Promotions and grading – an employer’s guide to the risks

Eleanor Rogers


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May 2, 2024

Categories Employment Law Updates

It is a new financial year and so now is a good time to consider staff performance and reward for the year ahead.

Giving employees clear pathways and opportunities for promotion with regular and constructive review and increasing pay grades is widely acknowledged to help to improve performance, keep staff motivated and committed to your organisation. These, along with fair and consistent practice, should reduce the risks of discrimination and equal pay claims which can occur when promoting staff and rewarding employees with increased pay grades.

We look at the possible legal risks and practical ways to address these.

Discrimination risks

Unlike most claims for unfair dismissal, employees do not need two years’ service to bring a discrimination claim. Where conscious or unconscious bias is at play in deciding who to promote, employers may be at risk of a claim for direct discrimination. For example, if the stronger female candidate is passed over for a more senior management role because the manager believes the team will respond better to a male manager, the woman may be able to establish a claim for direct discrimination.

Employers can also be exposed to discrimination claims if they do not consider part-time employees for a more senior role, unless they can objectively justify the decision.

Employers need to be careful that decisions about promotions and increases in pay grades are not influenced by factors such as an employee taking family-friendly leave, asserting their employment rights, whistleblowing, or being pregnant. A decision based upon these reasons could lead to an Employment Tribunal claim and having to pay compensation, along with reputational damage and other costs.

Hybrid and remote employees

Hybrid and remote working may have an impact on decisions to promote. Employees who are physically in the company of their manager may be more likely to have their work recognised and have more opportunity to build rapport with their manager. Remote workers may end up being less prominent in the mind of their manager when promotion opportunities come round.

As a result, indirect discrimination may occur – as remote workers are more likely to be disabled employees or female employees who are primary carers. Similarly, employers must not forget about employees on family leave when considering promotions or paying bonuses.

Equality of opportunity

Affording equality of opportunity is not just about the decision regarding who to promote. This principle should inform day-to-day decisions like the allocation of work, training opportunities, access to clients, and allocation of corporate entertainment budgets. These can be crucial opportunities to allow employees to shine and stand out as suitable for promotion or increased pay grades.

Equal pay

Men and women alike are entitled to receive equal pay for equal work. It does not matter how long they have been employed or whether they have a full time, part time, fixed term, zero hours or casual contract. Although most equal pay claims involve public-sector workers, other sectors are not immune.

Where an employee can compare themself with a current or former employee of the opposite gender who is doing equal work but for better pay or benefits, the employer is at risk of an equal pay claim. The Equality & Human Rights Commission (the EHRC) stresses that, equal pay is not just limited to pay. It applies to all contractual terms, including:

  • non-discretionary bonuses
  • overtime rates and allowances
  • access to and benefits under pension schemes
  • hours of work
  • company cars
  • sick pay
  • fringe benefits such as travel allowances
  • benefits in kind

Employers may be able to defend the claim on the basis that there is a non-discriminatory material factor that accounts for the differences. This could be due to seniority, past performance, recent experience, or a skills shortage. Employment Tribunals do sometimes accept market forces as a sound reason for differences in pay. However, the explanation: ‘I paid him more because he asked for more, but she was willing to do the work for less’ is very unlikely to wash with the ET.

Finding and addressing pay inequality

The EHRC has identified the following common practices which can give rise to increased equal pay claims risk:

  • lack of transparency in your pay and grading system
  • discretionary pay systems
  • out of date job evaluations
  • non-payment of contractual bonuses during maternity leave
  • different non-basic pay terms and conditions for different groups of employees (for example bonuses or overtime)
  • more than one grading and pay system within an organisation
  • long pay scales
  • overlapping pay scales and broad-banded structures
  • managerial discretion over starting salaries
  • market-based pay systems not underpinned by job evaluation
  • indefinite or lengthy pay protection policies

If you can identify any of the above practices, then it may be prudent to consider introduce a job evaluation scheme. Jobs are assessed and allocated to a salary band, depending on factors such as the level of skill, qualifications, and responsibility that each job entails. Pay scales are then introduced for the different bands.

Transparent pay structures are commonplace in the public sector, but employers in other sectors may decide that the benefits are outweighed by the inflexibility of a pay structure.

Employers, with less than 250 employees, who are not required to publish gender pay gap data may consider that this route could bring pay inequalities to the surface and worry that this could increase the risk of equal pay claims in the short term. A more light-touch option is to carry out an equal pay audit and then have the option to take steps to address unjustifiable differences in pay. The EHRC has produced guidance for carrying out an equal pay reviews:

Keeping pay confidential

Previously, employment contracts would often include a clause prohibiting employees from discussing pay at all. A change in the law meant that these pay secrecy clauses became unenforceable where they stop an employee from sharing information about pay with colleagues to unearth unlawful pay differences.

Now, where these clauses are included in contracts, they are usually carefully drafted to allow employees to discuss pay only for this purpose. Employees who do engage in these discussions are protected from victimisation, such as being excluded from meetings they would usually attend or being denied promotion opportunities.

Reducing risks

Employers should aim for consistency across the business to avoid damage to employee morale and to contribute to a fairer society in which everyone has equal opportunities. Using robust well-documented and fair assessment and decision-making processes should reduce the risk of a legal claim.

How we can help

We can help you navigate all aspects of these challenges, from defending an equal pay claim to drafting policies on promotion and grading. For further information, please contact the employment team on 01227 763939.

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Please note: This article is for general information only and does not constitute legal or professional advice.