Compulsory pay audits

The Government has published draft regulations introducing a requirement for employers to undertake and publish equal pay audits, if the employer is found to have breached equal pay legislation.

The Enterprise and Regulatory Reform Act 2013 included a provision for the government to make regulations detailing the new requirement for employers to publish equal pay audits. These regulations have recently been published in draft form.

The draft regulations state that if a tribunal finds that an employer has breached the equal pay provisions of the Equality Act 2010, it must order the employer to conduct and publish an equal pay audit, including the following information:

• Relevant gender pay information related to the descriptions of employees specified by the tribunal;
• Indentifying any differences in pay between men and women, and the reasons for those differences;
• The reasons for any potential equal pay breach identified by the audit; and
• What the employer plans to do to avoid breaches occurring or continuing.

The audit must be sent to the tribunal by a specified date, at least three months after the tribunal’s order. Provided the tribunal is satisfied that the audit is compliant, the employer must publish it on its website and leave it there for a period of three years.

If the employer fails to conduct a satisfactory audit without reasonable excuse, the tribunal can impose a penalty of up to £5,000.

An audit is not required if:

• The employer has already carried out an audit in the preceding three years;
• It is clear, without the need for an audit, whether any action is required to avoid equal pay breaches from occurring or continuing;
• The tribunal has no reason to think that there are any other breaches of equal pay legislation; or
• The disadvantages of an audit would outweigh its benefits.

It is intended for the draft regulations to take effect from 1 October 2014, but they will only apply in respect of equal pay claims lodged on or after that date. Micro-businesses (fewer than 10 employees, or the equivalent full-time hours), and new businesses (less than 12 months at the date of the complaint) will be exempt.

Equal pay claims are relatively uncommon, but the introduction of the requirement to undertake and publish an equal pay audit together with the potential for reputational damage will mean that the consequences of losing a claim are even greater for employers.

The draft regulations are available here.