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Pay equality challenge tests SA employers

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Major changes to the way that South African labour laws and regulations treat the concept of pay equality could cause upheaval for employers who have not taken the necessary steps to prepare for them. Failure to comply could have negative consequences for a business’s finances and legal standing, team morale, company reputation, and even employee turnover.

That’s the word from labour economist Andrew Levy, and presenter of the Pay Equality Seminar, which will be hosted by Sage HR & Payroll at venues nationwide during August. He says that most South African employers will face major challenges as they adapt their businesses to recent changes of the Labour Relations Act (LRA), the Employment Equity Act (EEA) and the associated regulations regarding equality in pay and benefits.

The objective of the new legal framework is a guide to employers on how to implement equal remuneration for work of equal value. It also promotes the elimination of unfair discrimination with regards to pay, especially if the discrimination is based on gender, race, or disability. Differences in the terms and conditions of employment without good reason will result in costly claims of unfair practice under the LRA as well as the EEA.

But in practice, pay equality in South Africa is complex and the guidelines for good practice are inadequate because they are open to interpretation, says Levy. “The various codes of practice show an imperfect understanding of the actual tools required to give effect to pay equality and rational pay structures,” says Levy. “In the absence of practical guidance for HR departments and employees, I fear that it will take a decade or more of disputes and litigation before the core issues are grasped by employers, unions, and the courts.”

Understanding the legal concept of pay equality
Levy notes that South African law has focused on pay equality since the inception of the EEA. However, very little case law has developed around it, and it remains a complex subject in practice. The concept does not mean that everybody must be paid equally for doing the same job. Instead, it means that people who are exactly alike in every material respect should not earn differently based on factors that are discriminatory or prohibited, says Levy.

However companies may pay employees differently based on factors such as skill, performance, length of service, competencies or flexibility, qualifications, seniority, responsibility and a number of other factors, he adds. The code also recommends that employers take into consideration the conditions under which the work is performed – these include physical and psychological conditions, as well as geographic location.

The new law stipulates, for example, that employees on fixed-term contracts or employees from labour brokers must be remunerated on the same basis as the permanent employees in the clients firm, so that pay and benefits are equal. Of course, discrimination based on arbitrary factors such as race and gender is prohibited.

Eliminating unfair differentials

An additional complexity comes in the form of the EEA’s provisions on income differentials and unfair discrimination in terms and conditions of employment across different occupational levels of the employer’s workforce. Under the Act, every designated employer must submit a statement on the remuneration and benefits received in each occupational level of that employer’s workforce.

Where income differentials or terms and conditions of employment are termed to be disproportionate or unfair, employers must strive to take measures to progressively correct them, says Levy. However, no definition, measure, or guidance is given as to what constitutes a disproportionate differential.

The implications for employers

Taken together, this all means that employers must take steps to ensure pay equality and eliminate inequitable wage differentials, says Levy. But this is not a simple matter of comparing packages – it has to be done using specialised statistical techniques.

“The first step is to establish the nature, cause and extent of wage discrimination. Once it has measured the gap, the employer needs to work towards the target of pay equality. Like employment equity, this needs to be achieved over time, rather than in a single stroke of a pen,” says Levy.

A complexity will lie in securing an agreement from trade unions that wages for lower-paid workers must increase at a faster rate than for those who earn higher wages and salaries, he adds. Unions tend to favour percentage-based increases across the board – and that exacerbates inequality rather than helping to close the gap.

Says Anton Van Heerden, Managing Director, Sage HR & Payroll: “Equal pay provisions demand a specialised understanding of wage structures and wage differentials. Andrew Levy has an established expertise and credibility in the field of pay and pay structures. As such, this seminar will be invaluable for managers and HR professionals who are grappling how the changes to the labour law landscape will affect their businesses.”