The principles of discrimination law, outlined elsewhere in this Guide ( Equal opportunities ), apply just as much to payment systems as they do to any other aspect of an employer's personnel practices. The broad principles are that an employer must not discriminate against an employee directly or indirectly on the grounds of sex, race, age, religion or sexual orientation. Nor must an employer treat a disabled employee unfavourably on the ground of his or her disability or for a reason that relates to his or her disability, unless in the latter case it has objective justification for doing so. Unjustified pay discrimination against part-timers and fixed-term employees is also unlawful (part-timers ), (fixed-term employees ).
It is important to remember that the discrimination legislation protects not only employees but also agency workers and other workers, including the self-employed, who have a contract with an employer to carry out work personally. The legislation on part-timers covers employees and anyone else who has a contract with a company to carry out work personally, although it does not cover self-employed workers who are contracting with a company in the course of their profession or business. The protection from discrimination on grounds of fixed-term status covers employees only.
Under the Equal Pay Act 1970, men and women who are employed on equal work are entitled to equal terms and conditions, including pay, unless their employer can demonstrate that the difference in their terms is not due to the difference in their sex. This summary of how the Act works assumes that the person claiming equal pay is a woman, although the legislation also outlaws pay discrimination against men.
In order to bring a claim, a woman must be able to identify a male colleague in the same employment, usually referred to as her 'comparator', who is employed on work that is equal to hers but is entitled to better terms than she is. Her claim could relate to any term of her comparator's contract. So her claim could just as well be based on sick pay or holiday entitlement or access to a bonus as on basic pay. (It would also be possible for her to allege that she had been discriminated against in relation to non-contractual terms, but that type of claim would be brought under the Sex Discrimination Act 1975 rather than the Equal Pay Act.)
The comparator the claimant chooses could be an employee. He could also be any other person who has a contract with the company personally to carry out any work. He must, however, be employed by the same employer as the claimant or by an associated employer, such as another company in the same corporate group. The claimant can choose a comparator at the same workplace as her. She can also choose a comparator who works elsewhere, provided broadly the same terms and conditions of employment apply at both workplaces.
The comparator and the claimant are employed on equal work if:
- his job is the same or broadly similar in nature to hers. It is the content of the job that is important here, not the job title, and what is done in practice, not what the job descriptions say;
- his job has been rated as equivalent to hers under the employer's job evaluation scheme;
- his job is of equal value to hers in terms of the demands it makes in relation to factors such as effort, skill and decision-making.
It is 'equal value' claims that probably have the most potential for disrupting employers' established payment systems. Successful equal value claims have, for example, been brought by: a cook claiming equal pay with a painter, a thermal insulation engineer and a joiner; a clerk claiming equal pay with a storeman and a caretaker; a group personnel and training officer claiming equal pay with a divisional sales trainer; and a packer claiming equal pay with a labourer.
It is for the employment tribunal that hears an equal value claim to decide whether two jobs are of equal value. The tribunal can decide the issue on its own or with the help of an independent expert. Broadly speaking, a job will be evaluated by identifying the demands made on the jobholder (such as effort, skill and decision-making), assessing the size of those demands, and then giving them more or less weight according to their importance to the organisation.
An equal value claim will be thrown out at an early stage if the employer's own job evaluation scheme has given the woman's job a lower rating than her comparator's. This has led some employers to adopt job evaluation schemes.
Job evaluation involves assessing the relative value of the jobs within an organisation. There are several reasons why a company might wish to introduce job evaluation:
- to establish pay equity within the organisation as a basis for introducing a new pay and benefits structure;
- to ensure that the company provides equal pay for men and women for equal work;
- to assist career management by clarifying possible progression routes, particularly lateral ones;
- to clarify and rationalise the organisation's structure after a merger;
- to support and complement other human resource initiatives such as performance management;
- to benchmark salaries and benefits either nationally or internationally.
Job evaluation schemes may be analytical or non-analytical. Analytical schemes break jobs down into defined core components or factors and compare them on that basis. These schemes can be designed for a specific employer. Alternatively, they may be proprietary schemes that are capable of being applied to many organisations with minimal adjustment, which are usually provided by management consultancies. Using a proprietary scheme can be useful when benchmarking salaries.
Non-analytical schemes examine jobs as a whole and compare them on that basis. Because they do not break jobs down into their constituent demand factors, non-analytical schemes are not capable of providing a defence to an equal value claim. There are three types of non-analytical schemes:
- Job ranking - which ranks the jobs in an organisation in order of perceived importance.
- Job classification - which assigns jobs to pre-defined grades.
- Paired comparison - which compares pairs of jobs to assess whether they are more, less or equally demanding, and develops a ranking from those results.
In order to be able to block an equal value claim, a scheme must analyse jobs by their constituent demand factors, as a tribunal would do in an equal value claim, rather than evaluating the jobs as a whole. In other words, the scheme must be 'analytical'. Further, the scheme must not be directly or indirectly discriminatory on grounds of sex. The Equal Opportunities Commission (now part of the Equality and Human Rights Commission) has produced guidance on ensuring that job evaluation schemes are free of sex bias (sex discrimination). (The Commission has also produced more basic guidance, aimed at small businesses without in-house personnel specialists, on how to carry out an equal pay review (sex discrimination).)
Once the claimant has established that she and her comparator are employed on equal work, she is entitled to the same terms of employment as him, unless their employer can show that the difference in their terms is genuinely due to some factor other than the difference in their sex.
In order to establish this defence, the employer must be able to show that the reason for the difference in terms is not directly or indirectly discriminatory. Direct discrimination involves treating a person less favourably on the ground of his or her sex. So, for example, an employer would have no defence if a manager had recruited the woman on a lower salary than her comparator because he had made a conscious or unconscious assumption that she was working for 'pin money' whereas the comparator needed to earn a 'family wage'.
An employer's pay practice will be indirectly discriminatory if it has the effect of disadvantaging a higher proportion of one sex than of the other, unless it can be objectively justified by a clear business need (sex discrimination). For example, assume that the woman claiming equal pay is in a category of workers that is predominantly made up of women and has no access to a productivity bonus. Assume that her comparator is in a category of workers that is predominantly made up of men and does have access to a bonus. In order to defend her claim that she should receive a bonus, the employer will need to explain why it is not feasible or appropriate to offer the category of workers to which the woman belongs any reward for productivity. Likewise, if an employer excludes part-timers from its sick pay scheme and the majority of those part-timers are women, it will need to show clear business reasons for that rule, other than solely the desire to save money. (Part-timers of both sexes also have specific protection from discrimination in pay and conditions (part-timers ) ).
It is important to be aware that an employee has the right to question her employer about the difference in pay between herself and a potential comparator, in order to establish the extent of any difference and the reasons for it. There is a potential penalty if the employer deliberately and without reasonable excuse fails to reply to her questionnaire, or replies in a way that is evasive or unclear: an employment tribunal hearing any equal pay claim she may later bring is entitled to draw whatever inferences it considers just to draw from the employer's conduct, including an inference that the difference in pay is due to unlawful sex discrimination.
The Equal Opportunities Commission (now part of the Equality and Human Rights Commission) produced a Code of Practice on eliminating sex discrimination in pay systems (sex discrimination). Employment tribunals must refer to this Code when they are hearing equal pay claims, if they consider it relevant to the issues they have to decide. It is therefore advisable for employers to bear the contents of the Code in mind when setting up or reviewing payment systems.
At the heart of the Code is a recommendation that employers should carry out a pay systems review, an essential first step in establishing whether any unlawful sex discrimination exists.
The Commission has also published an Equal Pay Review Kit (sex discrimination) that gives employers guidance on conducting an equal pay review. In summary, a review involves the following steps:
- Decide the scope of the review and identify the data required.
- Identify where men and women are doing equal work - that is, like work, work rated as equivalent or work of equal value. In some cases, this may involve introducing a job evaluation scheme, or reviewing an existing job evaluation scheme to ensure that it is not sex-biased. The Kit gives some guidance on estimating equal value if the employer does not have a job evaluation scheme.
- Collect and compare pay data to identify any significant pay gaps between men and women doing equal work.
- Establish the causes of any significant pay gaps and assess whether the gaps are justifiable.
- Where the gaps are not justifiable, develop an Equal Pay Action Plan to close the gaps and change the policies and practices that contributed to them. Where the gaps are justifiable, review and monitor pay practices to ensure that they continue to be non-discriminatory.
The Kit includes detailed guidance notes on the legal framework, gathering data, analysing statistics, reviewing job evaluation schemes for sex bias, estimating whether jobs are of equal value, and reviewing payments systems, policies and practices. (The Commission has also produced more basic guidance, aimed at small businesses without in-house personnel specialists, on how to carry out an equal pay review. ( Pay and related matters links )
An Action Plan to deliver equal pay may involve changes to rules or practices, including those in collective agreements, that have led to discrimination. The legal and practical issues involved in changing employees' terms and conditions, including terms originating in collective agreements are discussed elsewhere ( Changes to contracts ).
It is unlawful for an employer to discriminate directly or indirectly on the ground of race, religion or sexual orientation in the way it pays its employees.
It is direct discrimination for an employer to pay an individual less than it pays or would pay an employee of another race, religion or sexual orientation, if it does so on grounds of race, religion or sexual orientation. For example, it would be unlawful for a company to give an employee a minimal or nil annual pay increase, if the manager carrying out the performance appraisal on which the increase was based was influenced in his or her appraisal by conscious or unconscious racial prejudice against the employee.
Indirect discrimination can arise if one category of workers made up predominantly of one racial group is paid less than another category made up predominantly of a different racial group and the employer cannot justify that practice. For example, if workers on one shift are predominantly of Asian ethnic origin and are excluded from anti-social hours payments, but workers on another shift, who are predominantly not of Asian ethnic origin, are entitled to those payments, the employer will need to show why the type of working involved in one shift justifies the extra payment while that involved in the other does not.
Age discrimination
It is unlawful for an employer to pay one employee more than another on the ground of the employee’s age, unless it has objective justification for doing so. It is also unlawful for an employer to discriminate indirectly on the ground of age, by adopting pay practices that put people in a particular age group at a disadvantage and that are not justified.
On the face of it, a practice of basing benefits, such as pay rates and holidays, on length of service is likely to amount to indirect discrimination, as it puts younger employees at a disadvantage compared with older employees. The age equality legislation provides a partial exemption, however, for this type of discrimination. Basing benefits on length of service is lawful for the first five years of an employee’s service. After that, it remains lawful to base benefits on length of service, if it reasonably appears to the employer that the way in which it uses the criterion of length of service fulfils a business need, such as encouraging the loyalty or motivation, or rewarding the experience, of workers.
Benefits for partners
Some employers extend some benefits, such as private healthcare cover, to the partners of their employees. In order to avoid breaching the legislation on sexual orientation discrimination, employers must either restrict benefits to married partners and civil partners (that is, same-sex couples who have officially registered as civil partners) or extend the benefits to all partners, including same-sex partners.
There are three ways in which an employer can contravene the Disability Discrimination Act 1995. One is by treating a disabled employee unfavourably on the ground of his or her disability. Another is by treating the employee unfavourably for a reason relating to the employee's disability, without having objective justification for doing so (disability discrimination). The third is by failing to meet its duty to make reasonable adjustments to its employment practices to accommodate a disabled employee (duty to make adjustments ).
These principles apply just as much to payment systems as to any other aspect of employment, as this example from the Code of Practice issued under the Act illustrates: 'a person's disability means she has significantly lower output than other employees doing similar work, even after an adjustment. Her work is of neither lower nor higher quality than theirs. The employer would be justified in paying her less in proportion to her lower output if it affected the value of her work to the business.'
It is important to remember, however, that an employer is under a duty to consider whether there are any reasonable adjustments that it could make that would prevent the employee's disability from affecting his or her performance in the first place. Take, for example, an employee who has a condition that has led to a malformation of her foot. Her job involves standing up all day. Her productivity falls during the course of the day because of increasing pain from her foot. It may be reasonable for the employer to provide the employee with an adapted chair, which would allow her to work from a seated position and so avoid the pain that affects her productivity.
Other sections of this Guide deal with disability discrimination in pensions (disability discrimination).
Since women make up the majority of the part-time workforce, pay discrimination against part-timers may amount to indirect sex discrimination against women (sex discrimination), (sex discrimination in pay ).
All part-timers, whether male or female, also have protection from being treated unfavourably because they are part-timers, under the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000. The broad principle established by these Regulations is that part-timers must be treated in the same way as full-timers, unless their employer has objective grounds for treating them differently. According to Government guidance on how to comply with the Regulations, treating part-timers less favourably than full-timers is justified on objective grounds if the employer can show that it is necessary and appropriate to achieve a legitimate business objective. For the purposes of the Regulations, full-timers and part-timers are workers who are paid wholly or in part by reference to the time they work and who are identifiable as full-time or part-time from the employer's custom and practice.
In order for it to be possible to establish that a part-timer has been treated less favourably than a full-timer, he or she must work under similar types of contract. For example, it is not possible to make a comparison between the terms and conditions of a part-time "worker" (workers ) or apprentice and those of a full-time employee. Comparisons are possible, however, between employees working on fixed-term contracts and employees with open-ended contracts. The comparison must also be between workers doing the same or broadly similar work, taking into account, where relevant, their level of qualifications, skills and experience.
A different comparison applies for part-time workers whose hours have been reduced from full-time, or who were full-timers but have returned to work on part-time hours after a period of under 12 months' absence from work. They are entitled to the same terms as they had while full-timers, unless their employer can objectively justify treating them otherwise.
In the context of pay, the upshot of the Regulations is that part-timers should be on the same basic rate of pay as full-timers, and should be given the same premiums for working shifts and anti-social hours, unless their employer has some objective justification for paying them differently. They should also receive the same hourly rate of overtime as full-timers. The Regulations expressly permit employers not to pay part-time workers premium overtiime rates until they have worked normal full-time hours.
The same principle of equal treatment applies to all contractual terms, although a part-timer's entitlement will reflect the hours he or she works, where relevant. Therefore if a full-timer who works 38 hours a week is entitled to 65 working days' occupational sick pay and a Christmas bonus of £100, a part-timer on 19 hours a week should be entitled to 32.5 days' sick pay and a bonus of £50, unless the employer can objectively justify giving the part-timer less. (In this example, both full-timer and part-timer would get 13 weeks' sick pay, but the full-timer would receive five days' sick pay each week and the part-timer two and a half days' sick pay each week.)
If a benefit cannot be reduced pro rata, as in the case of health insurance or a company car, the employer may be able to justify not extending that benefit to part-timers, on the grounds that it would involve the company in disproportionate cost. The Government's guidance on the Regulations suggests that an employer might nevertheless consider, as a matter of good practice, calculating the financial value of the benefit and applying that pro rata to the part-time employee.
Part-timers who believe they may have been discriminated against because of their part-time status can ask their employer for written reasons for their treatment. If an employer fails to respond to a request without reasonable excuse, or provides a response that is evasive or unclear, and the part-timer then brings a claim under the Regulations, the employment tribunal that hears that claim is entitled to take the employer's conduct into account when deciding whether it has complied with the Regulations.
It is unlawful for an employer to penalise a worker for asserting or enforcing his or her rights under the Regulations, or for supporting someone else in bringing a claim. It is also automatically unfair to dismiss an employee on these grounds, regardless of the employee's length of service. This protection does not apply where a worker has alleged that an employer has breached the Regulations and the allegation was not only false but also not made in good faith.
Under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002, employers must not give fixed-term employees less favourable pay and benefits than comparable permanent employees, unless they have objective justification for doing so. The Regulations are summarised elsewhere (fixed-term contracts).
The Regulations require in particular that any service qualification for a benefit must apply to fixed-term employees in the same way as to permanent employees. So, for example, if employees are entitled to an increase in their pay rate after a year's service, that must apply to those who have been working on a fixed-term basis for a year as well as those who have a year's service under a permanent contract.
The Regulations state that one of the ways in which it is possible to justify to treating a fixed-term employee less favourably in respect of any contractual benefit is to show that the employee's contract, taken as a whole, is no less favourable than that of a comparable permanent employee. The Government guidance on the Regulations ( Contracts of employment links ) says that, when assessing the value of an employee's contract as a package, benefits should be given their objective monetary worth, rather than the value the employer or employee perceive them to have. So, for example, it would be justified to give a fixed-term employee four weeks' holiday entitlement when a comparable permanent employee gets five weeks, if the fixed-term employee's salary was greater than the permanent employee's by the equivalent of one week's holiday pay.
An employer may still be justified in giving a fixed-term employee a less favourable overall package than a permanent employee, if the difference between the two packages is one or more terms that the employer can objectively justify not providing to the fixed-term employee.