Pay equity to mitigate compliance risk

Equal pay legislation requires employers to ensure “equal pay” for “equal work”

The UK Equality Act 2010 gives a woman the right to be paid the same as a man (and vice versa) when carrying out “equal work”

By law, 'equal work' counts as either:

• “Like work”: where the job and skills are the same or similar
• “Work rated as equivalent”: Work could be rated as equivalent because the level of skill, responsibility and effort needed to do the work are equivalent
• “Work of equal value”: this is work that is not similar but is judged to be of equal value. This could be because the level of skill, training, responsibility or demands of the working conditions are of equal value

‍Discrepancies in equal pay result in employers paying up to 6 years of back pay to every employee

Many grading and pay structures have evolved over time, which means it can be hard for managers to justify why one job is graded higher than another or paid more. If there is a difference in how jobs are paid, employers need to be able to demonstrate why. An inability to justify this delta can result in an equal pay claim.

If the employee succeeds in their equal pay discrimination claim, they are entitled to compensation consisting of back pay (if the claim is about pay) and/or damages (if the complaint is about some other contractual term).

Back pay can be awarded up to a maximum of six years in England and Wales or five years in Scotland from the date that proceedings were filed with an employment tribunal.

In addition to back pay, employment tribunals may also award interest on the compensation and order that:

• The employee’s pay, including any occupational pension rights, is raised to that of their comparator
• Any beneficial term in the comparator's contract but not in theirs must be inserted into their contract
• Any term in their contract that is less favourable than the same term in the comparator's contract must be made as good as it is in the comparator’s
• Equality in the terms of their contract for the future (if they are still in employment)
• The employer carries out an equal pay audit

Leading employers have had to pay out over £1 billion in equal pay claims

The most high-profile equal pay claims have been brought over the last 10 years against some of the UK’s largest supermarkets, including Asda, The Co-op, Sainsbury’s, Tesco and Morrisons.

These claims assert that it is unfair that shop floor workers – who are mostly women – are paid less those employed in distribution centres – who are mainly men. If these claims are successful, they could result in up to £8 billion being paid out in back pay.

In the public sector, In 2019, Glasgow City Council agreed a package of payments worth more than £500 million to settle equal pay claims. These arose from a pay and conditions scheme introduced ten years earlier, which led to workers in female-dominated roles, such as catering or cleaning, receiving up to £3 an hour less than those in male-dominated areas such as refuse collection. Additional payments were also agreed in 2022 reaching a total of £770 million.

Pay equity audits and a structured job evaluation process can provide a defence against an equal value challenge, but….

As an initial step, many companies start with a pay equity audit (PEA) to ensure their organisation is paying employees fairly.

In simple terms, a pay equity audit involves comparing the pay of employees doing “like for like” work in an organisation and investigating the causes of any pay differences that cannot be justified. To determine the fair definition of “like for like” work, many organisations put in place a structured job evaluation process. Job evaluation is a method of determining on a systematic basis the relative importance of a number of different jobs, while avoiding prejudice or discrimination.

A well implemented and managed equal pay audit, and job evaluation process, can provide a ‘moment-in-time’ defence against an equal value challenge. But...Accurate, up-to-date job descriptions are critical to ensuring equal pay evaluations

Accurate, up-to-date job descriptions (or profiles) are critical to implementing and managing pay equity audits, job evaluation processes and ensuring you have unbiased effective pay and grading structures.

A job evaluation process appraises individual ‘factors’ of compensatory characteristics – such as skill, effort, responsibility, and working conditions. Specific job descriptions (or profiles) are evaluated against these factors to determine a score and translate the role into a grading and compensation structure.

In a global organisation, job evaluation can be used to create globally consistent grades or bands which are immune from the influence of local currency fluctuations and also help ensure compliance with any local equal pay legislation.

…One of the biggest challenges is the state of an organisation’s job descriptions

The implementation and ongoing management of a job evaluation process, relies on an organisation having in place job descriptions (or profiles) that are accurate, up-to-date and an acceptable description to both the business and employees who sit in those roles.

As a quick aside, the naming convention (descriptions verses profiles) and the level of detail required in this document (high level versus local variations) is often a big topic of debate in organisations, we’ll share guidance on this in a later post. For the purpose of simplicity, we are using the term “job description” as a catch all for all job documents, be they high level profiles or specific local variations.

Suffice to say, irrespective of the definition or level of detail of the content, this is one of the biggest challenges to the implementation and management of an effective pay equity audit and job evaluation process: the state of an organisation's job descriptions.  

Here's what most organisations find when they lift the lid on their job descriptions:

• There is often no central location for job descriptions, they are saved all over (in shared drives, disparate systems, local drives)
• The process of creating and updating job descriptions is manual, paper-based and not closely governed
• Over 50% of job description (or profile) documents are out-of-date
• Up to 60% of the skills listed in job descriptions are inaccurate or not required
• There is a wide variety of formats - some long, some short, some structured, some free text – captured in various file types – Word documents, spreadsheets, PowerPoints, PDFs
• There isn’t a consistent process in place to govern new job creation or to regularly review job descriptions

The result of this “job description chaos” is an urgent need to review, update and cleanse the existing job structure and job catalogue. This is often an overwhelming task requiring stakeholders across multiple business areas and a considerable amount of time, effort and resources.

Keeping on top of your job data as your jobs and organisation changes is critical in keeping control of equal pay  

Having invested the effort to define your job architecture and job catalog, you want to be able to govern how new roles are defined across the organisation to avoid recreating the chaos and risk that may have existed before.

McKinsey found that most organisations undertake re-structure on average every 3 years. Couple this with the day-to-day changes to how roles are executed and the need for new jobs to be created in line with changing needs, your job structure will never and should never remain static.

It is therefore essential to put a process in place to govern how new jobs are created and how existing jobs are updated on an on-going basis. However, this is where most organisations get stuck. Research shows that only 18 percent of organisations have proactive audit processes on maintaining their jobs

Without this governance, organisations risk recreating the chaos that may have existed before and exposing the organisation to risk of equal pay claims.

Job description software automates job governance and ongoing management, reducing future risk of equal pay claims

Innovative organisations are investing in technologies that help create, maintain, manage and govern their job architectures, catalogues and job description information to ensure that jobs and pay are fair, accurate and up-to-date.