How to write a radical pay policy
Making sure our pay policies value different types of work more equally, and meet different members’ needs can be tricky? What are the legal requirements, and what are the options for making our pay systems fairer?
Even in progressive organisations, many of us struggle to think about pay differently. If we’ve worked in hierarchical organisations we’ll probably be used to a system where some roles are paid at considerably higher rates than others, and where some people earn different amounts for similar work. We’ll probably also be used to the idea that how much we earn should be kept to ourselves. We may know the salary bands within which colleagues are placed, but the exact amounts may well be hidden for confidentiality purposes.
Under the guise of confidentiality, perpetuation of inequality and privilege abounds in corporate salary structures. And this is precisely what we’d expect from an individualistic, capitalist system: the lack of transparency; the idea that some people are worth more than others for doing more-or-less the same thing; and the idea that certain skills/roles/people (usually those associated with more privilege) are worth significantly more than others. This inevitably promotes a competitive rather than a co-operative working environment, with everyone vying for an advantage over the next person to win the pay rise, the promotion, the status. Instead of a common aim we have an individual one—to earn more money.
In the worker co-op sector we find many examples of flat pay—a commitment to valuing all work equally, to making sure labour on the shop or factory floor is valued as highly as the office-based tasks that traditionally attract higher remuneration. And this continues to be pretty revolutionary—we don’t decide anyone is worth more for doing something similar to the next person, or that certain tasks are inherently more valuable because they require different skills. We recognise that all of the work in the co-op is vital for everyone to earn a living, and we pay a flat rate to honour the input of all workers.
For anyone who’s regularly worked an 8-hour shift splitting pallets, stocking shelves, baking or producing food, we’ll probably be rightly resistant to the idea that our labour constitutes ‘easy’, low value work, while senior managers writing strategy documents about the operations of this low value work earn many multiples of our salary. So in worker co-ops we recognise the challenges and rewards of different types of work, and take a collective approach to shared labour by valuing it equally. Capitalism generally works the other way—the further removed you are from the core (often manual) work or from actually producing/creating the thing that has value, the more you’re likely to earn and the more power over others you’re likely to have. In flat-structured worker co-ops we actively organise to do the opposite—equal pay, equal voice, equal value.
This is obviously a major improvement, in terms of trying to live our progressive values. But equality of pay can also be problematic, as it doesn’t take into account needs and circumstances. Many progressive organisations might therefore seek to go a step further by focusing instead on equity, asking what each person truly needs, based on their life circumstances, in order to benefit from their labour and enjoy a similar standard of living to their colleagues. There are many ways to approach this, and different organisations will have different starting points. For some it will be a combination of both approaches—we can value all work equally at a given hourly rate or salary level, and make adjustments from there. For others it may be a completely open system, with each person naming their required remuneration to meet their needs. For others it could involve a carefully designed framework that calculates the pay rate based on individual circumstances.
It will always be important when starting to design a differential pay system to pay attention to the process as much as the details within it—we will want to centre the voices of those with the least privilege if we don’t want to inadvertently build in the inequalities we’re seeking to avoid.
Why do we need a pay policy?
The main reasons we need a pay policy are clarity and transparency. We want to ensure that everyone understands how we determine the salary level for paid roles in our organisation, and we want to have full transparency about the factors used to decide who earns what amount if we have different levels of pay available.
If we have a fully transparent system for determining pay, one that we have collectively designed and consented to, we will not necessarily need to share the salary details for each individual we employ. However, we may choose to do so as part of a commitment to an open and transparent approach to remuneration.
What does the law say?
Under the National Minimum Wage Act 1998 it’s a criminal offence for employers to set pay rates below the National Minimum Wage, or the National Living Wage for those over 23 years of age.
Everyone classed as a worker under the act, i.e. everyone working under an employment contract, or any other contract by which the individual agrees to perform work or services personally for someone else, is entitled to receive the minimum wage for their work. Exceptions include self-employed people, young people under 16, volunteers, and some other specific categories including interns. If an intern is classed as an employee or worker then they must be paid the minimum wage. However, if they are students undertaking a placement during a higher education course, or school age students doing work experience, or if they are classed as volunteers or engaged in ‘work shadowing’, then organisations do not have to pay them. This is a contentious practice with unpaid internships contributing to perpetuating privilege and denying opportunities to those unable to afford to take up unpaid work.
There are different rates depending on age, as well as a separate apprentice rate:
- 23 and over (National Living Wage)
- 21 to 22
- 18 to 20
- Under 18
Contracts for payments below the minimum wage are not legally binding. An employer cannot exclude or limit the payment of minimum wage within any type of contract. Likewise, a worker cannot agree to be paid less than the minimum wage or to be unpaid.
Minimum wage rates are updated annually.
It is very important to follow the guidance to calculate wage rates and check the national minimum wage is being paid. Pay reference periods are set by how often someone is paid, for example one week, one month or 10 days. A pay reference period cannot be longer than 31 days. A worker must be paid the minimum wage, on average, for the time worked in the pay reference period.
|Payments that must not be included as they do not count towards making up the minimum wage: |
Employers who discover they’ve paid a worker below the correct minimum wage must pay any arrears immediately. Use the National Minimum Wage and National Living Wage calculator to check a worker has been paid correctly.
HM Revenue and Customs (HMRC) officers have the right to carry out checks at any time and ask to see payment records. They can also investigate employers if a worker complains to them.
It’s the employer’s responsibility to keep records proving that they are paying the minimum wage. These records can be paper or computer records, and must be kept for at least 6 years. Most employers use their payroll records as proof of:
- total pay: including pay deductions, allowances and tips
- total hours worked: including absences and overtime
Employers may also need to keep records such as agreements about working hours and pay and conditions.
Real Living Wage
The Living Wage Foundation calculates the Real Living Wage—the minimum hourly rate of pay necessary to meet living costs. While this is not legally-binding like the national minimum wage, many employers pledge to meet this higher rate of pay to support their lowest-paid employees. The rate is updated annually.
The Equality Act 2010 gives women (and men) a right to equal pay for equal work. It replaces previous legislation, including the Equal Pay Act 1970 and the Sex Discrimination Act 1975. Its purpose is to ensure that where women and men are doing broadly similar work they should receive the same rewards for it, and this encompasses the rate of pay as well as all the other terms and conditions of employment.
Under the Equality Act 2010, all employment contracts are now taken to have an implied term of sex equality for terms and conditions (i.e. it is not writen into the contract, but everyone can expect their terms and conditions will not be less favourable for ‘broadly similar work’ on the basis of sex).
Gender Pay Gap Information Regulations 2017 require private and voluntary sector employers with 250 or more employees in the UK to report their gender pay gap, based on pay data captured on 5 April each year. Public sector employers are subject to similar reporting requirements. While it is improving, and has improved significantly since the 1970s, a notable gender pay gap continues to exist in the UK.
Is pay confidential?
Employment contracts contain what are known as ‘express terms’ which set out the details that the employer and employee agree to be bound by when they sign the contract, such as the level of pay and number of hours per week and amount of holiday entitlement etc.
Employment contracts are also bound by what are known as ‘implied terms’, things that aren’t written into the contract but make up part of the employment relationship. An important implied term is mutual trust and confidence, i.e. an employer can’t act in a way that is likely to seriously damage the trust of employees without reasonable cause.
Case law specifies that there’s no implied term that salary details are confidential in employment contracts. Some employers continue to include pay secrecy clauses, but the Equality Act 2010 introduces limits to how enforceable they are. This means that any employee who makes a relevant pay disclosure to colleagues, including former colleagues, is protected from unfair treatment by their employer.
Employees can therefore legally discuss and compare salary information if they are doing so in order to discover to what extent there is a connection between pay and having (or not having) a protected characteristic, such as men being paid more than women, or people of colour being paid less than their white counterparts.
However, information about the pay of an identifiable individual may count as personal data, and so the principles of the UK General Data Protection Regulations must be observed. This means that an employer should not routinely reveal an individual’s pay details to others in the organisation, unless of course it’s a flat-pay organisation where everyone earns the same amount and there’s no need for confidentiality.
Protected disclosures cover all nine of the protected characteristics. Where there is evidence of discrimination, an employee may choose to take their case to an employment tribunal to seek legal redress.
It is important to note that the law on discrimination does not apply in the same way for each of the protected characteristics, as follows:
- Age: discrimination on the basis of age is unlawful, but there is an exception under the Equality Act 2010. Employers may offer employees pay increases and benefits based on length of service of up to five years without the need to justify the policy, even though this has an indirectly discriminatory impact on younger staff. Increased pay and benefits for length of service above five years must be justified on the grounds that it fulfils a business need. Generally, length of service benefits are capped at five years.
- Gender reassignment: treating someone less favourably, including lower pay, because of gender reassignment is unlawful.
- Being married or in a civil partnership: treating someone less favourably because they are married or in a civil partnership, including paying them less than single employees, is unlawful. Less favourable treatment of single people would not count as discrimination because the Equality Act only offers protection to those who are married or in a civil partnership and not the other way around.
- Being pregnant or on maternity leave: more favourable treatment for those who are pregnant or on maternity leave would not amount to discrimination against people who aren’t pregnant and not on maternity leave, so we could choose to offer increased pay or benefits, e.g. for childcare.
- Disability: more favourable treatment for those with disabilities would not amount to discrimination against people without disabilities, so we could choose to offer increased pay or benefits in recognition that many people living with disabilities face additional living costs.
- Race including colour, nationality, ethnic or national origin: any discrimination on the basis of race, including lower pay, would be unlawful.
- Religion or belief: less favourable treatment, including pay, on the basis of someone’s religion (or lack of religion) or genuinely-held belief is unlawful.
- Sex: men and women have equal protection for equal pay, so we couldn’t choose to pay men less than women, or women less than men.
- Sexual orientation: any discrimination on the basis of sexual orientation, including pay, would be unlawful.
Discrimination: A broader view
The legal definitions of protected characteristics are specific and limited to the nine characteristics described above. Many of us would like to see our organisations go beyond the legal requirements to consider other areas where people may face disadvantage. For example there are no legal protections related to class, yet people from working class backgrounds may well face less favourable treatment than those from middle class backgrounds, including pay differentials. Similarly, the law does not offer protection from discrimination for those with caring responsibilities, but that doesn’t mean we shouldn’t do everything we can to support them in our organisations. While it’s important to make sure we do not fall foul of the legislation and discriminate against anyone with a protected characteristic, we can also go further than this to design policies that aim to support everyone’s needs.
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