Equal pay reviews: carrying out an equal pay review

What follows is guidance on best practice based on the EOC's new code of practice. As with any major policy, its validity and success will be greatest if it has the 'buy-in' of employees, their representatives and particularly line managers, who must operate it on a day-to-day basis. The EOC therefore recommends that employers should aim to secure the involvement of employees and, where possible, trade union representatives in setting up, carrying out and acting on an equal pay review.

Carrying out an equal pay review

EOC model for carrying out a pay review:

STEP 1 Deciding the scope of the review and identifying the information required

What should the review cover?

You may want to think about extending the review beyond pay to include other processes, such as recruitment or promotion; or to cover other forms of discrimination in pay, such as by ethnicity, disability, or age. This will depend partly on the availability and quality of information you have.

Which employees should you include in the review?

The EOC advises including all employees who are deemed to be in the same employment, establishment or service. Deciding to carry out the review in stages or to include only certain sections of the workforce increases the likelihood of an equal pay claim being made.

Who should be involved in carrying out the review?

A project team? Depending on the size of the organisation, you may need to set up a project team to guide the pay review process, bringing input from those with knowledge and understanding of, for example, pay and grading arrangements, payroll and personnel systems and equality issues. If you are carrying out a job evaluation scheme, it is recognised as best practice to include in the team a representative sample of people from the spread of jobs covered, and, in particular, a fair representation of women.

Employee representatives? Involving the workforce will ensure employees can contribute valuable information about the operation of the existing system and the likely effect of the new one. It could also reduce the risk of dispute over the outcome of the review; help employees understand the new system and thereby enhance its transparency; and ensure you fulfil your duty to disclose to the union any information necessary for collective bargaining, including information about pay systems.

Experts? Organisations such as the EOC and Acas can offer practical, independent and impartial help, and in the case of a wider review, the Commission for Racial Equality and the Disability Rights Commission may be of help.

What information will you need to collect?

In order to carry out a comprehensive review, you will need to collect a considerable amount of information that can be separated into two broad categories:

The precise information required will vary according to the type of organisation, its pay policies and practices and the scope of the review.

Job/personal characteristics

Pay

The EOC recommends setting up an equal pay database or at least a report facility to make it easier to carry out ongoing regular checks on equal pay.

STEP 2 Determining where men and women are doing equal work

Are men and women doing "like work"?

Are they doing work that is the same or broadly similar? They are likely to be doing so where they have the same job title/description or where the nature of the work they actually do is broadly similar. Minor differences can be ignored.

Are they doing work rated as equivalent under an analytical job evaluation scheme?

This is likely to be the case where men and women have similar, but not necessarily the same, job evaluation scores and are in the same grade. It is important to look at jobs around the grade boundaries to see if these could be regarded as equivalent.

Analytical schemes are those where jobs are broken down into components known as factors, and scores and weighting are awarded for each factor. The total of these scores gives the overall job rank.

Even if you do have an analytical scheme, it important to check that it has been designed and implemented in a non-discriminatory way.

Under the Equal Pay Act 1970, a scheme will be discriminatory if the values it places on different demands are not justifiable on grounds other than sex; or if it fails to include or properly take into account a factor that is an important element of the claimant's job; or if it gives an unjustifiably heavy weighting to factors identified as part of male-oriented jobs.

A discriminatory scheme will not be able to prevent a worker from proceeding with an equal value claim and will not provide the employer with an adequate defence to such a claim.

Older schemes and those excluding groups of jobs are likely to be most at risk of bias. Check with your supplier if you bought your scheme 'off the shelf' and see the next section (page 19), based on guidance from the EOC, to decide if you need to review your job evaluation scheme(s).

Are they doing work of equal value?

Are they doing work that is different but of equal value in terms of the demands on them such as levels of skill, knowledge, mental or physical effort or responsibility?

The EOC advises that the most reliable way of checking this is to use an analytical job evaluation scheme to cover all workers (see page 19).

There are alternative methods for estimating equal value, such as using grades where a single grading structure exists, levels in a competence framework or qualifications levels.

It is also possible to carry out equal value spot checks where you suspect there are possible vulnerabilities, such as where you have jobs performed by large numbers of men and those performed by large numbers of women, or particularly low-paid jobs.

The spot check should involve a systematic assessment of the demands of these jobs using the headings above. However, the EOC points out that none of these alternatives is really an acceptable alternative to the rigorous job evaluation approach.

Step 3 Collecting pay data to identify equal pay gaps

Having drawn up the full data specification for your equal pay review under step 2, you need to collect and compare pay information for men and women doing equal work by:

Calculating and comparing average basic pay and total earnings

To ensure comparisons are consistent, employers should calculate average basic pay and average total earnings on either an hourly basis or a full-time salary basis - grossing up or down for those who work more or fewer hours (excluding overtime) - per week than the norm.

There are several different ways of analysing and comparing the data you collect. Averages are a useful first step for identifying gaps, but can conceal important differences (see box below).

Having reviewed the pay comparisons to see if there are any significant gaps in the relative pay of men and women's jobs, you need to decide if any pay gaps are important enough to warrant further investigation.

The EOC says that as a general guide any differences of 5 per cent or more, or patterns of difference (for example, women consistently earning less than men for equal work at certain or all grades or levels in the organisation) of 3 per cent or more, will need explaining.

It is important to record the significant and/or patterned differences that you identify.

Comparing access to and amounts received under each element of the pay package for men and women doing equal work

For each element of pay employers should calculate the proportion of men and women who receive it and the average amount men and women receive. This will show if there are any gender based differences which need to be further explored.

Step 4 Establishing the causes of any significant pay gaps and assessing the reasons for these

Having identified any significant gaps in the statistics, you need to find out if there is a genuine and material reason for the difference in pay that has nothing to do with gender, and examine your pay systems to find out which policies and/or practices are contributing to the gaps.

Pay arrangements vary widely and there is no simple blueprint for finding out the cause of pay gaps. In recent years, there has been a trend towards pay structures with fewer, broader grades or bands, often containing jobs that are significantly different in terms of the demands they make on employees, and greater use of performance and competence pay. This means it is important employers check the design and implementation of their pay systems and also the impact of their pay practices on men and women.

The EOC provides a questionnaire to help organisations undertake a first-stage, general equality check on their pay practices (see page 37). If you cannot answer yes to any of the questions on the checklist in relation to your pay practices, rather than policies, the EOC suggests you check the pay structure to ensure it is free from discrimination.

The EOC Equal Pay Review Kit provides further checklists to help you assess your pay practices in relation to pay on entry, pay protection and progression, performance/ competence based and incentive pay systems and market factors, and whether these may have a discriminatory impact in favour of one sex.

All the checklists are reproduced in Section 12, starting on page 37.

Step 5 Developing an equal pay action plan or reviewing and monitoring

Organisations that have identified gaps in men's and women's pay for which there are no objective explanations need to develop an equal pay action plan. Those who have no pay gaps, or can explain these by reference to reasons other than gender, need to review and monitor their pay systems to ensure this continues to be the case.

The plan should include arrangements to:

Find out more

EOC revised code of practice on equal pay - www.eoc.org.uk

Equal Pay Review Kit and Guidance Notes - www.eoc.org.uk

Equal Pay, Fair Pay - a Small Business Guide to Effective Pay Practices - www.eoc.org.uk

Pay Audit: Equal Pay Reviews and Beyond, Derek Burn - www.chandospublishing.com