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Understanding equal pay audits

Despite the Conservatives’ preference for a voluntary approach to gender equality reporting, as per the Think, Act, Report Initiative, compulsory audit provisions came into force on 1 October 2014 and reveal a tough stance against employers who break the law on Equal Pay; this reflects that it formed part of a mid-term agreement with their Liberal Democrat coalition partners.

equal payAn audit is compulsory where an equal pay claim succeeds, unless an exemption or an exception applies, and failure to comply can lead to multiple (and significant) financial penalties being imposed. However, despite the new powers being drafted in such robust terms, it is far from certain that we will see the full intended effect of this legislation.

Firstly, the two exemptions for “new businesses” and “micro-businesses” will remove a considerable number of companies from the scope of its powers, namely those businesses with less than 10 employees or which have only recently commenced trading. Arguably, a significant proportion of successful discrimination claims involve such businesses, some of whom have yet to fully understand their obligations under the Equality Act and/or who have limited access to HR support or legal advice.

 

The purpose of these exemptions is to reduce expense for such vulnerable organisations, but, in reality, a fledgling business or one with few staff probably ought not find conducting a simple analysis of “who earns what and why” too onerous, or costly. It may even have proved to be a beneficial process for inexperienced employers.

Secondly, even if an employer doesn’t fall within either of the exemptions, there are still four exceptions that can save it from having to carry out an audit, which range from the prudent (where an audit has been recently carried out or where it is clear that the breach is a one off) to the vague and subjective (where “the disadvantages outweigh the benefits”). See our Equal pay flow chart

Employers preparing to defend such claims would therefore be wise to consider adducing evidence regarding the disadvantages of conducting an audit and, at least until some guidance is established by way of case law, attempt to make use of this exception as far as possible. Similarly, focussing on how the alleged breach is an isolated occurrence (if this is realistically arguable) would open up a second possible means of avoiding the compulsory audit.

The main tool in the employer’s arsenal, however, is that of settlement. For many businesses, it will be preferable to settle a claim than it would be to risk both losing and having to conduct a time-consuming audit – remembering that the audit must be published on the company website and a copy made available to everyone whose pay details featured in it. The negative publicity that this could generate alone will lead many organisations to the negotiating table, as may the potential for multiple fines for those companies who may feel commercially unable to produce an audit whose scope is entirely outside of their control and the extent of which is unlikely to be successfully appealed against. It is therefore more likely that we will see an increase in settled equal pay claims than a significant number of compulsory audits being ordered…

Employers who feel susceptible to equal pay claims may wish to take the opportunity to produce an audit at this stage, in order to rely upon the exception for businesses that have recently done so – whilst any breaches would be exposed, it would not have to be published on the company website, unlike a compulsory audit. Steps can then be taken to rectify any issues identified in the near future.

Our Equal pay flow chart gives an overview of the  Tribunal’s new powers.

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Legal news, views, trends and tools for HR Professionals. Stay ahead. Go further