Check for equal pay risky practices

As an employer, it is possible that you are at risk of an equal pay claim without even knowing it.

Equal pay claims often result from an organisation’s lack of awareness, or assumption that they understand and provide equal pay.

Practices that increase the risk of an equal pay claim include:

Lack of transparency in your pay and grading system

Transparency in a pay system means providing enough information for employees and managers to understand how it operates.

The courts have made it clear that they will not look favourably on employers that do not have transparent pay structures when considering an equal pay claim.

If a tribunal decides that a pay system is not transparent, it may become the employer’s responsibility to show that their pay practice is not discriminatory.

Discretionary pay systems

A discretionary pay system, for example performance-related pay and bonus schemes, is lawful provided any factors used to justify differences in pay are not discriminatory.

The risk of pay discrimination will increase if performance is not linked to quantifiable and easily explained criteria.

If men are consistently better rewarded than women, this would suggest the system could be discriminatory. Even where this is not the case, individual equal pay issues could arise.

Out of date job evaluation

A job evaluation scheme which is not kept up to date may not provide a defence in equal pay claims.

If job evaluation procedures are not followed for new or changed jobs – or if up-to-date evaluation records cannot be produced - a tribunal may not accept that a job has been adequately evaluated.

Providing regular training on job evaluation will help to ensure skills and knowledge are fresh and reflect best practice.

Non-payment of bonuses or other incentive payments during maternity leave

A woman on maternity leave is not entitled to receive her normal pay. However, under equal pay law she is entitled to receive the following contractual payments she would have received had she not been on maternity leave:

• Pay including any bonus, which relates to the period before her maternity leave.
• The proportion of any bonus that relates to her period of compulsory maternity leave (that is, the two weeks immediately following birth).
• Any bonus which relates to the period after the end of statutory maternity leave.

A clear policy that ensures these payments are made will help avoid challenges.

Differences in non-basic pay or conditions (for example, bonuses or overtime)

Some organisations have pay practices originally designed to solve a particular problem in relation to a particular group. These practices may have been kept without consideration about whether they are still justifiable.

Examples include:

• market supplements for some job families, such as IT, but not others (introduced because of recruitment difficulties in IT)
• bonus payments to some employees but not others (introduced because of low productivity in some groups, but not others)
• different ways of rewarding unsocial hours working for different groups (for example, rotating shift payments for some employees, night allowances for others)

Inconsistencies in pay and conditions of this kind can leave you open to an equal pay claim. They should therefore be regularly reviewed to ensure that they can still be justified.

For example, in relation to the market supplements example above, to make sure that recruitment difficulties still exist and that there isn’t a more appropriate way of addressing them.

More than one grading and pay system within an organisation

A pay system with more than one grading structures can become confusing and create opportunities for inequality to creep in unnoticed.

Historically, many organisations in Britain have used different grading and pay systems for different groups of employees. The grading and pay system used may have depended on:

• negotiations between employers and a group of employees, commonly represented by a trade union
• technological and work organisation features
• skillsets within the organisation.

The use of different systems for different employees is now less common, but still persist, particularly in certain industries, meaning that jobs of equal value may be paid differently. This leaves employers more exposed to the risk of an equal pay claim.

Long pay scales

Many organisations have long pay scales or bands, sometimes with many thousands of pounds difference from minimum to maximum.

Long pay scales may be introduced, for example, to increase management flexibility in determining pay on recruitment to take account of factors such as market forces.

An employee’s greater experience may be given as a reason for a higher level of pay within the pay scale and this can sometimes be justified – but not always.

For example, paying a new employee less upon recruitment than an existing employee maybe be justified due to the existing employee’s greater experience in the role. However, once the new employee is fully up to speed in the role and her performance matches the longer serving employee, the pay difference may no longer be justified.

If the average pay of women on each pay scale or range is lower than the average pay of men on the same pay scale or range, this could indicate that there is a discriminatory reason for pay differences.

Overlapping pay scales and broad-banded structures

It’s common for organisations to have overlapping pay scales, where the maximum of one scale is higher than the minimum of the next higher scale.

One reason for this may be to give the organisation’s local management more discretion over the pay of their employees.

The risk is that a woman at the bottom of an overlapping scale may compare herself with a man on a higher salary towards the top of a lower pay scale, arguing that her job is of the same or greater value as his but she receives less pay. If that is the case, then the employer will have to demonstrate that there is a material factor for the difference in pay.

An employer is more likely to be able to justify any pay difference where it has set out clear criteria for how employees progress to the top of their pay band than where management are given more discretion over where to set pay within the scale.

Managerial discretion over starting salaries

Individuals joining, transferring or being promoted may receive different starting salaries for lawful reasons, but the greater the degree of discretion, the greater the risk of discrepancies.

Discretion should be transparent and justifiable to avoid the risk of a challenge. A starting salaries policy can be a useful way to set out how decisions on are made.

It’s important to ensure when people are new to a post they start at the bottom of the relevant pay scale unless they meet particular criteria for a higher point on the scale.

You could also introduce training on negotiating salaries for managers and staff involved in recruitment.

Market-based pay systems

In pay systems where pay is linked to the external labour market, it’s common practice to pay supplements on top of base salary to address recruitment and retention difficulties.

This can become formalised into a structure where some female-dominated jobs are paid on a lower scale than other male-dominated jobs. For example, where IT and skilled manual workers are typically on a higher pay scale than those in administration or retail.

Some organisations don’t have formal internal grading structures at all, instead basing the pay of all or most of their employees on the market rate for the particular type of work.

Market-based pay can be lawful, provided you can prove that differences in pay between employees undertaking equal work are properly attributable to pressures in the labour market, such as skill shortages or competitive pressures in a sector, and have nothing to do with a difference in sex. 

Indefinite or lengthy pay protection policies

Pay protection is the practice of protecting the pay of employees whose jobs are downgraded. This can be as a result of:

• an internal reorganisation
• a pay or grading review
• implementation of a new job evaluation scheme
• an ill health transfer
• a change of ownership

Indefinite or lengthy pay protection that preserve a difference in pay between a man and a woman doing equal work for longer than is appropriate and necessary will not be justified.