Under the Localism Bill, which is due to come into force in April 2012, all Public Authorities must publish annual pay policy statements.

The statement must set out the Authority’s policies for the financial year relating to:

  • Remuneration of its Chief Officers
  • Remuneration of its lowest paid employees
  • The relationship between the remuneration of its Chief Officers and the remuneration of those employees who are not Chief Officers

The term ‘Chief Officers’ in a local authority context is defined as:

  • The Head of Paid Service
  • The Monitoring Officer
  • A statutory Chief Officer and non statutory Chief Officer under section 2 of the Local Government and Housing Act 1989
  • A deputy Chief Officer mentioned in section 2 of that Act

It is up to the Public Authority to determine who its lowest paid employees are but they must give reasons as to why they have defined them as such.

The statement must include the Authority’s policies relating to:

  • The level and elements of remuneration for each chief officer
  • Remuneration of Chief Officers on recruitment
  • Increases and additions to remuneration for each chief officer
  • The use of performance related pay for Chief Officers
  • The use of bonuses for Chief Officers
  • The approach to the payment of Chief Officers on their ceasing to hold office under or to be employed by the Authority
  • The publication of and access to information relating to remuneration of Chief Officers

The term remuneration is defined as follows:

  • The Chief Officer’s salary or, in the case of a Chief Officer engaged by the Authority as a self employed individual, payments made by the Authority to the chief officer for the services
  • Any bonuses payable
  • Any charges, fees or allowances payable by the Authority to the chief officer
  • Any benefits in kind to which the chief officer is entitled as a result of their office or employment
  • Any increase in or enhancement of the Chief Officer’s pension entitlement where the increase or enhancement is as a result of the resolution of the Authority
  • Any amounts payable by the Authority to the Chief Officer on the Chief Officer ceasing to hold office under or be employed by the Authority other than amounts that may be payable by virtue of any enactment.

The pay policy statement may also set out the Authority’s policies for the financial year relating to other terms and conditions applying to the Authority’s Chief Officers.

The statement must be approved by a resolution of the Authority before it comes into force and it can be amended by resolution after the financial year is underway but, if it is amended, it must be published. The statement must always be published on the Public Authority’s website.

It is important to note that the first statement must be approved on or before 31 March 2012 and the Public Authority must then comply with their pay policy statements when making any determinations on pay.

The introduction of this requirement raises a number of employment law issues.

For example, if a Chief Officer’s remuneration is reduced in order to ensure that it is in accordance with the determination of the Authority and in line with the pay policy then this may give rise to an unlawful deduction from wages claim from the employee or, indeed, a constructive dismissal claim where it is considered to be a fundamental breach of contract.

It may also give rise to equality issues. When one compares those in a Chief Officer role to the lowest paid employees, it may be clear from the statistics that each of the groups are from a certain protected group. A pay policy would need to take account of any equality considerations and be able to stand up to any arguments of indirect discrimination by demonstrating that there is a legitimate aim in the pay policy and that the manner in which it is implemented is a proportionate means of achieving that legitimate aim.