The Government has published a consultation paper on the introduction of mandatory equal pay audits, following up on the 2011 Modern Workplaces: Equal Pay consultation. In 2014, employment tribunals will be able to require employers who are found to have committed a serious breach of equal pay law to carry out an equal pay audit to determine whether an employer's pay system is discriminatory. An employer ordered to complete an audit would have to address any pay inequalities identified which could not be explained by reasons other than gender.

At the moment, the newly enacted Enterprise and Regulatory Reform Act sets out the bare bones of the system, in particular listing the situations in which an audit will not be ordered. The regulations produced after consultation will cover the detail.

The consultation paper confirms that audits will not be ordered where:

  • The employer has carried out an audit satisfying certain requirements within the last three years; or  
  • Current pay arrangements are transparent and it is clear without an audit whether action is needed to prevent equal pay breaches in the future (for example, jobs are clearly graded and information on grading is available to employees); or  
  • There is no reason to believe that the employer's breach of equal pay law is a systemic problem (because it is a one-off occurrence); or  
  • The disadvantages of an audit would outweigh its benefits (such as where the organisation is in financial difficulty and an audit might lead to liquidation).

Some further aspects have already been decided; there will be power for tribunals to impose a penalty of up to £5,000 for non-compliance with an audit order and there will be an exemption for micro (fewer than 10 employees) and start-up businesses, at least initially.

Guidance is likely to adopt a five stage approach to the mechanics of a mandatory audit, based on the Equalities and Human Rights Commission's equal pay toolkit on voluntary audits:

  • Step 1 – set the scope of the audit and what HR data is required  
  • Step 2 – identify the areas where men and women are doing "equal" work  
  • Step 3 – collect and compare pay data to identify any inequalities  
  • Step 4 – if significant inequalities are identified – establish the causes, assess the reasons and work out if they are related to gender; alternatively, if no inequalities are identified, commit to future reviews and monitoring  
  • Step 5 – if the inequalities are gender related, develop an action plan.

Employers will need to consider involving a range of personnel; as well as a human resources manager and staff (and their representative bodies) covered by the audit, they will also need to involve someone with experience of the equality legislation; a data analyst and a payroll manager.

Specific issues on which the Government is consulting include:

  • Who should sign off on the audit, employment tribunal judges or independent auditors?  
  • Publicity: should equal pay audit results be made available on the employer's website and/or in its annual report or simply disclosed to the employees (and their representatives) covered by the audit?

The consultation continues until 18 July and the mandatory audit system is expected to be in place next year.