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Introduction

Hello and welcome to our latest employment video. My name is Paul Griffin and I’m Head of the Norton Rose Fulbright Employment team in London.

In today’s video we’ll be looking at the tribunal’s new power to order employers to carry out equal pay audits which is due to come into force in October this year.

Don’t forget to have a go at answering our quiz question at the end of the video for the chance to win a bottle of champagne.

Background

The Equality Act 2010 provides that men and women should receive equal pay for equal work. Its provisions contain a power for the government to require large employers to publish information about their gender pay gap. However, the current coalition government has not committed to using this power. Instead, a new provision was inserted into the Act which gives the government the power to oblige employment tribunals to order employers found to be in breach of equal pay law, to conduct and publish equal pay audits.

In May this year the Government published a consultation document seeking views on how the new rules should work and draft regulations were published in June. These have since been amended and it’s intended that they should come into force on the 1st of October this year.

Equal pay audits – the regulations

The latest version of the draft regulations is unlikely to change before the Regulations come into force in October. So I shall now go through the key aspects of the new rules.

When must the tribunal order an equal pay audit?

For those claims brought on or after the 1st of October this year, where the tribunal finds that the employer has breached the equal pay provisions of the Equality Act, it must order that the employer conducts and publishes an equal pay audit unless one of the exceptions applies.

So audits can only be ordered once an employer has lost an equal pay case.

Exceptions and exemptions

There are exceptions to the general rule: the tribunal mustn’t order an audit in certain circumstances. These are where either:

  • an audit providing all the relevant information has already been carried out by the employer within the last three years – or where
  • it’s clear without an audit what action is needed by the employer to avoid future equal pay breaches (This might be the case, for example, where the current pay arrangements are transparent)

In addition, if it’s clear that the breach of the equal pay provisions is a one-off, then an audit won’t be ordered – or where the disadvantages of an audit would outweigh the advantages.

Existing micro-businesses (which are businesses with fewer than 10 employees immediately before the date of the judgment) are also exempt.

And so are new businesses – these are those which have started up within the 12-month period before the date of the equal pay complaint.

Contents of an equal pay audit

Where an audit is ordered by the tribunal, what will this involve?

The tribunal has a certain amount of discretion as to the details of the audit and the timescale for compliance but the regulations state that the audit must:

Firstly, include gender pay information related to the employees specified by the tribunal.

Secondly, the audit must identify any differences in pay between men and women and the reasons for those differences.

It must also include the reasons for any potential equal pay breach identified by the audit and set out the employer’s plans for avoiding continuing or future breaches.

Essentially, the audit will involve an investigation into whether there are any pay disparities between men and women doing like work, work of equal value or work rated as equivalent.

If there are, then the employer will need to set out the reasons for those disparities and whether those reasons constitute non-discriminatory material factors justifying the difference.

If such reasons can’t be identified, the employer will need to set out an action plan to remedy the situation.

The Government has decided that no additional guidance on the regulations is required for employers. Instead employers are directed to the existing guidance from the Equality and Human Rights Commission. This guidance makes it clear that an equal pay audit must have the involvement and support of managers within the employer’s organisation who have the authority to deliver any changes necessary.

The guidance also includes a 5-step flow chart for conducting an equal pay audit. All this can be found on the Commission’s website.

When must the audit be published?

The employer has to send the audit to the tribunal by the date specified in the order. This won’t be sooner than three months after the date of the order. So employers will always have at least 3 months to prepare the audit.

It will be up to the tribunal - rather than an independent auditor - to decide whether the audit complies with the order.

If the tribunal decides that it does, then the employer will have to publish it on its website within 28 days and leave it there for 3 years. It must also tell all the employees about whom gender pay information was included, where they can access a copy of the audit.

What are the penalties for non-compliance?

If the employer fails to provide a satisfactory audit in accordance with the tribunal’s order, and has no reasonable excuse, then the tribunal can order a penalty of up to £5,000 – and may also make a further order giving a new date for compliance. A further penalty can be imposed if the employer fails to comply again.

Conclusion

Equal pay audits can only be ordered by the tribunal where an employer has lost an equal pay case. If an equal pay claim is brought and settles before judgment, no audit can be ordered. For those employers who are concerned that publication of an equal pay audit will lead to further equal pay claims, this may well provide further incentive to reach settlement.