11 December 2006

How do you decide what to pay a new recruit to the organisation? Starting salaries are frequently lower than the salaries for established members of staff. It may be common practice but it isn’t necessarily always within the law. Equal pay and now age discrimination must be taken into consideration.

The Equal Pay Act 1970 (EPA) provides that men and women who are working for the same, or an associated employer, are entitled to the same pay and benefits if they undertake jobs that are on a par with one another.

The EPA is therefore actually quite broad and applies where the man and woman are employed:

• To do the same or broadly similar job. This is known as "like work";
• In different jobs but which are rated under a job evaluation scheme as being equivalent; or
• To undertake work that requires the same degree of effort, skill and other demands which is of equal value.

An employee does not need to have any qualifying length of service to bring a claim, so a new entrant can immediately compare their salary with others in the organisation. Not only can a comparison be made with existing employees but the new entrant could also compare their salary to that of their predecessor. What’s more the employee who left can also bring a claim if, within 6 months of leaving employment, they find out their successor is being paid more! The only requirement is that the comparator is an actual person of the opposite sex.

It is possible that any differences in pay are down to legitimate reasons and not the difference in sex, which would be unlawful. Consequently, the EPA provides a defence to claims where the employer can show that the difference in pay is due to a genuine material factor. For example, a material factor could be a geographical location where salaries are inflated for that region or competition in the labour market where a premium has had to be paid for certain skills. The employer must also objectively justify any material factor which is indirectly discriminatory. This means the employer must have a business objective as to why it was necessary and be able to show that the discriminatory impact is in proportion to achieving that objective. Enhanced pay or bonuses for anti –social hours are likely to fall into this category as women with child care responsibilities are much less likely to be eligible to receive payment.

With new entrants the material factor for any difference in pay is predominantly going to be their length of service. Furthermore, some employers actually implement pay structures with incremental increases based on length of service. You start at the bottom of the scale and work your way up.

In Cadman v Health & Safety Executive the European Court of Justice was asked to consider whether such service related pay is objectively justified since it can indirectly discriminate on the grounds of sex. Women are more likely to have breaks in their career for family reasons and this makes it harder for them to accrue length of service. The ECJ held that employers can reward length of service where it can show that the greater length of service amounts to experience which enables the employee to perform better. Essentially this means that there will come a point when length of service no longer justifies a difference in pay.

The Employment Equality (Age) Regulations suggest that the cut off point is normally 5 years. Under these regulations service related pay and benefits are held to indirectly discriminatory against younger workers who have not had the time to accrue length of service. However, there is an exception which allows the employer to award pay and benefits according to length of service for up to a maximum of five years. Any longer periods will need justifying so as not to be unlawful age discrimination. This means the service criteria must reasonably appear to fulfil a business need such as encouraging loyalty or rewarding experience.

Therefore, a new employee may not seem as worth as much but, when deciding what to offer, it pays to consider what they might be entitled to by law. The moral of this story is "Start as you mean to go on" by paying all employees fairly and from day one!