Employers must prepare to be compliant with federal pay equity: Mercer

Canadian employers may need to re-evaluate how they think about job classes and compensation when the federal pay equity legislation comes into effect.

The new legislation, which was announced in October 2018, has strict requirements for how employers measure a job’s worth to the organization for the purpose of compensation. Some workplaces may not be compliant, according to a webinar from Mercer Canada last week.

In particular, and while external market pricing needs to be a core management practice, Mercer noted companies that solely rely on market-based pricing as a job evaluation system to classify or level their jobs are using a system that would likely put them in violation of the new law. This method of evaluation arguably follows outdated and biased logic about which jobs are more valuable, according to the webinar.

Read: Feds introduce pay equity legislation

“That method of evaluating jobs is absolutely not pay equity compliant and that’s the type of problem the legislation is designed to root out,” said Cynthia MacFarlane, a talent consulting principal at Mercer. As an example of why relying solely on market-based pricing for job evaluation wouldn’t fly, she cited the systemic bias that dictates a truck driver should receive higher wages than a daycare employee.

The legislation, which will apply to federally regulated employers, such as banks, airports and airlines, crown corporations and telecommunications companies, received royal assent in mid-December but isn’t yet in force. Employers with between 10 and 99 employees found in violation could face a maximum penalty of $30,000 per day. Those with 100 or more employees could be hit with up to $50,000 per day in fines.

Employers will have three years to develop a single pay equity plan for all employees and determine if they have gender pay gaps. Employers with more than 10 unionized employees, or more than 100 total employees, will also have to establish a pay equity committee that represents employees, is gender balanced and has bargaining unit representation, if applicable. For companies with 10 to 99 non-unionized employees, the committee is optional.

The new legislation covers salaries, commissions, vacation pay, bonuses, employer contributions to pension plans, health insurance plans and other forms of remuneration.

Read: Arbitrator awards rural Canada Post carriers up to 25% raise in pay equity decision

Employers will have to determine job classes in order to develop the pay equity plan. To be compliant, evaluating different jobs must take into consideration the skills required, level of responsibility, physical and sensory effort and working conditions.

MacFarlane recommended employers use a standard or customized point-factor system to fairly evaluate jobs across the organization. These systems would consider eight to 12 factors that reflect the job, tied to the four requirements from the legislation.

She noted some employers may not need to change their existing system or may only need to refine it. But for companies using a job evaluation system to classify or level jobs based solely on market rates of pay, “we would strongly recommend you find something pay equity compliant.”

In addition to creating job classes, employers will also be required to look at the salary ranges and gender predominance of each position in order to do a pay equity analysis. Gender predominance is determined by looking at the current, historical and stereotypical profile of employees who hold that role and determining if 60 per cent or more are of the same gender.

Read: 82% of global employers planning to review pay equity, gender pay

Jayna Koria, a workforce rewards principal at Mercer, said there are two ways for employers to calculate pay equity within their organization. The first, the equal average method, compares the average compensation of predominantly female jobs to the average compensation for predominantly male jobs within the same job class. The second, the equal line method, creates regression lines for both male- and female-predominated jobs within an organization. If the female line is entirely below the male line, the employer must raise compensation for any female-dominated job located below the male line to the predominantly male job rate of pay immediately above it.

The federal legislation will differ from existing provincial legislation in Ontario, which allows for an employer to have more than one pay equity plan if it has multiple unions, or for separate classes of employees. But MacFarlane said federally regulated employers should be able to create one plan that covers everyone in the organization.

“In the same way that you can find a common set of factors to describe apples and oranges, you can find common factors for a mechanic, a lifeguard and an accounts payable clerk,” she said. “But it may mean having to refresh or redo the system you have in place.”

Koria also noted employers can request the pay equity commissioner — a new federal role that has yet to be filled — to grant them an exception to several aspects of the legislation, including the number of plans and the adoption of a pay equity committee. However, she said, it’s still unclear how the request process will work to receive an exception or how it would be granted.

While the legislation isn’t yet in force, Koria encouraged employers to get a head start on their analysis work. “Take time to understand the implications of the legislation to your organization,” she said, noting there are steps companies can take now to get ready. “Three years seems like a long time, but if you’ve got three unions and a non-union body and you’re working with a [pay equity] committee, believe me that time is going to go by really quickly.”

Read: Pay equity problem persists in Canadian workplaces: survey