In living memory, and immortalised by the 2010 film Made in Dagenham, the Equal Pay Act 1970 was first mooted in the 1964 General Election by the Labour Party in its manifesto when proposing a charter of rights that included “the right to equal pay for equal work”.
We’ve come a long way since then and the topic now encompasses low pay, gender inequality and pensions auto enrolment. The topic is still as relevant now as it was in 1964 and is not just a problem for the UK. At the start of April, CBNC reported that Apple, Airbnb, AT&T, and Salesforce were among 13 companies to pledge support for California’s Equal Pay Pledge, an initiative designed to help achieve pay equality for women. Seyfarth Shaw LLP, in a March 2018 webinar, reckoned that Iceland operates the gold standard in equal pay law; it has a requirement for firms with 25 or more employees to obtain certification for equal pay or face daily fines of around £400 a day.
Back in the UK, Chloe Themistocleous, an associate in the Employment department of Eversheds Sutherland, says that it’s the National Minimum Wage and National Living Wage (NMW), maternity pay, sick pay and the threshold of earnings for claiming that cause problems for businesses. She says that “while these are not necessarily troublesome, they all add increasing cost pressures on businesses every year as the statutory minimums increase due to the rising cost of living”. It’s entirely logical that these pressures will affect the profitability of businesses and could ultimately lead to redundancies, especially in today’s tech-laden environment.
John Palmer, senior guidance advisor at Acas, the government’s independent conciliation service, echoes Themistocleous’ sentiment. He knows from experience that “pay affects the workplace in lots of different ways... and it isn’t regulated by one particular piece of legislation.” This is why he says that in addition to the NMW, he advises employers to be wary of the Employment Rights Act 1996 as well as the Equality Act 2010.
In detail, he says: “The Employment Rights Act 1996 act defines what constitutes wages and also the protections afforded to workers against non-payment or for unauthorised deductions. It also outlines the method of enforcement. The Equality Act 2010, on the other hand, outlines the right to equality of pay between women and men for equal work.” The Act is also behind the move to gender pay gap reporting, but more on that in a moment.
Simmering pressures
It’s very apparent to any bystander that the world of work in 2019 is markedly different from that of just 10 years ago, let alone that of the 20th century. It was for this reason that the government ordered a review of modern working practices. Termed the Taylor Review, after its author, Matthew Taylor, the government responded with a policy paper called the Good Work Plan which set out the vision for the future form of the UK’s labour market. As Themistocleous explains, “the Taylor Review made 53 recommendations and the government accepted the majority of them.”
The recommendations include devising a better definition as to who a worker is as they are entitled to various benefits, NMW, holiday pay, sick pay, etc; ensuring that piece rates meet NMW; having a better alignment of tax between the employed and self-employed; considering a higher minimum wage for zero hours workers; stopping the rules referred to as Swedish derogations that allow agency workers to be paid less than permanent staff; and giving HMRC the right to enforce holiday and sick pay as it does with NMW.
The Good Work Plan is significant for Themistocleous as it is “a holistic review of the UK labour market. It demonstrates that the government is engaging in making change in the labour market in a very employee-friendly and protective manner that could be extremely costly and operationally difficult for business.”
Palmer too can see why change is coming. He believes that change is overdue precisely because of “the shifting nature of employment arrangements to ‘gig’, agency, zero-hour, part time working and the employment status issues that go with them.”
Gender pay differentials have been in the news recently. Despite the legislation being in place for more than a year it’s telling that, according to a BBC report published at the start of April, fewer than half the UK’s biggest employers have succeeded in narrowing their gender pay gap.
The report noted that “across 45% of firms the discrepancy in pay increased in favour of men, while at a further 7% there was no change. Overall, 78% of companies had a pay gap in favour of men, 14% favoured women and the rest reported no difference”.
And this is where it gets interesting for print. Paragon Group, the biggest player in the UK printing industry, reported an overall gender pay gap of 23.16%. The company pointed out that this is higher than the national average, but drew attention to print’s traditional male dominance and Paragon’s recent history of acquisition. The company said it was committed to addressing the underlying causes of the pay gap and acknowledged the likelihood of unconscious bias in recruitment and promotion processes, adding that it was training managers to avoid this issue.
Moo is an interesting case as it has more female workers than male, yet it reported a pay gap of 20.4% globally and 27.1% for the UK operation. The company says it has a long-term action plan based on education, training and monitoring aimed at closing the gap.
Overall, the Equality and Human Rights Commission (EHRC) found that the UK pay gap average was 9.6% (real estate and manufacturing). The worst sector was construction (28%) while the best was accommodation and food (1%).
But as Palmer can attest, “people are [still] getting to grips with gender pay reporting, especially in terms of how it’s changing over time”.
It’s taking enforcement action from the EHRC to gain compliance – a point noted by Rebecca Hilsenrath on the EHRC’s website at the end of March when she wrote: “Thanks to our enforcement and communications work, alongside government, all 10,500 or so eligible employers reported their gender pay gaps for the first time in 2018.” The key word being enforcement.
Charles Cotton, senior reward and performance adviser at the CIPD, a professional association for those in human resources, adds another complication: “From 1 April, employers which are publicly listed and employ 250 staff or more will need to report the pay ratio of their chief executive and their employees.” He reckons that around 1,000 companies will be affected. He goes further and says that it’s widely anticipated that from April 2020, all employers will be required to report on their ethnicity pay gaps just as they do now with their gender pay gaps.
Apart from gender issues, there is another pay-related change to reckon with, and it’s one that will be obvious to anyone wondering why their take home may have fallen post 5 April. Simply put, pension auto-enrolment saw an increase to the minimum employer and employee contributions. Based on past experience Themistocleous wouldn’t be surprised “if there were further minimum increases in the future too in order to encourage a move away from a reliance on state pensions.”
Spilling over from the world of IT contracting come changes to the IR35 legislation which affects whether someone is truly self-employed for tax purposes. Highlighted by Cotton, he sees it as another issue that HR teams will have to deal with: “If an organisation outsources work to a contractor, it will soon be down to the HR function to decide if the individual is self-employed or employed, impacting the amount of tax they pay. Previously the burden was on the individual.”
Practically speaking, he thinks that this change could result in “tensions between the individual and an organisation and will require careful handling”. He advises HR functions to think about putting a grievance process in place in the likely event that individuals want to appeal any decision that’s been made.
The real problem as Palmer sees it is that “there are different challenges for small and large employers. New and small employers often have a challenge of working out what they need to know as quickly as possible, and large employers can face the challenge of being more heavily scrutinised and ensuring consistency across the organisation.” Even so, he makes it plain that getting pay right is important and it takes some effort to get right, but there is help available from the likes of Acas and HMRC.
Enforcement is altering the pay landscape
Naturally, for legislation to be effective it needs enforcement. For breaches of NMW legislation it’s notable that action can be brought by affected employees and workers while HMRC has the power to carry out audits of potentially non-compliant firms. Themistocleous emphasises here the potential impact of the Taylor Review which suggested that there should be a new enforcement regime for sick pay and holiday pay. She thinks that most firms, understandably, do not welcome an HMRC audit as it invariably means upheaval and potential issues coming to the fore especially as “there can be high fines and public naming and shaming.” Her advice to business who may have NMW, holiday pay or sick pay issues is to “think seriously about how to rectify them in the event they become the subject of an audit.”
And if matters do get serious and end up before a court, evidence indicates that they too are taking a hard line when dealing with employers who do not meet statutory pay requirements, especially with regard to the NMW. As Themistocleous points out, that the “employment tribunals have been given the power to publish names of employers who do not pay tribunal awards. Further, the maximum penalty for aggravated breaches increased from £5,000 to £20,000 as of 6 April 2019.” She says that these added powers should act as a deterrent to repeat employer offenders who breach employment law.
Employees are alive to their rights. A number of recent high-profile equal pay cases – Morrisons, Asda, Oracle and Birmingham City Council – have made many employees question if their pay is comparable to colleagues in similar roles. Indeed, Birmingham has led to claims totalling £757m. And in the world of supermarkets, Themistocleous explains that “a court ruled in favour of the employees, so that retail workers stacking shelves in stores, should receive comparable pay to warehouse staff.”
But no matter what employers may think, Palmer says that the “employment tribunals have to act even-handedly due to their nature. There are rules they follow which mean they have judges from employee and employer backgrounds who don’t substitute their personal views for the law.” He says that despite the courts relying on quite specific legislation around pay, “there are areas where the courts continue to develop case law to make sense of legal situations such as gig economy cases.”
More changes
From a legal perspective Themistocleous reminds firms to be aware of the regular changes to statutory pay that are subject to annual review – NMW being a case in point. She adds that current hot topics are those relating to agency workers and the gig economy. She says that “there is an increasing trend to give rights usually reserved for employees to workers to ensure they are treated fairly and are not taken advantage of. Recent cases on this include Uber and the National Gallery.”
And then there’s the Swedish Derogation rules that enable some agency workers to be paid less than permanent employees - this will be repealed from April 2020 meaning that agency workers must have pay parity after 12 weeks of service.
There are other changes that some may have missed. The first relates to payslips; these must be given to workers, not just employees, and from April 2019 the payslip must include the total number of hours worked where the pay varies accordingly (say for variable or zero-hour contracts).
Then there’s new legislation that will apply from 2020 that gives employed parents two weeks of leave if they lose a child or suffer a stillbirth from the 24th week of pregnancy. And from April 2020, when calculating employee’s holiday pay, the reference period will change from 12 weeks to 52 weeks.
At the core of these changes is a concern that low pay is still a problem with wages still failing to recover in real terms since the financial crash. Says Cotton: “It used to be a widely held view that being in work helped lift people out of poverty, but that is no longer a guarantee. In order to deliver sustainable wage growth, employers need to improve their productivity. Raising the standard of their people management practices can help them to achieve this.”
As he points out, “all these changes will increase demand on HR teams, particularly organisations with a large headcount, and they should start preparing for these changes now to ensure they are ready.”
He gives an example. Most organisations only ask their staff to disclose their ethnicity on a voluntary basis, “but if they don’t start to be more proactive about collecting this data now, they could find themselves with little to draw from when a deadline is looming.”
Brexit rules?
But let’s not forget the elephant in the room – Brexit – which is still creating its own myriad of problems. Europe has had an impact on employment law and pay, and as to what happens in the future, Themistocleous says this all depends on what type of deal the UK leaves the EU with – if any deal is reached at all. She notes that “businesses are increasingly concerned about sourcing skilled and unskilled workers as a significant number come from overseas. This could lead to higher pay having to be offered to attract internal workers leading to increases in costs or businesses having to look further afield than the EU.”
For the moment though, businesses can rest easy because, as Palmer notes, “at the present time, the government has not indicated that it will make any immediate changes to employment rights”.
In summary
The law and rules on pay change all the time. It is good practice for businesses to undertake routine checks and reviews to ensure they are compliant with all legislation. If there is any doubt, they should take advice. With what’s on the horizon it’s best to plan ahead; change is not going away, and as demonstrated employees and the authorities aren’t afraid of being litigious.
But ultimately, while there might be legal repercussions for non-compliance “most organisations are,” says Cotton, are “more concerned about the damage to their brand and reputation. The media scrutiny afforded to organisations over their gender pay gaps is a case in point.”
Businesses shouldn’t ignore their duties – the law and media certainly won’t let them forget.
