Compulsory equal pay audits = compulsory job evaluation

The government published its long-awaited and heavily trailed Equality Bill yesterday. Employment lawyer Darren Newman confesses that he’s far more excited about this than an adult should be. He really does need to get out more.

It was Darren who told me last month that the whole thing would never happen. He was wrong but at least he has the good grace to admit it.

Darren has a running commentary on his blog and I expect he will be taking the bill apart in detail. He really loves this stuff which means he has the patience to go through it and understand it. If you want some insights on what the new law means and what impact it is likely to have, check Darren’s site over the next few days.

For now, though, I am going to focus on the proposal to make equal pay audits compulsory. This, too, is something which I thought had been kicked into the long grass when the Equalities and Human Rights Commission advised the government against it last month on the grounds that the extra burden on employers could damage the country’s economic recovery.

Seems I was wrong again.

From 2013, firms with more than 250 employees will be forced to conduct equal pay reviews and publish the data on their gender pay gaps. Furthermore, there will be no period of amnesty to allow firms to deal with any discrepancies in pay. Once the audit has uncovered pay differentials, firms will have to pay up immediately to equalise pay, and give six years worth of back pay to those employees who can show that the discrimination went back that far.

This effectively gives employers four years to carry out their own equal pay audits and change their pay structures before the law forces them to do so. Even this has potential pitfalls. If a firm carries out an equal pay review and finds it has pay discrepancies, if aggrieved employees or trade unions get hold of that information, it could be used as the basis of a legal claim which, again, could result in the employer having to make immediate payments.

Many employers still don’t understand the reach of equal pay legislation. It doesn’t just penalise firms for paying a man and a woman different rates for the same job. A company can fall foul of the law by paying lower rates to a predominantly female group of workers than it pays to a predominantly male group of workers, if the work of both groups is deemed to be of equal value. For example, you could argue that staff on an IT help-desk and staff on an HR help-desk are doing work of equal value. You are likely to have both men and women employed on both desks. But if you have more men on the IT desk and more women on the HR desk and you pay the IT people more, then you are in trouble.

How do you determine whether jobs are of equal value? This is where the fun starts. The recommended process for conducting an equal pay audit can be found on the Equality and Human Rights Commission’s website. It is quite clear that the only reliable means of deciding whether or not jobs are of equal value is by using an analytical job evaluation scheme. They break jobs down into a number of components and score them, thereby giving each job a numerical value. These systems are relatively common in the public sector but less so in the private sector.

However, if this bill is passed, companies will need to introduce such schemes. It is almost impossible to carry out an equal pay audit that would stand up in court without having used a job evaluation system. In effect, the Equality Bill will make job evaluation schemes compulsory.

Implementing these schemes is not something you can do overnight. You either need to bring in consultants or get your own people trained and qualified to set up and maintain the system. You also need to make sure your HR data is in a good enough state to feed accurate information into the job evaluation scheme. If you are in any doubt about the amount of work involved in an equal pay audit, run through the process on the EHRC site and work out how long it would take you and how many people you would have to recruit to do it.

Conducting equal pay audits will be time consuming and expensive for companies, even before they have started paying out to correct any pay discrepancies. Equal pay claims have come close to bankrupting many public sector organisations and the impact on the private sector of increased bureaucracy and pay costs could, in a recession, be potentially catastrophic.

For all that, there is no certainty that this legislation will have much impact on closing the pay gap. As the CIPDs Charles Cotton said:

Gender pay reporting is not the answer to the gender pay gap. The pay gap is a deep-seated and complex problem, as the government-commissioned Prosser review showed, which made 40 recommendations to address the issue. Choices made at school, choices of what qualifications to pursue, careers advice and cultural norms have a far greater impact in pushing men and women down different career paths than discrimination in the workplace. And there are basic realities about career and life paths that mean the actual, like-for-like pay gap is not as great as some of the sensationalist headline figures suggest.

He predicted that the new law will do little more than create bureaucracy and fuel employment law claims.

But should we be worried? After all 2013 is well after the next election and the Tories will be in power and will have repealed the law by then, won’t they?

Don’t bet on it. When this idea was first discussed two years ago, Theresa May spoke out in favour of compulsory equal pay audits and criticised the government for not going far enough. Her views haven’t changed. She was on the BBC news yesterday, again accusing the government of letting employers off the hook by not imposing tougher sanctions for pay inequalities.

If the Equality Bill goes through with these equal pay provisions unamended, some employers in the private sector will have to make some expensive and time consuming changes over the next four years. The country might be plunging into a recession but employment lawyers and job evaluation consultants will be looking forward to some bumper years.

Update: More here from Personnel Today’s Louisa Peacock, who has been trying to get some straight answers from Labour’s Vera Baird.

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12 Responses to Compulsory equal pay audits = compulsory job evaluation

  1. Jo Jordan says:

    Are you saying that British firms of 250 ees or more don’t use job evaluation? When I’ve recovered from my surprise, I’ll want to know how they set pay levels.

    I would have thought any self-respecting HR department routinely runs gender discrimnation checks. They collect the information after all! It’s on their computers.

    Why would any CEO leave home without that data? You truly surprise me.

    When I’ve picked my jaw up off the desk I’ll ask more!

  2. Rick says:

    Jo, lots of firms don’t use job evaluation. They often pay people against a market rate and a grading structure based on an estimate of where a job should be on the pay scale.

    As for gender pay data, a CIPD study found that under half of the companies surveyed had carried out an equal pay audit.

    http://www.personneltoday.com/articles/2008/02/18/44466/private-sector-warned-of-huge-equal-pay-timebomb.html

    Interestingly, there were still 18% in the public sector that hadn’t either.

  3. jonathan says:

    2 wrongs in a week Rick?

    It’s shelf stacking at Asda for you next week young man. Your status as a pundit is about as Alan Shearers transfer from pundit into manager…

  4. Rick says:

    Jonathan, my wife will tell you I’m wrong quite a lot of the time!

    But, in fairness, who’d have thought that the government would ignore the warnings of its own equality watchdog and bring in compulsory pay audits regardless?

    Yep. I have to confess that I underestimated the degree to which the government has lost the plot.

  5. Jo Jordan says:

    Thanks Rick. I am still gob-smacked.

    2 people in a firm means 1 comparison. 3 people means 3 comparisons. 4 people means 6 comparisons. And 250 means 249+248+247 . . .+1. Its difficult to run any kind of coherent system without a pay structure.

    Pegging data to the market is equally problematical without a model. We have to compare apples with apples. Even within a selected sample of companies, the interquartile range for carefully matched jobs is often 100%. Without a careful survey, a pay level is a lucky dip.

    External surveys also use implicit job evaluation – the questions are what it is and how well it used.

    How do companies factor in HRM costs into their pricing? Mystifying. I need to turn my surprise into curiosity.

    For now, I’m not clear what your objections are to the proposal when all that is being required is competent HRM. Personally, I was rather surprised firms have 4 years to get themselves into line.

  6. john b says:

    Because companies prefer to focus on selling their products and services to whomever they sell their products and services, which is *what they’re for*, while wasting the minimum amount necessary on HRM to avoid being sued?

  7. Rick says:

    Jo, I think pay levels are a lucky dip in quite a few firms. That’s why it’s always a good idea to get the highest salary you can when you start. Often, pay differentials are based simply on what the company could get away with paying each new recruit to join.

    It’s not just competent HRM that this measure requires. If these audits uncover pay differentials, which these days are more likely to be due to social factors than to deliberate discrimination, companies will have to pay out to bring workers pay levels into line.

    One could argue that it is desirable to do this, but at a time when people are being sacked or going onto short-time working, it’s hardly a priority.

    If this law is passed, employers will be clobbered for what is essentially a piece of cosmetic social engineering. It could put some of them out of business.

  8. Jo Jordan says:

    Social factors? Discrimination is illegal. Indirect discrimination is illegal. Unfairness is corrosive.

    If companies haven’t been honouring their obligations to be fair, then they simply have to get a move on! They have four years.

    I think this is precisely the time to chop out rot. This isn’t a normal recession and there is going to be fundamental restructuring in all organizations. Time to allow spring growth.

    I think you are jumping to conclusions re costs. Aren’t employers contradicting themselves? They say they didn’t know they were discriminating yet they know the costs will cripple them? If they had even a sniff of discrimination they should have audited themselves and sorted the problem out.

    I think you will find the vast majority of the population does not believe this to be cosmetic! If the minority are so worried, they could take the initiative and show some solidarity!

    From gobsmacked to incensed . . .

  9. Happy Homeworker says:

    This legislation is quite frankly nonsense and a recipe for disaster.

    As for job evaluation, I have not seen any job evaluation scheme which does not come up with a percentage of inaccurate job pay grades massively out of kilter with the job market. It is not a cure all, as it depends on subjective human input. As an example, my first personal experience of job evaluation resulted in my pay grade being reduced while the person I supervised was paid more than me! Granted, not all will be as bad as that one in the public sector but that job evaluation scheme resulted in more ill feeling, grievances and legal action than the original problem it was meant to solve.

    It should also be pointed out that all of the historic inequality in pay in the public sector is down to the deliberate practice of the trade unions, Labour’s biggest supporter, and a problem ignored until the 1990s.

    My experience in the private sector suggests that many organisations do have pay bands for certain jobs, but they can be quite wide. Many things are taken into account in offering salaries, but the market is paramount. As an example, salaries in certain areas will have been much higher 2 years ago than they are now, due to supply and demand. Should we still pay the same to employees hired now as we did then? The market says no, and employers will always try to hire as cheaply as possible for economic reasons. So if we pay a woman less now than the man hired 2 years ago due to the change in the job market, is that discriminatory?

    As for pay audits, the problem will be a statistical one, comparing apples with oranges. How do you deal with the secretaries in a professional firm who are always all female, since only women do these jobs? There may be no-one to compare their pay to in a professional firm.

    Like almost all the legislation introduced by Labour over the last 12 years, all that will result from this is increased fees for lawyers, they are the only winners.

    I used to be a HR Director but opted out 18 months ago and am now self employed in a different industry. I found I could no longer face dealing with the mountains of regulation and spending my whole life telling managers what they could not do, which is what the HR job is now – profoundly negative. I worry that much of the recent legislation is making employers (particularly small businesses) scared of employing women – in all honesty I would feel the same. I have no intention of ever employing anyone in my business.

    The obsessions of the “equality” industry in the predominantly south east of england should not be foisted on the rest of the population.

  10. Rick says:

    Jo, the conclusion you seem to be jumping to is that gender pay differentials are the result of employer discrimination.

    As the Prosser review showed, it is only one factor amongst many. To lump the burden for equalising pay between men and women onto employers is not only unfair but it also won’t solve the problem.

    Employers could still find themsleves with pay gaps even if they were not consciously discriminating because these gaps come about for a whole number of reasons.

    I reckon you’d find gaps between groups of predominantly male workers and predominantly female workers in most organisations. But that doesn’t mean they are due to employers deliberately discriminating.

  11. Jo Jordan says:

    Rick, discrimination is an effect not an intent.

    Employers offer a salary and pay a salary. No one else does it except them!

    Your argument is pretty vague and circular not so? You’ve decided that for some reason women should be paid less then men and then refuse to even check the numbers.

    The indirect discrimination principle was established ages back. If there is a difference in pay levels show how and why they came about. Not hard! Numbers are there in the records!

    Discrimination is illegal because of the brutalizing effect not just on those who are discriminated against but on those who do the discriminating. You should be thankful that it is ending.

  12. TomS says:

    I think that this legislation has been misunderstood, equal pay reviews are not being proposed for the private sector, it is something slightly different.

    To quote from the bill document,

    “The bill will require reporting on the gender pay gap by employers with 250 or more employees.”

    The requirement is that they publish their gender pay gap. That is, one figure for the whole company, not broken down by grade or type of job.

    Unequal pay is obviously only one reason that the average pay of men and women in a company will differ. Most of the difference could well be that women are concentrated in low pay jobs in the company, and most of the senior posts are held by men. In fact, in these circumstances it is likely that there will be a high gender pay gap even if the company complies perfectly with all equal pay legislation.

    So the requirement itself is less onerous than a full equal pay audit, but if a firm wants to improve its gender pay gap, it needs may need to do a lot more than ensure it complies with equal pay law (in fact, purely to improve the gender pay gap, it may be a very low priority).

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