An employer’s guide to equal pay auditing

With a renewed focus on equal pay recently, Daniella McGuigan explains how businesses should assess their own reward practices for potential inequity

Equal pay graphic

A combination of recent high-profile equal pay cases brought against well-known supermarket brands, the UK gender pay gap reporting requirements, and the impact of the Covid-19 pandemic have all contributed to a renewed focus on employee engagement, recruitment and retention. It should come as no surprise that pay and reward, and in particular fairness relating to pay and reward, is high on many prospective and existing employees’ agenda. 

Often, it is not the amount that someone is paid that can lead to disengagement, rather it is inequity and a lack of transparency in pay processes. Valuable employees are increasingly voting with their feet and leaving organisations – often citing a lack of pay transparency as the main reason for their decision. Grievances related to pay are also increasing.

Many organisations are now considering undertaking equal pay audits to review their pay practices. However, when considering such an audit, it is vital that there is adequate stakeholder support from the top down with a genuine willingness to put right any issues that may be discovered during the audit process; it can be very damaging to conduct an audit, discover problems and then ignore them – in those circumstances it is better to avoid an audit altogether. An audit that is not conducted under legal professional privilege will also be disclosable – is the organisation ready for that?

An equal pay audit is different to an assessment of the gender pay gap – they are entirely different metrics. A gender pay gap is not necessarily evidence of discriminatory pay practices. An organisation may publish favourable gender pay gap data but have discriminatory pay practices. Conversely, a large gender pay gap is not necessarily indicative of pay discrimination.

Equal pay means that those doing the same or similar work are paid equally. A gender pay gap measures the average woman’s hourly rate in a workplace against the average man’s hourly rate, without considering that they may perform very different job roles. If an organisation wishes to consider an equal pay audit, it should consider the following five-step process:

  • Step 1: Determine the scope of the audit and identify the data required. This will involve identifying the project team within the organisation and will go beyond just HR (eg, payroll, communications and so on).

  • Step 2: Carry out an analysis of employees who are (or may be) doing equal work. If the organisation does not have a job evaluation scheme, this will involve identifying those employees who are doing ‘like work’ and/or ‘work of equal value’. Work of equal value is harder to assess as it involves the comparison of completely different roles. It will be necessary to assess what each role involves and how each role is valued within the organisation. Job descriptions should be considered to understand the demands of roles in terms of effort, skill and decision-making responsibility. A generic job description is a good starting point but it will not be sufficiently detailed to consider whether two jobs may be of equal value to each other. It will be necessary to probe organisational knowledge on the roles.

  • Step 3: Collate and compare pay data to identify any significant pay gaps. Each element of the compensation package for the employees in scope will need to be considered to identify inequality of pay. This aspect of the project may involve collaborating with data analytics experts if the expertise does not exist in house.

  • Step 4: Review the results. The next stage is to conduct a detailed review of the results in order to establish any material pay gaps and assess whether they are discriminatory and/or if they can be objectively justified. This would include exploring factors such as length of service, market forces on recruitment and retention and so on. 

  • Step 5: Prepare the audit report. This should include an action plan. An equal pay action plan should be mapped out to address how any issues are going to be addressed and remedied in the short term. It should also include how current policies and practices may be adapted moving forward to ensure that pay transparency and fairness improves

Daniella McGuigan is a partner at Ogletree Deakins International