How do you conduct an equal pay audit? 3R Strategy Director, Rameez Kaleem, was recently invited to discuss this in this article written for REBA:
An equal pay audit is the process of comparing how much you pay men and women who carry out equal work. That bit is simple enough. What isn’t always as easy to understand though, is how you actually do it – but, hopefully, you will by the end of this read.
Why carry out an equal pay audit?
Under the Equality Act 2010, if women do equivalent work to men they must be equally compensated. And if you don’t? You face the unwanted threat of an equal pay claim.
As well as keeping you on the right side of the law, conducting 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 your equal pay audit
When it comes to completing a comprehensive equal pay audit in your organisation, the Equality and Human Rights Commission recommends five steps. Below, we‘ve summarised each, explained why you need to do them, and provided some practical guidance.
Step 1: setting out your scope
The initial stage is incredibly important as it sets the tone for the rest of your 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.
Step 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, couldbe rated as equal through a job evaluation process.
Step 3: collecting and analysing
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.
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.
Step 4: understanding underlying causes
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.
Step 5: putting a 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.
Even if your audit didn’t return any pay discrepancies, drawing up an equal pay report is still a worthwhile task to showcase and maintain your current standards.
If you need any more help or advice on conducting an equal pay audit, 3R Strategy would be delighted to help. Please contact us for a no-obligation chat: https://3r-strategy.com/contact-us/