Equal Pay: Understanding Its Importance and Implications
Written by: Eveline Jacobse
Last updated: 19 May 2023
Table of contents
- What is equal pay?
- The Equality Act 2010
- How does that work in more detail?
- Why is equal pay important?
- Equal Pay: salary increase, but also disadvantages for temporary workers
- How to calculate equal pay?
- When is equal pay not paid?
- When can employers deviate from the rule of equal pay?
- What happens for equal pay violations?
What is equal pay?
Equal pay for equal work is the principle that men and women should be paid equally for work of equal value. It is often applied to jobs where many different tasks are performed by both a man and a woman, such as clerical work or teaching.
In most cases, paying people differently according to gender, race, or age is illegal. Equal pay law mandate that employers treat employees equally based on their gender, race and other protected categories. In addition to prohibiting discrimination, these laws also make it illegal to retaliate against workers who discuss wages or raise concerns about unpaid wages within their companies.
Three types of equal work exist:
Like work: It is similar in some way. There is little difference between the tasks you must perform and the knowledge and skills required to carry them out, so any differences are of no practical significance.
Work rated as equivalent: As determined by a valid job evaluation scheme, work rated as equivalent is equally demanding.
Work of equal value: Despite not being similar or equivalent, work of equal value is equal in terms of efforts, skill, and decision-making demands.
Justifying pay differences
Unless the employer can prove a 'material factor' explains any difference in their pay, a woman who does equal work will be presumed to be paid less because of her gender.
A material factor must:
- The pay difference must be genuine.
- Resulting in a gender pay gap
- Be relevant and significant.
- Describe how each factor was assessed and applied when determining the pay difference with 'particularity' - in other words, how it applied in the case of the woman.
- Indirect or direct sex discrimination & sexual orientation is not tolerated.
The Equality Act 2010
With the Equality Act of 2010, the old anti-discrimination laws have been replaced by a single Act. It makes the law easier to understand by getting rid of confusing parts and making it easier for people to follow.
On October 1, 2010, most of the Act went into effect. The Equality Act of 2010 says that both men and women should get the same pay for the same employment.
It takes the place of the Equal Pay Act of 1970, the Sex Discrimination Act of 1975, and the equal pay rules in the Pensions Act of 1995.
The parts of the Act that deal with equal pay are called "equality of terms" provisions. They are spread out across the Act, but the Equal Pay Statutory Code of Practice brings them all together.
How does that work in more detail?
The Equal Treatment principle was introduced in November 2008 as the first step towards ensuring that temporary workers are treated the same as permanent employees. This principle states that temporary and permanent workers are treated equally regarding working hours and all associated regulations.
Another step toward equality was taken with the equal pay principle, which took effect in April 2017 and is governed by Section 8 of the Temporary Employment Act. You will adjust the wages of temporary workers after nine months. The position's salary corresponds to a permanent employee's compensation for a comparable job.
It means that workers who are only employed for a certain amount of time are still entitled to benefits, such as allowances, paid leave, and health insurance. This rule applies to all surcharges and allowances.
If a permanent employee gets benefits, such as a company mobile phone or car, the temporary worker gets paid the same amount in euros. When the benefits in kind are common for the position, but the temporary worker is the only employee in this role, a notional value is used for calculation.
Why is equal pay important?
Equal pay for equal work is a principle that is very important to many people. It means that women and men who perform equal work should receive equal pay. Equal pay can also be referred to as equal opportunity and fair treatment.
There are several reasons why employers must treat their employees fairly by paying them equally for equal work, regardless of gender or race:
Employers want to retain the best workers. If they pay one employee more, they may lose that employee to a competitor who pays more.
Employers want to ensure that their business is profitable. Allowing some people to be paid more than others could cause their businesses to lose money if other workers leave or stop working because of unequal pay.
Allowing some people to be paid less than others may cause customer dissatisfaction because customers will feel as though they are being treated unfairly by the company's policies or practices.
Equal Pay: salary increase, but also disadvantages for temporary workers
Although equal pay might lead to higher wages for agency staff, it also brings uncertainty. Temporary employees are concerned that the AÜG reform will replace them more frequently, leading to more significant wage swings.
The study found that two-thirds of companies plan to use more fixed-term contracts and agency staff. It is because companies can fire employees on short-term contracts more easily than those with permanent contracts.
A German Trade Union Confederation (DGB) survey found that a third of companies have replaced permanent employees with agency staff or contractors since the equal pay principle took effect.
How to calculate equal pay?
The equal pay principle is only applicable after an employee has worked at the same company for nine months. Before that, the previous rules apply.
An employee's salary will be fully adjusted to the company's standard allowances for the position after ten months of employment. It includes all types of benefits and allowances, such as meal allowances, housing allowances, and transportation allowances.
A short-term termination of the employment relationship of up to three months is not discriminatory. If an individual has several assignments with one company, the total time for all assignments cannot exceed nine months. This equal pay regulation also applies if another company hires a temporary worker to work for the same company.
The principle of equal pay also includes training. Any mandatory company training required for the job's performance must be made available to the temporary worker at no cost. The number of paid vacation days is pro-rated based on the number of months worked.
To calculate equal pay, the total amount of the salary and all benefits and allowances are added up. This total is then divided by the number of months worked. The resulting figure is the monthly equal pay amount.
The calculation starts if the break between two assignments is over three months. In this situation, the agency worker's pay will not be updated even though he has worked for the firm for nine months.
A temporary worker who spends nine months at a company acquires the same benefits as a permanent employee. There is an exception for the use of collective industry agreements.
After 15 months, the temporary employee has achieved full equality due to the gradual progress over six weeks of training.
The law, in some cases, also provides for a longer period of employment before the equal pay principle applies.
If an employee is transferred to another company within the same group of companies, the time spent at the previous company is counted towards the nine months.
The same applies if an employee takes a leave of absence for maternity, paternity, or adoption leave.
When is equal pay not paid?
Companies that don't pay their employees equally can deviate from the legal consequences if they staff workers who agree to an industry surcharge. Temporary workers usually have their wages gradually increased to match the salaries of regular employees.
The user company can choose to pay their employees differently as long as they meet the following conditions:
- The salary for a temporary worker reaches a collectively agreed level within 15 months. The compensation of a comparable position is used as a baseline for comparison.
- The temporary employee's pay will be increased to comparable or equal remuneration as the company's after a six-week induction period.
The conjecture rule is one of the few exceptions. The legislator automatically presumes equality if the temporary employee's salary is equal to or above the collective wage agreement for the sector in which he is employed from day one.
The exceptions do not affect the overall situation. If you have worked for a company before, you should consider your previous assignments with that company. If you have worked for different companies, the time between assignments should not be more than three months.
These are the most important rules. If you have any questions, please get in touch with your local trade union. They can help you clarify whether your situation is one where you should receive equal pay.
When can employers deviate from the rule of equal pay?
There are a few circumstances in which employers can deviate from the rule of equal pay. These include when there is a difference in:
The job itself
Equal pay for equal work is not a principle of law but rather a principle that society has adopted. It is because many factors go into the decision to award someone the same salary as another person in relation to their position. These factors can vary between employers and employees. For example, in some cases, one person may be awarded a higher salary than another based on seniority, while in other cases, it may be based on skills or experience.
The skills required for the job
Employers can deviate from the principle of equal pay if they have a legitimate business reason for doing so. For example, if an employer believes that their employee needs more skills or training to perform their role effectively, they will be allowed to pay them more than another employee who does not require such skills or training. It does not mean that employers must always pay their employees more than others; instead, they should do so if there is evidence that justifies such differential treatment.
The experience needed for the job
Often when people start working, they have less experience than others who have been doing their current jobs for longer, so they may receive lower salaries than their more experienced colleagues because they haven't been able to demonstrate their true value yet - this would be legal and fair. However, it could still be considered discrimination because the inexperience may still relate to your youth (as in freedom5's example above) or disability etc.
The working hours
Many people mistake assuming that working hours are an objective fact that employers cannot change – but this is not true! Employers may choose to change their working hours so long as they do so with good reason and justification: if they reduce their working hours because they need fewer staff members, then this would be acceptable; if they increase them due to increased demand, then again this is acceptable; if they reduce them due to economic issues then again this is acceptable; etc.
The geographical location
Employers may decide to give employees living outside of their home country a higher salary than those living within their government not to disadvantage them during recruitment or promotion opportunities. There are also some situations where an employer may decide that someone living within their own country is more effective at performing specific tasks or tasks that require experience in a particular industry than someone who lives outside of it (e.g., travel costs).
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What happens for equal pay violations?
If the temporary employment agency breaches the statutory principle of equal pay, they will experience the following consequences:
- The Federal Employment Agency imposes a fine of up to 500,000 euros.
- The employee leasing license may be revoked at any time.
- The differential payment is due to the temporary employee being entitled to the same wage as full-time employees. If his wage or salary is less than the value of a permanent employee in the same job, he can challenge the documents.
The principle of equal pay is essential to UK's social market economy. It is designed to protect workers and ensure that they are treated fairly. Regarding payment, there should be no difference between temporary and permanent employees.
If you have any questions about your rights as a temporary employee, don't hesitate to contact your local trade union. They can help you clarify your situation and make sure you are being treated fairly.
Eveline is an experienced HR expert with a passion for content writing in the field. She has distinguished herself by sharing her in-depth knowledge and insights into HR topics and trends through articles that are both practical and informative. Her experience and expertise in human resources add value, and she continues to dedicate herself to informing and inspiring peers with her well-thought-out and well-founded content.
Please note that the information on our website is intended for general informational purposes and not as binding advice. The information on our website cannot be considered a substitute for legal and binding advice for any specific situation. While we strive to provide up-to-date and accurate information, we do not guarantee the accuracy, completeness and timeliness of the information on our website for any purpose. We are not liable for any damage or loss arising from the use of the information on our website.
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