Pay and Benefits In The New Age Of Discrimination Law

11 September 2006

On 1 October 2006, legislation outlawing age-based discrimination is to be implemented for the first time in the UK. Outlawing age discrimination is likely to bring net economic and social benefits. It is anticipated that wider participation rates for older (and younger workers) will reduce the burden on state benefits and increase tax revenue.

With an ageing population, growing pensions crisis, low investment returns and a shrinking number of young people entering the labour market this also appears to make good practical sense.

The Employment Equality (Age) Regulations 2006 will prohibit discrimination on the grounds of age in employment and vocational training, unless the discriminatory aspect can be shown to be objectively justified. Here is a brief summary of how the regulations might affect pay and service-related benefits.

Many employers require their workers to have completed a certain length of service before pay is increased or service benefits given. Examples might include incremental pay scales or, in relation to service-related benefits, extra holiday entitlement or share options. These can be discriminatory, particularly against younger workers, who may not have completed the required length of service.

Internal pay structures and the practice of granting service-related benefits are frequently tainted by in-built discriminatory factors and assumptions. Employers should now be reviewing their pay and benefit structures to eradicate age discriminatory practices in much the same way that pay scales should not discriminate, for example, on the grounds of gender.

To avoid claims for unlawful age discrimination, employers requiring a certain length of service before increasing pay or awarding a benefit will need to establish one or more of the exemptions below:

Firstly, any length of service requirement of five years or less will be exempt. Employers may, therefore, use pay scales that reflect growing experience or limit the provision of non-pay benefits, subject to the five year qualifying period.

Secondly, there is a general exemption covering workers with more than five years service, when the employer can justify that by awarding or increasing the pay or benefit it fulfils a business need, for example, to reflect a higher level of experience of the worker, or rewards loyalty or increases motivation. In order to meet this requirement, employers will need evidence from which they can reasonably conclude that there is a benefit to the organisation. Evidence might include the information that the employer has gathered through monitoring, staff attitude surveys or employee representative groups. It is anticipated that this exemption will be widely used by employers.

Subject to conditions, the different and lower age rates under the National Minimum Wage will, however, still remain. Occupational pension schemes will also operate largely as before. Enhanced redundancy schemes based on those in statutory schemes are also likely to be acceptable provided that they are objectively justified.

There is little doubt that following the implementation of the new laws, HR practices and procedures will be governed within an even more complicated legislative framework.

For more information please contact Andrew Masters, Partner & Head of Employment.
 

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