How to Conduct an Equal Pay Audit in your Business
What is an Equal Pay Audit?
Equal pay audit – it’s something you have probably heard mentioned in HR circles, but most CEOs don’t know much beyond that.
However, under the Equality Act 2010, if women do equivalent work to male employees they must be equally compensated. What is, however, equivalent work?
Earlier this year, supermarket giant Asda lost an appeal in the latest development in a long-running legal dispute with staff over equal pay.
The Court upheld the ruling that lower paid shop staff, who are mostly women, could compare their role with that of higher paid warehouse workers, who were mostly male.
It’s a clear illustration of why getting equal pay right is important and an equal pay audit is the best process to achieve this.
As well as keeping you on the right side of the law, conducting an equal pay audit will:
- identify, explain and, if necessary, eliminate pay inequalities;
- help create a transparent culture around pay;
- demonstrate your commitment to equality in the workplace; and
- highlight your business’ values to investors, partners, employees, suppliers, customers, and clients.
How to carry out an equal pay audit
Many organisations will instruct an organisation like 3R Consulting to undertake an equal pay audit for them, however it can also be done in house if you have the available time, expertise and resources.
The Equality and Human Rights Commission has laid out some guidance for employers and recommends the following five steps. Here, we‘ve summarised each, explained why you need to do them, and provided some practical guidance.
1: setting out the scope of an equal pay audit
The initial stage is incredibly important as it sets the tone for the rest of your equal pay audit, and any following stages will flow from it. In a nutshell, it involves:
- deciding whether or not to complete a full audit or, for practical reasons, take a staged approach
- determining who should be involved in your audit. It’s a good idea to include: HR business partners or consultants with knowledge of individual/historical circumstances; internal experts or external consultants with knowledge of equal pay and job evaluation; and payroll or finance
- although not essential, it might be a smart move to bring trade unions and/or other employee representatives. They may well have some very valid contributions, and it could help curtail any potential disagreements down the line.
2: deciding what is and isn’t equal work
One of the trickiest elements of equal pay audits is understanding when work is and isn’t equal in the eyes of the law, but getting this bit right is essential. There are three types of equal work as defined in the Equality Act 2010:
Like work – work that involves similar tasks requiring similar skills. Job titles are the common indicator of ‘like work’, but with so many unique job titles in many organisations and lack of consistency, this can be a challenge.
Work rated as equivalent – work that has been graded as equivalent under a job evaluation scheme.
Work of equal value – work that is of equal value in terms of effort, skill and decision-making. Roles that are entirely different – administrative vs manual, for example, could be rated as equal through a job evaluation process.
This is arguably the most challenging stage; especially if you don’t have a single HR database to pull information from. You will need to determine which pay elements you need to include in your audit apart from base salaries, such as bonus/sales incentives, performance-related pay awards and allowances.
3: collecting and analysing data
Alongside pay data, you may also want to gather further information on employees such as:
- length of service (with the company and in role)
- performance ratings
- starting salaries
- qualifications (e.g. chartered accountancy or actuarial)
- ethnicity and disability (if included in your scope).
Once you’ve curated an accurate list of all employees who do the same work, carefully compare pay packages, paying particular attention to any pay gaps taking into account job families (if they exist) and the location.
Although not essential, having a statistical picture of the workforce covered by your audit might make your life easier. Usually, this picture will include things like: gender distribution by grade/equal work groups; male and female staff by age and length of service; and part-time staff by gender and grade.
To analyse pay you then need to:
- Calculate the average basic and total average pay for men and women.
- Compare individual elements of pay received by men and women.
4: understanding underlying causes of pay differences
If you do uncover any pay differences, you’ve got to investigate what’s causing the discrepancy and why.
A good starting point is to investigate any standalone difference that’s 5% or more, or any recurring differences of 3% or more.
When determining what the root cause of any differences is, remember to consider:
- performance ratings that have been fairly and consistently awarded;
- local or external market forces resulting in higher pay to attract and retain employees; and
- elements surrounding basic pay, like your policies and practices. These might include things like starting pay, service, pay progression, pay protection and market factors, all of which could influence your findings.
5: putting an equal pay plan in place
The last but by no means least important stage involves setting out defined actions to address any pay gaps. Your action plan should include:
- whether you need to consult with the unions or any other employee representative bodies to discuss the outcome of your equal pay audit;
- costing or modelling to discuss the financial implications of implementing the action;
- if you need to assess your pay structure, policies, or approach to pay progression; and
- if an equal pay policy should be introduced along with a process for a regular review of the pay system.
If your equal pay audit didn’t return any pay discrepancies, time to give yourself a pat on the back, however having taken the time to do it will enable you to illustrate your commitment to equal pay.
drawing up an equal pay report is still a worthwhile task to showcase and maintain your current standards.
For more information about carrying out an equal pay audit, visit 3R Strategy: https://3r-strategy.com