· 3 min read · Features

Private sector be warned: equal pay is changing

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Although the Equality Act 2010 contains relatively few provisions relevant to equal pay, its significance should not be underestimated.

Equal pay is moving away from the certainty of a comparison between the rates of pay of actual employees and into new territory that involves allowing a claimant to ask an employment tribunal to speculate about what she would have been paid had she been a man. Should it concern employers that a claimant may secure a pay rise to plug the gap between her pay and the notional pay of the hypothetical comparator, plus potentially thousands of pounds in compensation for the injury to her feelings? It should certainly concern those that pay discretionary non-contractual bonuses.

There is, however, a bigger wake-up call for those that still consider it to be acceptable to pay male and female employees different rates of pay. The Equality Act outlaws secrecy clauses in employment contracts and enables employees to share information about their pay and employment terms and provides them with legal protection if they do so.

In addition to creating an environment in which employment terms are more likely to become common knowledge in the workplace, larger employers (employing 250-plus) are likely to find themselves obliged to actually publish gender-related pay details.  For some, this may amount to an open invitation for female employees to seek a higher rate of pay going forward. A successful claimant would also be entitled to six years' back pay, together with interest. Her employer can also add to the bill payments to rectify the tax position, and also enhance the claimant's pension entitlement to reflect the higher salary the claimant should have received over the period in question.  Multiply the number of claimants by the number of employees able to pursue such a claim and add in the legal costs of defending the case, plus the disruption in the workplace. And to complete the picture, include also a change to the payment of other employees to ensure that all doing similar work are paid at the same rate or to maintain differentials with others doing more demanding work. Anyone who thinks that this is an unrealistic exercise in scaremongering can ask the opinion of any one of a large number of public-sector employers that have the recent raw experience of finding a hole in their finances amounting to many tens of millions of pounds.

There are two ways of calculating the gender pay gap in order to assess how exposed an organisation may be:

As an example of the median figure, an employer establishes that half of its female employees are paid more than £15,200 and half are paid less. The same calculation produces a figure for male employees of £26,800. The female rate is 56.71% of the male rate, producing a median gender pay gap of 43.29%.

In the same organisation the average rate of pay for female employees is £13,900 and for male employees it is £26,600. The average pay of females is 52.26% that of male employees and the mean gender pay gap is 47.74%. 

The national gender pay gap is in the region of 22% calculated on a median basis and 20% as a mean figure. In our example the employer would appear to have a potentially significant problem.

This does not mean that employers with figures lower than the national average are safe. Far from it.  The most important part of the equation is whether the difference identified can be explained in a way that does not involve any element of paying female staff less because they are female.

For those thinking ‘we don't do that' the challenge is to calculate the gender pay gap overall, and separately for groups of employees doing similar work, and then consider whether it is possible to explain the whole of the difference in a gender neutral way. 

It is worth noting that there are certain pay practices that can allow pay inequality to persist, as many public-sector employers have found to their cost in recent years. Examples are:-

  • Discretionary pay systems where managers are left to determine starting salaries and pay rises based on their personal opinion of the employee's worth
  • Applying different terms and conditions to different groups of staff, particularly if additional payments are made for reasons that would not stand up to legal scrutiny, for example, paying some staff an attendance allowance in effect for attending at work, or paying bonus payments that are not performance-related, or do not involve applying the same rules to all
  • Operating more than one grading/pay system
  • Maintaining pay scales or ranges that are too wide
  • ‘Adapting' an otherwise suitable job evaluation scheme when applying it to employees.

The private sector can learn from the experience of the public sector and implement a grading system based on a suitable job evaluation scheme, which incorporates a plan for eliminating any anomalies over time. Action taken in pursuance of a long-term objective of reducing inequality between the employment terms of men and women is noted in the Equality Act to be something that will always be regarded as a legitimate aim in connection with the defence of an equal pay claim.

Lorraine Heard is a partner in the employment team at law firm Dickinson Dees