Equal pay: how can employers ensure they don’t get caught out?

27 October 2023

Equal pay between men and women continues to be a significant problem in the UK. Reports have shown that women are still being paid less than men at four out of five companies in the UK. Several high-profile equal pay cases have shown that employers’ historical pay practices have led to female staff being paid less for doing the same or similar work to their male colleagues.

What is equal pay?

The Equality Act 2010 states that men and women in the same employment performing equal work must receive equal pay. Equal pay applies to all contractual terms, not just pay. This includes non-discretionary bonuses, overtime rates and allowances, pension benefits, redundancy payments, sick pay, travel allowances and benefits in kind such as a company car.

Where an employer can show that the variation in pay is due to a material factor which is not directly or indirectly discriminatory, the difference in pay would be considered justified and the employer would have a ‘material factor’ defence.

Why are employers getting it wrong?

Many employers are unaware that their normal practices can lead to risks with equal pay. Common examples include:

  • placing men and women in traditional roles and failing to undertake job evaluation exercises to determine their pay;
  • a lack of transparency in pay and grading systems within the organisation; and
  • managerial discretion over salaries.

What are the consequences of getting it wrong?

Employers that fail to comply with equal pay legislation are at risk of expensive employment tribunal litigation, reputational damage, low staff morale and loss of productivity and key employees. It is therefore crucial that employers understand their legal obligations to implement a fair pay system and mitigate the risks.

The consequences of getting it wrong was recently highlighted when a local authority council was held liable for equal pay claims in the region of £650m and £760m, having already paid out £1.1bn in compensation for equal pay claims brought over a decade ago. This led to a requirement to file a section 114 notice, resulting in bankruptcy with all but essential spending being stopped.

The council had failed to take action to change its practices leading to thousands of female workers claiming they are still not paid equally to their male counterparts. The case demonstrates the serious consequences for organisations who get it wrong, and the risks involved where an organisation fails to take proactive steps to change its pay practices and procedures where an equal pay issue has already been identified.

How can we help?

Our experienced team of employment lawyers and equality, diversity and inclusion specialists can work with you to identify risk areas, transform your workplace culture, and mitigate the risks. This includes:

  • undertaking training for key stakeholders on the actions your organisation should be taking to ensure you are compliant with equal pay laws in the Equality Act 2010 and under the Equality Human Rights Commission code of practice;
  • Undertaking a legally privileged equal pay audit of employees within your organisation to identify any equal pay risks and highlight those areas which require action;
  • Implementing a strategy to mitigate any equal pay risks we have identified;
  • Supporting you with documenting any material factors which justify unequal pay in accordance with legislation; and
  • Carrying out a job evaluation exercise to review and assess your pay system and ensure it is fair and meets your obligations under the Equality Act 2010.

If you are an employer and you would like support with an equal pay legal audit or any of the areas mentioned above, please contact Jennifer Mansoor.