The legal framework for pay and reward

1. Equal value

One of the major reasons for the growth in job evaluation in recent years has been the development of equal pay law. When assessing the validity of equal pay claims, tribunals employ the principles of job evaluation as a starting point, appointing a job analyst to undertake a comparison of the content of different jobs if necessary. Importantly, from the employer perspective, this means that the use by an organisation of an analytical job evaluation scheme can be a very effective defence when an equal pay claim is brought. The employer can simply claim that the jobs in question have both been evaluated and been found to be of different value for specific reasons. Provided the scheme itself is free of sex bias, this should serve to deter aggrieved employees from bringing cases in the first place.

The Equal Pay Act 1970 established that a woman could bring a case to an employ­ment tribunal claiming entitlement to equal pay with a man working at the same estab­lishment if the claimant and her chosen comparator were engaged in ‘like work’ or work rated as equivalent under an employer’s job evaluation study. A man can equally bring a case comparing his pay to that of a female colleague but this has rarely occurred in practice outside the field of pension entitlements. An amendment to the Act, which came into effect in 1984, broadened the definition of ‘equal value’ so that it became possible for a case to be brought if the claimant believes that her work is equal to that of her com­parator in terms of the demands made upon them. This amendment followed a European Court ruling which judged the existing Equal Pay Act to fall short of the stand­ard established by the EEC Equal Pay Directive. Since then other European Court rulings have further extended the scope of equal value law. You will find further information and discussion exercises focusing on debates about equal pay issues on this book’s com­panion website, www.pearsoned.co.uk/torrington.

2. Like work

When presented with a claim for equal pay an employment tribunal will first seek to establish whether the claimant is engaged in ‘like work’ with the more highly paid man she has named as her comparator. The work does not have to be identical to justify equal pay under this heading, but must be either the same or of a broadly similar nature. In practice this means that the difference in pay can only be justified if there is ‘a differ­ence of practical importance’ in the work done or if there is ‘a genuine material factor’ which justifies the higher rate of pay enjoyed by the male comparator.

An example of a difference of practical importance might be the level of responsibil­ity of the man’s job when compared to that of the claimant. An employer might, for example, be justified in paying a man more than his female colleague working on a comparable production line if the articles being manufactured by the man were of substantially greater value. Similarly a discriminatory payment could be justified if a man worked under less supervision than a woman engaged in otherwise like work. A common example would be a man working without supervision on night shifts.

Where there is no practical difference of this kind a discriminatory payment can only be justified where there is a ‘genuine material factor other than sex’ which can explain the difference in pay levels.

2.1. Work rated as equivalent

Cases brought under this section of the Act relate to jobs which are different in nature but have been rated as equivalent under the employer’s job evaluation study. The existence of such a study can also provide the basis of an employer’s defence in equal value claims. A definition of a job evaluation scheme is included in the Act:

A woman is to be regarded as employed on work rated as equivalent with that of any man if her job and his have been given an equal value, in terms of the demand made on a worker under various headings (for instance, effort, skill, decision), on a study undertaken with a view to evaluating in these terms the jobs done by all or any of the employees in an undertaking. (Equal Pay Act 1970, s. 1(5))

Case law has further narrowed the definition of acceptable job evaluation schemes. In the case of Bromley v. H & J. Quick (1988) the Court of Appeal ruled that the identification of benchmark jobs and paired comparisons was ‘insufficiently analytical’ as this did not involve evaluation under headings as required by the Act. The widely used method of job evaluation whereby only a sample of benchmark jobs are analysed cannot, therefore, be relied upon as a basis for an employer’s defence. The jobs of the applicants and their chosen comparators must each have been evaluated analytically. In addition, a tribunal will look at the means by which scores derived from a job evaluation scheme are used to determine the rate of pay and will take account of a job evaluation study which has been completed but not implemented.

To be acceptable to a tribunal the job evaluation scheme in use must also be free of sex bias. Employers should ensure, therefore, that the factor weightings do not indirectly discriminate by overemphasising job requirements associated with typical male jobs, such as physical effort, at the expense of those associated with jobs predominantly undertaken by women, such as manual dexterity or attention to detail.

2.2. Work of equal value

A woman who is not engaged in like work, work of a broadly similar nature or work rated as equivalent is still entitled to bring an equal pay claim if she believes her work to be of equal value. In these cases the claimant names as her chosen comparator a man employed by the same undertaking who may be engaged in work of a wholly different nature. If the tribunal decides that there are grounds to believe that the work is of equal value, it will then appoint an independent expert, nominated by ACAS, to carry out a job evaluation study. The report of the expert will then be used by the tribunal as a basis of the decision on whether or not to make an award of equal pay to the claimant. A woman may bring an equal value claim in this way even if she has male colleagues engaged in like work and paid at the same rate as she.

A number of significant equal value cases have been brought to tribunals over the years. In Hayward v. Cammell Laird (1984) a cook was awarded pay equal to that of men employed as joiners and laggers, but only after an appeal to the House of Lords three years after making the initial complaint. In 1990 the shopworkers’ union USDAW dropped an equal value case against Sainsbury’s when the employer agreed to carry out a job evaluation exercise. The union had claimed that predominantly female check-out operators were engaged in work of equal value to that of predominantly male ware­housemen. This led to an 11 per cent rise in Sainsbury’s retail wage bill and to a series of similar USDAW settlements with other major retailers during 1990 and 1991. The impact of these cases has been very substantial, leading to the restructuring of pay arrangements across industry and the public services.

2.3. Genuine material factor defences

If it is established, to the satisfaction of an employment tribunal, that the claimant is en­gaged in like work, work rated as equivalent or work of equal value, the employer must show that the difference in the respective rates of pay is not due to sex discrimination but to a ‘genuine material factor not of sex’. There are many defences which potentially fall into this category, some of which are described in Chapter 23. Among the most significant, as far as job evaluation is concerned, is the practice of red-circling whereby an individual’s rate of pay is protected for a period following redeployment or a new job evaluation exercise. In most cases, provided it can be clearly shown that the red circle was awarded for reasons other than the individual’s sex, this will be an acceptable material factor defence.

3. The National Minimum Wage

Since 1999 most workers in the UK have been entitled in law to be paid a minimum hourly rate for the work that they do. The rate of the National Minimum Wage (NMW) is not linked to any formula, but is set by the Secretary of State for Trade and Industry after consultation with a body of experts and representatives from industry known as the Low Pay Commission. The aim is always to set the highest rate possible that will not appreciably have an adverse impact on employment levels. In practice the level of the NMW is increased on 1 October each year, and in recent years the increases have been well in excess of the prevailing rate of inflation. In early 2007 it stood at £5.35 an hour.

Not everyone, however, is entitled to the full amount. There are some groups who are excluded altogether such as people engaged in family work (au pairs, nannies, etc.), people working in sheltered work schemes run for homeless persons, apprentices, barristers’ pupils and students undertaking periods of work experience as part of a course of higher education. Other groups are only entitled to a lower ‘development rate’ which is set at around 80 per cent of the full rate (£4.45 an hour in 2007). This applies to people who are aged 18-22 and those over that age who are in the first six months of a new job dur­ing which at least 26 days are being spent training to achieve a National Vocational Qualification (NVQ) or Scottish Vocational Qualification (SVQ). Finally, there is a third, lower ‘youth rate’ for 16-17 year olds which is around 60 per cent of the full adult rate (£3.30 an hour in 2007).

In practice it can be very difficult for employers to establish that they are in fact pay­ing staff at or above the National Minimum Wage. One reason is the complexity of the regulations on what payments and payments in kind can and cannot be included as part of someone’s salary for NMW purposes. For example, the regulations state that over­time and on-call payments must not be included and thus, in effect, must be paid in addition to the NMW. On the other hand, employers are entitled to include in their calculations a sum to compensate for live-in accommodation, meaning that live-in staff may be paid slightly less than the NMW because they enjoy this type of benefit. Staff meals, however, cannot be included, nor can tips which are paid in cash. However, where tips are paid by customers on credit cards and distributed to staff through the payroll they can be included and thus form part of the hourly rate and not a supplement. There are also quite complicated rules about times when people are and are not deemed to be working for the purposes of the payment of the NMW, while further complexity arises in situations where people are paid entirely on a piecework basis and do not there­fore receive an hourly rate (e.g. where people are paid for the amount of work they do, not the amount of time spent doing it).

The government has appointed a team of inspectors to investigate incidents of wilful refusal to pay the NMW. They have the right to inspect records of hours worked and wages paid so as to establish whether or not the NMW has been and is being been paid. Where an employer knowingly refuses to comply with the NMW regulations, it can be charged with a criminal offence and fined. Until January 2007 the maximum fine was £5,000. Since then it has been calculated according to the following formula:

Twice the rate of the minimum wage at the time of the charge multiplied by the number of employees who have been paid below the level of the NMW multiplied by the number of working days they have not been paid the NMW.

In addition, of course, workers who are found not to have been paid the NMW are entitled to receive their full entitlement in the future and to receive back-pay too by way of compensation.

4. Deductions from wages

A third way in which the administration of salaries is regulated concerns situations in which employers make deductions from wage packets for one reason or another. All employees in the UK are entitled in law to receive an itemised pay statement which sets out the gross rate of pay for the month or week and any deductions that have been made. The Employ­ment Rights Act 1996 sets out what deductions can lawfully be made, the implication being that other types of deduction are unlawful and can lead to action in the employment tribunal. The list of permissible deductions includes those authorised by legislation such as tax and national insurance contributions and those authorised in the contract of employment such as trade union subscriptions or pension fund contributions. Sometimes courts issue ‘attachment orders’ requiring an employer to pay a fine or a debt on behalf of an employee and to make an equivalent deduction from the pay package, and from time to time mistakes are made in salary administration resulting in overpayments to employees that need to be recovered. In both these situations deductions are lawful. Importantly, however, it is unlawful for an employer to levy any kind of fine on an employee as a punishment when a disciplinary offence has been committed or where an individual’s performance in the job is unsatisfactory. In such circumstances along with any others in which underpayments of agreed wages are made, aggrieved employees have the right to take their case to an employment tribunal and to argue that they should be reimbursed.

Source: Torrington Derek, Hall Laura, Taylor Stephen (2008), Human Resource Management, Ft Pr; 7th edition.