Ensuring your employees receive equal pay for equal work is a legal requirement. Yet many organisations unknowingly let pay inequality slip through the gaps.

The best way to ensure your organisation provides equal pay is to regularly conduct equal pay audits.

Equal pay audits offer the opportunity to look at employee pay on a granular level so you can identify any pay inequality and create an action plan to address pay gaps as soon as possible.

In this article, we will highlight the importance of equal pay before offering a step-by-step guide to conducting a pay audit for your employees and tips for preventing equal pay issues.

What is equal pay?

The Equality Act 2010 was brought into effect to ensure that both men and women have the legal right to equal pay for equal work.

If you, as an employer, do not follow the Equality Act 2010, you will be in breach of the law and will be at risk of entering an expensive employment tribunal case. The act of not ensuring equal pay could also be damaging to your reputation as an employer.

Equal pay applies to all contractual terms including:

  • Basic pay
  • Non-discretionary bonuses
  • Performance-related pay
  • Overtime rates and allowances
  • Severance and redundancy pay
  • Pension scheme access and benefits
  • Hours of work
  • Company car
  • Sick pay
  • Other benefits such as travel allowances and expenses
  • Benefits in kind

Types of employees covered by the right to equal pay include:

  • Employees with a verbal or written contract of employment
  • Employees who agree to do work personally
  • Apprentices
  • Personal and public office-holders

The length of service also does not impact an employees right to equal pay. It does not matter how long they have been employed or whether they are employed on a full-time, part-time, fixed term, zero hour or casual contract.

While the law currently only applies to men and women, we believe that equal pay audits should be extended to include other characteristics  — ensuring no employees are financially discriminated against based on personal characteristics.

As per the Equality Act 2010, employers identified as having a potential equal pay breach must conduct equal pay audits to identify action to be taken to avoid equal pay breaches occurring or continuing. This audit minimises the risk of pay inequality occurring within your company.

Employers with more than 250 staff members must also report their organisation’s gender pay gap. Gender pay gap data should be provided by a specific date, known as a ‘snapshot date’, as set by the UK Government. When reporting gender pay gap data, employers must provide:

  • the percentage of men and women in each hourly pay quarter
  • average hourly gender pay gap
  • percentage of men and women who received bonus pay
  • average gender bonus pay gap
  • person in the organisation who is responsible for the data
  • link to the written statement if the organisation is reporting as a private, voluntary, or other public authority employer

Make sure your organisation pays all employees fairly.

Why is equal pay important?

Equal pay is a legal requirement. As such, making sure your organisation provides men and women equal pay for equal work is extremely important.

Yet making sure you are a law-abiding employer isn’t the only reason why equal pay matters.

Ensuring equal pay within your organisation demonstrates your commitment to removing unfair pay practices.

Moreover, going beyond the gender pay gap to ensure equal pay for all employees will help ensure your commitment to eradicating pay inequality benefits all employees. Doing this goes beyond lip-service and will help your organisation to actively combat workplace discrimination. Whether discrimination occurs intentionally or unconsciously, providing equal pay for all employees conducting equal work is one step toward minimizing discrimination within your organisation.

Offering equal pay will also make sure your employees are all on an equal playing field, regardless of personal characteristics. No employee should be hindered because of who they are; offer equal pay to make sure all employees have an equal opportunity in the workplace.

Finally, ensuring equal pay for equal work will boost employee morale. Employees will feel empowered knowing they work at an organisation that actively ensures they are being paid fairly for their skills, talents and abilities. Offering equal pay will directly impact employee’s personal lives, showcasing that you genuinely care about your staff’s financial well-being both in and outside of work. On a morale-level, equal pay also improves team morale by ensuring team members don’t resent colleagues who they know are performing the same tasks for a higher pay.

How to conduct an equal pay audit

An equal pay audit compares the pay of employees (typically analysed as men versus women) doing equal work in your organisation. The findings from your equal pay audit are used to identify any differences in pay between people who are doing the same work. You can use these insights to investigate the cause of any differences and eliminate instances of unequal pay.

Keep reading to learn how to effectively conduct an equal pay audit for your organisation, along with recommendations for each step of the process.

Define the scope of the audit

Begin by defining the scope of the audit. Scoping enables you to see how much work will be required, who needs to be involved, and how best to conduct the audit.

When scoping the audit, you can also decide whether you intend to do a full audit across all departments, roll the audit out in stage one department at a time, or focus on auditing a particular audit where you think there is a risk of unequal pay.

Carry out a risk assessment to determine the priority order for which departments to audit first. Ideally, you should start with the department with the highest risk of pay inequality so you can ensure this risk is eliminated as soon as possible.

While scoping out the audit, take time to determine who will be involved in delivering the audit and where their responsibilities will lie. At a minimum, you will want a HR employee and finance employee to lead on the equal pay audit. The HR employee can manage the people-side of the audit while the finance employee can be responsible for any salaries and calculations.

Other people that you may want to involve in the pay audit include a Diversity, Equity and Inclusion (DEI) consultant, lead or representative, and a data analyst. Make sure anyone working on the audit is fully trained in carrying out audits of this kind.

Consult trade union or employee representatives when conducting an equal pay audit.

Consider what data to collect

Once you have mapped out the scope of the audit, you are ready to decide what data points you plan to collect.

Make sure you are collecting information that will help you reach your outcomes of identifying pay inequality and developing steps to ensure pay equality moving forward.

While collecting data, be careful to only collect the necessary information. Collecting unnecessary data can be considered to be a breach of GDPR. Under GDPR, personal data is defined as “any information relating to an identified or identifiable natural person”. As such, any employee personal data is protected by GDPR regulations. Before collecting any data, make sure your data collection processes align with GDPR requirements.

Examples of data that you may want to collect during an equal pay audit include:

  • Relevant personal information for each employee – Collect gender information but also collect other characteristics that may put people at risk of pay discrimination. The Equality Act 2010 defines protected characteristics as being: age, disability, gender reassignment, marriage and civil partnership, race, religion or belief, sex, sexual orientation.
  • Work experience for each employee – Collect information relating to each employees work experience such as their length of service, seniority level, job title, department, and contract type
  • Pay and contractual information for each employee – Collect all relevant information relating to pay and contractual terms. Remember to include hourly pay, annual pay, baseline pay, performance-related pay, working time pay, benefits received, and so on.

Remember, only collect the information that you require to accurately identify and assess equal pay. With that said, the more information you are able to collect, the more you will be able to understand the gaps in pay equality. There is a fine line between collecting too much information and the right amount. Be sure to seek legal support if you are worried about the GDPR implications of data collection.

Conduct the pay audit

As soon as you have decided what data you plan to collect, you are ready to begin the equal pay audit.

Collect the necessary data from internal systems such as employee databases. You should be able to find up-to-date information regarding employee’s personal information, salary and pay information, employment contract, job position and work experience, among other details.

If needed, you can also liaise with employees directly to confirm the collected employee information is correct. This could be done in-person or by sending out confidential surveys.

Once you have all the necessary data, it’s time to analyse all of the collated information.

Split employees into equal work categories

Before analysing the data, however, you first need to split employees into equal work categories.

These equal work categories allow you to accurately assess which employees are considered to be completing equal work.

There are three categories used to define equal work. These are:

  • Like work – work that involves similar tasks requiring similar skills, and where any difference in the work are not of practical importance
  • Work rated as equivalent – work that has been rated under a fair job evaluation scheme as being of equal value in terms of how demanding it is
  • Work of equal value – work that is not the same and is not rated as equivalent, but is of equal value in terms of factors such as effort, skill and decision-making.

Consider each type of equal work when analysing your data. Make sure you report on findings across all three of these definitions of equal work so that you can make equal pay improvements that positively impact all employees.

 

Analyse collected data

Next, analyse the collected data across all employees so you can see  how pay varies between employees conduct equal work.

Start analysing the data by calculating the average basic pay and total average pay for every employee audited.

First, calculate average basic pay and total average pay, then calculate difference between average ay and total pay for the employees you plan to compare (e.g. women vs men) for each equal work group.

To calculate average earnings, you can use median or mean averaging. Median tends to be less affected by a small number of extremely high earners. Using median average helps reduce the risk of high earners skewing the data. Whereas, using a mean average can demonstrate the difference across distribution. Mean average is, therefore, valuable for showcasing who sits in the low earnings bracket and who sits in the higher earning brackets so you can spot inequality in regard to pay distribution.

Remember, employees completing the same role are entitled to equal pay.

Assess the reasons for pay differences

Now, assess the reasoning behind pay differences within your organisation. Identifying pay inequality is just one half of the equation. You then need to understand why the pay differences exist, and how to rectify these equal pay issues.

The pay gap may be occurring due to illegal pay discrimination. In most cases, however, pay inequality occurs due to outdated practices surrounding fair pay. Internal policies and procedures could impact pay disproportionately. If this is the case, these policies and procedures need to be identified and improved to prevent future pay inequality issues from arising.

Other justifiable reasons for pay differences may include:

  • One employee is better qualified than another and has crucial skills that are hard to recruit for
  • The employee’s location – for example, London has a higher cost of living so employees based here may be on higher pay rate
  • Employees working unsociable hours whereby the employer can prove that they only way to get cover for unsociable working hours (e.g. night shifts) is to pay staff more for working these hours

To justify the pay difference, you need to prove that the difference in pay is due to a material factor (such as the three examples given above) that has nothing to do with personal differences such as gender, age, race, or ability.

Make sure the justification given is the real reason for the difference in pay and not a cover for another reason.

If there is not a justifiable reason for difference in pay, implement steps to ensure employees are paid equally as soon as possible.

Determining the reasons for pay differences is a complex area, especially when the line between what is and isn’t considered a justifiable legal reason and what is very thin. Gain legal advice at this stage to ensure that you are providing accurate, justifiable reasons for pay inequality and how to proceed moving forward.

Create an action plan for ensuring equal pay

Use your audit to make improvements to pay equality in your organisation. Taking action is the only way to ensure your company is committed to providing equal pay for equal work.

Aim to resolve any cases of unequal pay as soon as possible. Resolving equal pay issues should be considered a company priority.

When building an action plan, make sure you address:

  • When and how you will rectify the pay gaps
  • Why this is the soonest it can be addressed
  • The identified causes of pay inequality and how you plan to resolve these issues
  • Involve trade unions or employee representatives where possible
  • Set a time to conduct another pay equality review to ensure this has been addressed

Remember, to consult trade union or employee representatives at the time of implementing action. Trade union members and employee representatives will then be able to support with implementing action that has your employees interests at heart.

Tips for preventing equal pay issues

Conducting an equal pay audit isn’t the only thing you can do to prevent equal pay issues. Be productive in identifying and addressing equal pay issues rather than relying on an annual equal pay audit to do the work for you.

For any employer with more than 50 employees, we recommend conducting an annual equal pay audit of your entire organisation. However, if your organisation has a high turnover rate or high employee onboarding rate, we recommend increasing the frequency at which your audit employee salaries and benefits.

Other things you can do to prevent equal pay issues include:

  • Have an equal pay policy
  • Maintain up to date job descriptions for each employee
  • Regularly conduct equal pay audits
  • Set pay structures and guidelines for deciding pay rate for new employees
  • Make sure people doing the same job do not have different job titles

Implementing systems to reduce the chance of pay inequality is the best thing you can do to ensure you pay all employees fairly.

How an employment lawyer can help

Analysing pay isn’t a straightforward process, especially with so much legal tape surrounding equal pay and discrimination. From ensuring you are GDPR-compliant, to reviewing the reasons behind pay inequality, and addressing any causes of pay inequality, an experience employment lawyer can help you make the best decisions for your business and employees.

Employment lawyers can help you with any pay inequality issues you are facing. Here at TEN Legal, we can help you with tribunal cases and equal pay disputes as well as ensuring your pay policies abide with employment laws.

Whatever support you need with addressing pay inequality as an employer, we are here to help.