How Employers Can Avoid Equal Pay Claims
Equal pay claims present a significant legal, financial and reputational risk for employers. Despite equal pay legislation being firmly established for decades, many organisations continue to face claims arising from historic pay practices, inconsistent decision-making or poorly understood pay structures.
This article explains what employers can do to reduce the risk of equal pay claims, outlines common problem areas, and highlights practical steps businesses can take to ensure compliance with the Equality Act 2010 (“Equality Act”).
Understanding the Legal Obligation on Equal Pay
Under the Equality Act, employers must ensure that men and women receive equal pay for equal work. This obligation applies not only to salary, but to all contractual terms, including bonuses, overtime, pension contributions and benefits.
Equal work may involve:
- the same or broadly similar roles;
- jobs rated as equivalent under a job evaluation scheme; and/or
- different roles that are nevertheless of equal value.
A failure to comply can expose employers to claims for back pay, often covering up to six years, as well as mandatory changes to pay structures.
Common Causes of Equal Pay Claims
Employers often assume equal pay issues arise only from deliberate discrimination. In reality, many claims result from unintended practices that develop over time.
Common risk areas include inconsistent starting salaries, discretionary bonuses or allowances, historic pay protection arrangements and legacy pay structures following mergers or restructures.
Without regular review, these practices can create unjustifiable pay disparities that later form the basis of a claim.
Regular Equal Pay Audits
One of the most effective ways to avoid equal pay claims is to conduct regular equal pay audits. These audits help identify pay gaps and highlight roles where comparisons may be problematic.
An effective audit should:
- analyse pay data by gender;
- review basic pay and contractual benefits;
- identify outliers and unexplained differences; and
- consider whether pay differences can be objectively justified.
While audits are not mandatory, they are widely regarded as best practice and can provide early warning of potential issues.
Job Evaluation Schemes
A clear and consistent job evaluation scheme can significantly reduce the risk of equal pay claims, particularly those involving work of equal value. It is recommended for employers to ensure that job evaluation schemes are analytical and non-discriminatory, roles are assessed consistently across the organisation and evaluations are reviewed periodically to reflect changes in roles.
Outdated or poorly applied job evaluation schemes can increase exposure rather than reduce it.
Consistent Starting Salaries and Pay Progression
Starting salaries are a frequent source of equal pay risk, particularly where offers are influenced by negotiation or previous earnings.
To minimise risk, employers should:
- set clear salary bands for roles;
- limit discretion when making offers;
- document reasons for higher starting salaries; and
- avoid relying solely on previous pay history.
Similarly, pay progression should be transparent and based on objective criteria, such as performance or length of service.
Manage Discretionary Pay Carefully
Discretionary pay elements, such as bonuses or allowances, often feature heavily in equal pay claims. While discretion is not unlawful, it must be exercised carefully.
Employers should consider:
- setting clear criteria for bonuses and allowances;
- recording decisions and the rationale behind them; and
- ensuring decision-makers are trained on equal pay obligations.
Unexplained or inconsistently applied discretionary payments can be difficult to justify if challenged.
Material Factor Defence
If a pay difference exists, an employer may rely on the material factor defence, which allows a pay disparity to be justified by a genuine factor unrelated to sex.
Common material factors include:
- differences in experience or qualifications;
- market conditions at the time of recruitment;
- performance-related pay; and
- geographical location.
However, the burden of proof lies with the employer. It is therefore crucial to retain evidence demonstrating that the factor is genuine, proportionate and objectively justified.
Internal Training
Many equal pay issues arise from well-intentioned but poorly informed decisions. Training is therefore a key preventative measure.
Relevant training should cover:
- the basics of equal pay law;
- lawful and unlawful pay differences;
- documenting pay decisions; and
- handling employee queries about pay.
Ensuring managers understand the legal framework can significantly reduce inadvertent risk.
Review Pay Structures After Organisational Change
Mergers, acquisitions and restructures often introduce equal pay risk, particularly where employees transfer onto different pay and grading systems.
Following organisational change, employers should:
- review harmonised pay arrangements;
- assess legacy pay protections; and
- identify roles performing similar work across teams.
Failing to address these issues early can store up problems that later result in large-scale claims.
Respond Promptly to Pay Concerns
Employee concerns about pay should be taken seriously and addressed promptly. Ignoring or dismissing concerns can escalate disputes unnecessarily.
A proactive response may include reviewing the employee’s pay against comparators, explaining the pay structure clearly and correcting errors where identified.
Early engagement can often prevent formal grievances or Tribunal claims.
How We Can Help
Taking advice at an early stage can help limit exposure and protect the organisation’s position. Avoiding equal pay claims requires more than compliance on paper. It demands consistent, transparent and well-documented pay practices across the organisation.
By auditing pay regularly, managing discretion carefully and seeking legal advice when needed, employers can significantly reduce the risk of costly and disruptive equal pay litigation.
Despite best efforts, potential equal pay issues can still arise. Early legal advice can help employers assess risk and take appropriate action before a claim is issued.
We can assist with:
- conducting legally privileged pay audits;
- responding to grievances or Acas early conciliation; and
- defending Employment Tribunal claims.
We usually offer a no-cost, no-obligation 20-minute introductory call as a starting point or, in some cases, if you would just like some initial advice and guidance, we will instead offer a one-hour fixed fee appointment (charged from £250 plus VAT depending on the complexity of the issues and seniority of the fee earner).
Please email wewillhelp@jonathanlea.net providing us with any relevant information or call us on 01444 708640. After this call, we can then email you a scope of work, fee estimate (or fixed fee quote if possible), and confirmation of any other points or information mentioned on the call.
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This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.