Sandra Wallace, UK Employment Group Head, comments: In 2012, the Government first proposed the introduction of compulsory equal pay audits for employers who are found by an employment tribunal to have committed an equal pay breach. Now, two years down the line, and a number of consultations later, the Government has confirmed that this measure will be introduced in October 2014. Draft regulations have just been published.
So what does this mean for employers? This measure is part of the Government’s programme of employment law reforms aimed at addressing the gender pay gap. It introduces for the first time, a power for employment tribunals, to require employers to audit their pay policies and practices if they are found to have breached equal pay legislation or sex discrimination provisions relating to pay. The results of the audit must be provided to the tribunal who will determine whether or not it is compliant with the terms of its order. If the audit is compliant, the employer is required to publish it on its website (if it has one) for at least 3 years, unless to do so would breach a legal obligation (in which case it must provide the tribunal with reasons why it considers that publication would breach a legal obligation). If the audit is not compliant the tribunal must order the employer to amend it.
On the face of it, these measures seem onerous and draconian; however, they are subject to a number of important exceptions. For example, audits cannot be ordered if an employer has carried out an audit meeting the required standards within the previous 3 years; or if it is clear without an audit whether action is required to avoid equal pay breaches; or if the tribunal has no reason to think that there may be other breaches. It will, therefore, remain to be seen how often such audits are actually ordered in practice. Businesses with fewer than 10 employees and certain new businesses will also be exempt from the regulations for up to 10 years.
Employers may be fined up to £5,000 for any failure to comply with an order to carry out a pay audit, payable to the Secretary of State. The tribunal will have regard to the employer’s ability to pay in deciding whether to order, and the amount of, any penalty.
Employers should carefully assess the impact of this new law on their business. In practice, it will only come into play if an employer unsuccessfully defends an equal pay claim. Employers who already have transparent and equal pay structures are unlikely to face claims in the first place; those who may be at risk may be more minded to settle a claim than progress to a tribunal hearing to avoid any risk of an equal pay audit being ordered. It may, however, also serve as a useful impetus for employers to get their house in order now and fully review pay policies and practices at this stage to minimise any future litigation risks.