect pay that matters, not the intention behind them.

Useful tip: When you are looking for explanations for any pay differences, concentrate on those aspects of your pay policies and practices that affect, or have affected, groups of employees. For example, pay protection which was given to a group of employees after a regrading exercise.

2. Check all your other pay elements

Now check for any differences in all the other elements of pay, including:

• performance-related pay
• working time pay
• benefits

If you find any significant differences in the average amounts received you should also review the policies and practices that influence these, such as the eligibility for allowances, or levels of allowances paid.

Again, it’s how pay and benefits policies and practices actually affect pay in practice that matters, not the intention behind them.

3. Assess the reasons for pay differences

Now assess whether any causes in pay differences you have found are related to sex and whether it could justify the difference in pay in law.

To justify the pay difference you will have to prove that the difference in pay or other contractual terms is due to a material factor that:

• has nothing to do with a difference in sex
• is the real reason for the difference in pay and not a sham or pretence
• is causative of the difference in pay between the woman and her comparator
• is material: that is, significant and relevant
• if it puts women at a particular disadvantage compared to men, is objectively justified

Learn more about material factors.

The question of what amounts to a legally sound justification of a pay difference is a complex area. It depends on the detailed and individual circumstances of each organisation, as well as on equal pay case law. It is important to document your justification of any pay differences. If there is any doubt, you should seek legal advice.