Jennifer Thompson

The Federal Government has released draft Regulations under the Pay Equity Act (“the Act”), almost 11 months after the Act received Royal Assent.

The Act, which is not yet in force, makes significant changes to the Federal pay equity landscape, moving from a complaints driven system to a proactive model, requiring employers to actively review pay equity.

What is pay equity?

Pay equity means equal pay for work of equal value. The underlying rationale is that female jobs have historically been undervalued and paid less than traditionally male positions of comparable value, contributing to pay inequality.

Pay equity requires compensation to be adjusted so that those in predominantly female jobs are paid at least the same as male jobs of comparable value. Pay equity therefore requires comparison of different jobs that are of similar value.

Pay equity should be distinguished from “equal pay for equal work”, which requires men and women doing the same (or substantially the same) job to be paid equally. That only requires jobs that are the substantially the same be compared against each other, rather than looking at different positions across an organization.

The requirement for a pay equity plan

The Act requires federally-regulated employers with more than ten employees to create a pay equity plan, often in conjunction with a pay equity committee, valuing and comparing positions within their organization to ensure that female predominant positions are not undervalued. The value of each job class, male and female, is determined by comparing:

• skill required;
• effort required;
• responsibility of the work; and
• conditions under which the work is performed.

Where a difference in compensation is found between predominantly male and female job classes of equal value, this must be corrected using methodology specified in the Act and Regulations.

The draft Regulations

The Regulations address a number of practical details left outstanding by the Act, namely:

• how, when and how long documents must be posted in the workplace;
• time limits for filing applications and notices;
• mathematical factors used in comparing compensation;
• steps to follow when regression lines cross under the equal line method;
• methods for developing a pay equity plan when there are no predominantly male job classes; and
• process for updating pay equity plans

The Regulations can be found here. The consultation on the proposed Regulations has been extended to 60 days due to COVID-19 and is open for feedback until January 13, 2021. We would be pleased to assist in providing any feedback.

Five key takeaways for federal employers

1. Implementing the new pay equity regime is likely to be expensive for employers

The total cost to federally-regulated employers between 2020 and 2029 is estimated to be nearly $2 billion with nearly all of that attributable to pay increases required to achieve pay equity. We understand that a number of resources will be available to employers to enable compliance without employing external consultants, but nonetheless expect that organizational costs will be significant.

2. There are two methods to create predominantly male comparators

One of the significant issues was how an employer could evaluate the compensation for a predominantly female job class where there were no predominantly male job classes of similar value.

The Regulations largely follow the lead of Quebec, in that they allow an employer to create a meaningful comparator using either:

• The typical job classes method, which requires the employer to use the three predominantly male job classes set out in the Regulations; or
• The proxy method, which allows an employer to use data from another employer, who must also be subject to the Act, to create three or more proxy job classes.

For the proxy method, the employers must have similar workplaces, both in terms of industry and local cost of living, and sufficient information must be shared to allow the employer to value the work. Specified salary information must be provided. Although the Regulations state that the information provided must be kept confidential, it is difficult to imagine many employers being willing to share information in this way.

3. The number of male comparator job classes created by the Regulations is increased

In the consultations, there was some concern that the typical job classes method of creating male comparators used in Quebec was too narrow as it only allowed for two job classes – foreman and maintenance worker.

The Regulations have taken this into account and provided for three positions, namely, maintenance worker, technician and manager. Employers can use the details in the Regulations to value the work carried out by the fictional workers and calculate compensation.

The inclusion of the additional job class is a significant improvement on the Quebec and Ontario regimes and will be of real assistance to employers finding themselves without a comparator.

4. The tricky math conundrums have been solved

The establishment of a pay equity plan requires the comparison of average compensation using one of two methods:

(a) The equal average method

This method requires job classes to be organized into bands of comparable values of work. The average compensation of female job classes within each band are then compared to the average compensation of male job classes within the same band. The Act explains the steps where there are no comparators within the same band. This may include the use of a fictional comparator as noted above.

(b) The equal line method

This method requires a regression line to be plotted for the average compensation of the predominantly female job classes and the predominantly male job classes. Where the female line lies below the male line, increases must be made to female compensation to achieve pay equity.

The Regulations set out the mathematical factors to be applied when using both of these methods in order to calculate the increase in compensation required to achieve pay equity:

• For the equal average method, the application of this factor will lead to the average female compensation being equalized with the average male compensation
• For the equal line method, where the average compensation of predominantly male and female job classes are plotted and a regression line drawn for each, this will cause the two regression lines to converge

For both methods, those employees furthest away from the average will see the largest increase; no employee will have their pay reduced.

The Regulations also address what should happen where the equal line method is chosen, but the female regression line does not remain below the male line but instead crosses it. That this is not a straightforward situation is reflected in the fact that the Regulations permit employers to choose one of three possible methods to calculate any changes in compensation that may be required:

• The equal average method (as above);
• The segmented line method – the job classes are divided into two segments, those job classes of lower value than the point where the lines cross, and those with a higher value. The regression lines are replotted for each segment and the usual equal line methodology is used for each segment
• The sum of differences method – a mathematical formula is used to calculate the difference between the compensation for each female job class and the compensation of the male job class with equal value if it sat on the male regression line.

It is clear that effort has gone into the formulation of these options to provide employers with usable methods. Although on their face they may appear complex, it is hoped that in practice employers will find them useable.

5. Pay equity maintenance is to be carried out annually

While the Act provided that pay equity plans must be updated at least every five years, the details of the maintenance plan were left to be determined by Regulation.

The draft Regulations propose a comprehensive maintenance process requiring an annual “snapshot” of the workplace and an annual review of any changes made in the prior year that may impact pay equity. These would include elimination of gender predominant positions, changes to responsibilities and duties such that the value of a job class should be re-evaluated or changes to the gender predominance of a job class. Total compensation for a job class should also be calculated and compared to the previous snapshot.

Where any of these changes are identified, an analysis must be carried out to establish whether there is any gender pay gap. If a gap is established, the pay equity plan must be revised and, following the process in section 80 of the Act, pay increases implemented.

A revised pay equity plan must be prepared at least every five years but may be carried out more frequently if gaps are identified from the snapshot. This may be more intensive maintenance than initially envisaged.

This article is provided for general information only. If you have any questions about the above, please contact a member of our Labour and Employment group.

Click here to subscribe to Stewart McKelvey Thought Leadership articles and updates.