Pay equity: What is it, and is it right for your business?

As employers, we always want to be seen as fair. Whether it’s addressing issues in the company, rewarding good work, or providing a great customer experience, treating everyone fairly can go a long way towards employee satisfaction and company reputation.

The reality is that when it comes to salary and pay, things aren’t always fair. Pay disparity still exists in Australia, and employers are under increasing pressure to address it. There’s also more calls for salary transparency, as companies with over 100 employees are now legally mandated to report the presence of any gender pay gap in their organisation.

No one wants to be called out, especially if there’s an issue in their company they weren’t even fully aware of. Unfortunately pay equity is a complicated topic, and not one that can be easily addressed – especially if you’re a small or medium business with limited resources. We’re here to go over pay equity, what can cause specific discrepancies in pay, and whether addressing pay equity is right for your business.

The current state of pay equity in Australia

Pay equity means that if roles in a business require the same or similar levels of skill, responsibility, experience and effort, the employees should be paid the same. It’s a simple concept, but it’s rarer than it would seem. Instead, pay inequity is common across Australia.

Pay inequity is not a new issue, but that doesn’t mean it’s going away. In fact, it’s under the microscope now more than ever. In Australia, the national gender pay gap sits at 19%, meaning that a woman is paid $18,461 less a year than what a man is paid over a year.

In a move to address pay inequity, the Government amended the Workplace Gender Equality Act and disclosed data that was previously kept under wraps. Every private company in Australia with 100 employees or more has been mandated to report their pay data to the Workplace Gender Equality Agency (WGEA). From February 2024, this information was made public, highlighting the companies with gender pay gaps in their organisation.

That data didn’t cover other types of pay disparity and discrimination either. In Australia, Aboriginal and Torres Strait Islander people are paid less compared to non-Indigenous Australians. And for those in the disabled community, the median gross personal income of people with disability is less than half that of people without disability.

Why pay inequity happens

This information isn’t designed to villainise employers – we know that for many of you running SMEs, you’re approaching employment with good intentions. However, widespread pay inequity is our current reality, which leads us to ask, why does it happen?

The answer is complicated. There’s no moustache-twirling mastermind behind all this, but rather a confluence of factors that have led to discriminatory pay practices. The Workplace Gender Equality Agency names the following top factors leading to pay inequity:

• Discrimination, gender stereotypes and bias in hiring and pay decisions.
• Women and men working in different industries and different jobs, with female-dominated industries and jobs attracting lower wages.
• Women’s disproportionate share of unpaid caring and domestic work.
• Lack of workplace flexibility to accommodate caring and other responsibilities.
• Women’s greater time out of the workplace, impacting career progression and opportunities.

While these factors are focused on the gender pay gap, many of these also apply when it comes to pay disparity through the lens of race, disability, sexual orientation and more.

With that in mind, fixing pay inequity is not as easy as tweaking some figures on an Excel spreadsheet – ensuring everyone is paid equally in a company requires wider work around inclusion.

The benefits of working towards pay equity

There’s plenty of good reasons why employers should care about ensuring pay equity in their company. Equity matters – it demonstrates an employer’s commitment to their employees, shows them as a fair employer and is part of becoming an inclusive workplace. It’s also been shown that high performing employees are attracted to companies that have a positive reputation for promoting gender equality.

There’s also the fact that companies who are actively working towards increased transparency in their organisation are twice as likely to achieve their desired business outcomes. Being open about steps towards improving pay equity can go a long way towards building that critical transparency and trust that can make such a difference.

Finally, you might not meet the criteria yet to be submitting pay data to the WGEA, but there’s a chance that at some point, pay inequity in your company could go public. It could be because employees and ex-employees share information, or for other reasons. That’s an important consideration, especially if your business is growing.

The challenges of pay equity for SMEs

Of course, it’s one thing to point at big organisations and challenge them to do more. They have far more finances at hand, and people power too. For Australian SMEs, who are grinding in the backbone of the economy, it’s hard enough to find time to run payroll every month, let alone conduct a full strategic review of their pay structure.

Then there’s the fact that working towards pay equity isn’t without its issues. Every company may have minor concessions that could be deemed as unfair – for example, where managers have made specific steps to attract or retain talent. If this issue is more than just occasional and is released to the wider business, there’s a chance that overall productivity in the company declines.

It’s also been shown that pay transparency can lead to flatter and narrower pay distributions, with managers more reluctant to assign higher wages. That puts the retention of high performers at risk in your business.

However, sometimes running a business does require a little risk. Long-running pay inequity in a business has the potential to cause just as much harm to your employee engagement, retention and company reputation. We’re not suggesting that every SME takes big steps immediately, but instead consider the longer-term changes they can make.

Steps you can take towards equal pay in your company

Addressing pay inequity and working towards equal pay is a multi-step process, and it’s not easy. However, you’re interested in making a start towards improving pay equity in your organisation, here’s a few steps you can consider taking.

First of all – get some time back

You can’t think about the big stuff if you’re constantly in the weeds. If you’re struggling for time when it comes to managing employment, consider bringing in technology to help, such as HR and payroll software like Employment Hero. This can automate a lot of those necessary tasks and help ensure that you’re making compliant decisions around employment. It’ll give you more time back in your day, so you can spend more time considering the big strategic issues – like pay equity.

Complete a pay audit

Any steps towards improving pay equity should start with a pay audit. Taking in all the salaries across your company is the easiest way to identify discrepancies and disparities in how your team is paid. Make sure to segment your data in multiple ways – check how people in the same job level are paid, their skill levels, as well as factors related to gender, race and more. It can give you a clear idea of how your company is performing when it comes to pay equity.

Be open about any failures in equal remuneration

If your pay audit has unearthed some unpleasant surprises, don’t panic. You can instead take this as an opportunity to build and improve by following some of the steps below.

You may want to also be open with your team about your findings, giving them the top level statistics across the business. By being open about any failures, and clear on where you’re going to improve, you can build critical trust and transparency in your team. It also demonstrates your commitment to improve, especially when you can show measurable progress a few months down the line.

Set clear salary bands across the business

If you don’t already have them, you may want to consider setting salary bands across the business. By setting specific pay ranges for different roles and job levels, there’s a greater chance that team members will be doing the same work for equal pay.

Salary benchmarking can be a critical part of setting up those salary bands. Check how roles in your company stack up against the wider industry – it will ensure that you’re being realistic about the compensation you’re offering your team, and that you’re competitive when it comes to enticing new talent through the door. Our Salary Insights tool can give you a clear idea of salaries by role and location across Australia – give it a try here.

Create policies for any additional remuneration

Every manager is going to be different in a company. Some may benchmark their team against higher standards than others, which can lead to inequity in the allocation of incentives like bonuses and rewards.

To ensure fair remuneration overall, create set policies that managers have to adhere to when giving out incentives. Those policies should list clear criteria for rewards, so that no one is being unfairly advantaged by who they work for.

Acknowledge the gender pay gap

Being open about how your company is performing when it comes to the gender pay gap and other types of pay inequity can go a long way in committing to pay equity.

There’s also considering the potential factors that lead to a gender pay gap when it comes to hiring and pay decisions – that could mean training for managers to ensure they’re aware of unconscious bias that could affect their choices. The more aware everyone is about the barriers to a fair and equitable workplace, the easier they can work to overcome them.

Incorporate pay into a wider inclusion strategy

Promoting diversity and inclusion in the workplace isn’t just a ‘nice to have’ – it’s a savvy business decision. According to research by Forbes, companies with a diverse workforce are 35% more likely to experience greater financial returns than their respective non-diverse counterparts. With so much pay inequity rooted in wider issues around inclusion, look into building an inclusive culture in your workplace. It can improve pay equity in turn.

That could include setting metrics around having more women and minorities in leadership roles, and working towards them. It could also ensure that your working conditions are inclusive of everyone – as a very basic example, these often-forgotten women’s toilets on construction sites!

You might want to consider bringing in flexible work arrangements so all your team can more effectively manage their responsibilities at home, as well as how you approach things like parental leave. Ultimately, you want to make sure that necessary time away from the company doesn’t equal being held back from progression in comparison to colleagues.

Working towards an inclusive workplace – that’s where Employment Hero can help.

Leading a company that can pride itself on equal pay is no mean feat – no matter the size of your business. Even by starting small, you could make a start on building a workplace where employees are paid equitably.

At Employment Hero, we’re here to support companies who want to build successful, inclusive workplaces. Our platform offers a heap of benefits and features to build a culture of high performance and top communication. We also have a Salary Insights tool to help you benchmark salaries and stay on top of your salary bands.

And if you’re looking for top talent with the right fit for your business, check out SmartMatch by Employment Hero. It’s an AI-powered tool that connects you with great candidates instantly, and could save you up to 80% on hiring costs.

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Disclaimer: The information in this article is current as at 18 July 2024, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (Employment Hero). The views expressed in this article are general information only, are provided in good faith to assist employers and their employees, and should not be relied on as professional advice. The Information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising either directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and to seek professional advice before making any decisions or relying on the information in this article.