Masterclass: How to do an equal pay audit

Michael Powner explains how employers can properly assess remuneration within their workforces and avoid the associated legal risks

An equal pay audit is a complex but necessary task. It is not uncommon for companies to be completely unaware of problems with pay structures until an audit is conducted, and no matter how innocent the anomaly, it will still carry hefty legal risks and consequences. The organisation should consider the question of sharing the results with employees and/or their representatives.

The first step is to determine what the audit will focus on, such as populations and elements of pay, but this will largely be driven by the quality of the data available. Careful analysis of data and identifying which roles are genuinely comparable is critical. The most helpful audits capture as many employees of the organisation as possible, so the broader the better at this initial stage. It is important to ignore job titles in this process, as the legal tests are focused on the skill and knowledge elements of each role, rather than just the description of the job.

Once the comparison data has been obtained, the next step is to analyse the data to identify where pay differentials exist. It will often not be feasible or realistic to look in detail at every role within the organisation, so at this stage it is a review of statistically significant gender pay gaps within the populations identified as comparable when scoping the audit.

The Equality and Human Rights Commission suggests that, as a general rule, differences of five per cent or more, or recurring differences of three per cent or more, merit further investigation. Having identified the statistically significant populations, the next stage is to delve into the details and identify what is actually causing any unexplained differentials. These results can then inform the action plan going forward, as the organisation looks to implement the report’s findings across the business.

Because of the complex nature of equal pay legislation in the UK, and particularly the legal tests that apply in terms of assessing work, it is strongly recommended to at least obtain detailed guidance before even attempting to carry out an audit, if not outsource it altogether. Using a law firm to assist with the whole process and analysis can be beneficial as they can ensure the advice given remains legally privileged. However, businesses are able to complete this without outsourcing if they wish.

Michael Powner is a partner at Charles Russell Speechlys