A tribunal will have to order an audit where an employer loses an equal pay claim or sex discrimination claim relating to pay (an equal pay breach), presented after 1 October 2014. This will apply both to claims brought on behalf of groups of employees, and to the more common situation of one-off claims; for example, for discrimination in relation to a discretionary bonus award. Pay is likely to be interpreted widely, to include, for example, pension, maternity and parental leave pay and other aspects of remuneration. However, an audit will not be required if:

These exceptions are intended to ensure that an audit is not required where it is clear that there is no systemic problem or the problem has already been addressed, but might be narrow in their application. Giving employers an exemption if they have recently carried out an audit is intended to encourage employers to carry out voluntary audits.

There are also exemptions for microbusinesses and new businesses. These definitions are complicated but, in summary, micro-businesses are those that employ fewer than ten full-time equivalent employees, defined as employees contracted to work at least 37.5 hours per week. A new business is one that has been operating for less than 12 months.

Once the tribunal is satisfied that the audit has been conducted in compliance with its order, the employer must publish it within 28 days on its website for at least three years and inform the in-scope employees where to obtain a copy. Interestingly, in an earlier consultation, the government appeared to conclude that publication should be limited to the company’s employees and trade unions. However, the draft regulations appear to require external publication.

There will be an exemption from publication where the employer considers that it would result in the breach of a legal obligation. However, the employer must publish “so far as possible” with such “revisions as it considers necessary” to ensure compliance with the legal obligation and the audit requirements. Only where the employer considers that there would be no means of avoiding a breach of a legal obligation will publication not be required and the government considers that these circumstances will be rare.

The employer must provide the tribunal with evidence that it has complied with its publication obligations within 28 days of the audit being approved by the tribunal. If the tribunal is not satisfied that the employer has complied with its obligations, it must list a hearing to consider the matter, and further hearings where non-compliance continues. There is no financial penalty under the draft regulations for breach of the publication requirements, although wilful failure to comply with the tribunal’s order might constitute contempt of court.

Although an equal pay audit must include the employer’s plan to prevent equal pay breaches continuing or occurring, there is no process for reviewing whether a plan has been implemented and no sanction for failing to implement it. However, the requirement to publish the plan means that employees and their unions may be in a position to bring claims if the plan is not implemented.

Compared with the government’s initial proposals, the draft regulations are more robust and have a greater deterrent effect, with higher penalties, a rigorous enforcement regime and a requirement for external publication of the audit.

One step that employers can take to protect themselves is to carry out a voluntary equal pay audit that complies with the minimum requirements set out in the draft regulations. This would prevent a tribunal from ordering an audit for the next three years. Unlike an audit that was ordered by the tribunal, the employer would not have to publish a voluntary audit, either internally or externally, although it would have to be disclosed in tribunal proceedings if a claim was brought.

An employer could conduct an audit on a legally privileged basis but it would have to waive privilege if it wanted to use the report to establish an exemption to a mandatory audit. Employers could also carry out an informal audit of their pay practices. This would not give them a defence to a mandatory audit, but could enable them to identify and address areas of concern and to be aware of issues that might come to light in a mandatory audit.

Employers that do not have an exemption to an audit and are not aware of what an audit might reveal could face increased pressure to settle any claims for equal pay or sex discrimination in pay.