Pay Fairness, Equal Pay, and Reporting Requirements in the UK

Introduction
To address concerns about fairness in how organisations treat their stakeholders, such as workers, customers, investors , etc, the UK has introduced various regulations. For instance, employers are required by law to treat their employees fairly in terms of people management policies and practices, including how they reward them. More recently, large UK employers are legally required to disclose pay data, such as by gender.

This factsheet covers pay fairness, including high and low pay, and equal pay for equal work. It also looks at pay reporting, outlining what information must be disclosed under UK law (CEO pay ratios and the gender pay gap) as well as ethnicity pay disclosure which might be required in future. It also discusses the benefits of publishing pay narratives, through which employers can show that they’re trying to pay their workforces equitably.

What is pay fairness?
There are multiple perspectives on fairness at work. In pay terms, and from an organization’s perspective, we identify three types:

The fairness of pay outcomes – how the pay budget should be distributed (distributive justice).
The fairness of the process used in making pay decisions (procedural justice).
The quality of the treatment people receives when procedures are implemented (interactional justice).

These forms of organizational fairness can create trust because they signal that people are respected and valued. By contrast, if people think an employer’s performance management and reward approach is not fair, they might not want to join or stay with that organisation, and may lack motivation.

HR teams have an important role to play in formally defining what ‘fair’ means for their employer. This, in turn, will help guide management’s reward decision making (such as how much to contribute to employee pensions). Sharing this with employees will show what they can expect from the organisation and what the organisation expects from them.

Publishing a narrative to accompany pay disclosure data allows people professionals to show the fairness of reward outcomes.

Equal pay
Concerns about the unfair treatment of women in the workplace resulted in the Equal Pay Act of 1970, which outlaws any less favourable treatment between men and women in terms of pay and conditions of employment. This is now part of the Equality Act 2010 that applies in England, Scotland and Wales.

The law gives a woman the right to be paid the same as a man (and vice versa) when carrying out:

Equal pay

Like work ? two employees who are doing the same or broadly similar roles, or

Work rated as equivalent by analytical job evaluation study ? this could be totally different jobs which have been given the same rating as the result of an analytical job evaluation, or

Work of equal value ? when there are two jobs that are very different, but the employee claims that they require a similar level of skill and ability.

The right to make a claim under equal pay legislation applies to employees and to anyone with a contract to carry out any work personally.
The Equality Act 2010 also introduced legislation relating to pay secrecy clauses. Any such clauses in a contract of employment are unenforceable, and if an employee suffers any detriment from discussing their pay, this will be unlawful. It’s also unlawful to prevent or restrict workers from discussing their pay, but this is just within an organisation. 

Employers can require employees to keep their pay confidential outside of work, such as from a competitor.

If an employer is found guilty of pay discrimination, it must carry out an equal pay audit unless an exception applies. The audit must be published on the employer’s website and be left there for three years. If an employer fails to comply, a tribunal can impose a financial penalty.

The Equality and Human Rights Commission has published a range of guidance on all aspects of the Equality Act 2010, including a Code of practice on equal pay. Whilst not legally binding, it gives guidance on good practice and failure to follow it may be considered by tribunals or courts. 

As well as gender, the law requires employers not to pay an employee less, or give them terms and conditions that put them at a disadvantage, because of their disability, race, religion, sexual orientation or another protected characteristic.

Overview
The key legislation covering equal pay is the Equality Act 2010.
The principle of ‘equal pay for equal work’ gained momentum in the 1960s leading to the Equal Pay Act 1970 which prohibited less favourable treatment between men and women in terms of pay and conditions. 

Although the original Act was repealed, its core provisions were replicated in the Equality Act 2010.  Equal pay legislation has historically been very complex, and the Equality Act has not simplified equal pay issues to any significant extent. Data from the UK government’s gender pay gap service for employers with 250 or more employees shows that on average in 2018, men were paid 11.8% more than women. 

The Equality and Human Rights Commission has published a comprehensive Equal pay: Statutory Code of Practice for England, Scotland and Wales (NI has its own provisions) which:

Provides detailed explanations of the equal pay provisions in the Equality Act
Applies the legal concepts to everyday situations
does not impose legal obligations, or give an authoritative statement of the law, but can be used in evidence in equal pay claims.

Equal Pay Claim
In order to bring an equal pay claim, an individual must choose a person of the opposite sex as their comparator. The individual must then show that the comparator is engaged in:

Like work', or
Work rated as equivalent' under an analytical job evaluation study, or 
Work of 'equal value'.

The procedure followed in an employment tribunal will differ depending on the nature of the comparator's work.

How equal pay works in practice 
The equal pay provisions apply to both men and women, and are designed to achieve equality between men and women in pay and other terms of employment where the work of an employee and a comparator are equal.

There is no upper or lower age limit on the right to claim equal pay, nor is there a qualifying period of service for bringing a complaint. The provisions apply to employees, office-holders and members of the armed forces, where one person’s work is equal or equivalent to the work of another. Some apparently self-employed persons may be covered.

The Equality Act 2010 provides for a sex equality clause to be read into every employee’s contract of employment. A similar sex equality clause is implied into the terms of pension schemes. It is if all employment contracts contain an ‘invisible’ clause which effectively varies the employee’s contract to increase the complainant’s terms, not to downgrade the comparator’s terms.

The provisions address sex discrimination occurring when women (or men) are paid less than the opposite sex for doing the same job, usually in the same employment , or where they are engaged in ‘like work’, ‘work of equal value’ or ‘work rated as equivalent’ by a job evaluation scheme.