Regulations brought into force in 2014 require employment tribunals to order an employer to carry out an equal pay audit where the employer has breached equal pay law or discriminated on the grounds of sex in relation to pay, subject to certain exceptions and exemptions.
These include circumstances where the employer has already completed an audit meeting the prescribed requirements in the previous three years (which will apply to most public sector bodies) and where the Tribunal considers that the breach is a one-off and there is no reason to think there may be other breaches. The breadth of the exceptions and exemptions means that orders for equal pay audits are very rare.
The impact of such an order on businesses can be damaging, not only from a financial perspective but also in terms of reputation, competitive edge and commercial advantage.
What does an equal pay audit order entail?
An equal pay audit is designed to identify action to be taken to avoid equal pay breaches occurring or continuing and must include:
- the relevant gender pay information related to the description of persons specified in the tribunal's order (for a time period specified by the tribunal);
- information on any differences in pay between the descriptions of persons specified and the reasons for those differences;
- the reasons for any potential equal pay breach identified by the audit; and
- the employer's plan to avoid equal pay breaches occurring or continuing.
Crucially, once the equal pay audit has been submitted to the tribunal and the tribunal has confirmed it complies with the Regulations, the employer must publish it on its own website and leave it there for three years as well as informing those whose relevant gender pay information was included in the report where to obtain a copy.
What are the risks for employers?
A Tribunal order to carry out and, perhaps more importantly, publish an equal pay audit creates serious reputational and commercial risks for employers. Employees and competitors will also be able to see the published remuneration data, which could lead to new equal pay claims and staff being poached.
If an employer fails to comply with an order to carry out an audit, the Tribunal can order that they pay a £5,000 penalty, with additional penalties of £5,000 also possible for continued failures. Although there is a penalty for failure to carry out the audit, it is not clear that the Tribunal can punish the employer for failure to publish the audit once it has been completed. There is nonetheless further reputational risk in failing to comply with an order of the Tribunal.
What can employers do?
Employers with concerns about these issues should give serious consideration to undertaking regular voluntary audits. Voluntary audits must be thorough to offer effective protection. In the case mentioned above, the employer took a number of steps prior to the remedy hearing in what appears to have been an attempt to try and avoid the order for an equal pay audit. This included carrying out its own equal pay review. The Tribunal, however, assessed the actions taken by the employer and concluded they were insufficient for various reasons, including the fact that the internal review failed to include bonuses and was limited to "like work" cases rather than broader "equal value" issues.
More generally, employers should consider the statutory code of practice on equal pay and ensuring all pay structures used are entirely transparent - providing employees with clarity on pay progression and criteria for assessment.