Pay Equity exercises and audits: a step-by-step guide

Are you required to conduct a pay equity exercise or audit for your business in the near future? Not sure where to start? No need to panic! Just take one step at a time – and know that we are here to support you throughout the process! 

Even if you already had a pay equity exercise, this article is still relevant because of the Pay Equity Act amendments that came into effect on April 10, 2019.

What exactly is pay equity?
Let’s start by saying what pay equity is not. Pay equity does not mean:

•  Paying employees at the same rate regardless of their performance or seniority
• Comparing the pay of men and women who are working in the same job.

The Pay Equity Act seeks to redress the historical wage gaps between jobs that are typically male and those that are typically female. The comparison is made between jobs and not between the individuals in those jobs. Pay equity forces us to review the value of every job in the business to ensure that it is being paid what it’s worth.

When is a business subject to the Act?

Every business employing an average of 10 or more employees during a one-year period becomes subject to the Act and needs to conduct a pay equity exercise. Some employees are excluded when calculating the average number of employees. The table below will come in handy when you reach this step in the process. The table is intended as a summary. The CNESST Guide provides details in section 2.2 "notion de personne salariée".

The simplest way to calculate the average number of employees is as follows:

1. Determine the number of employees for each pay period
2. Add up the number of employees from all pay periods
3. Divide the total by the number of pay periods. 

When does the pay equity exercise need to be carried out?

Once the 10-employee average has been reached, your business must complete the pay equity exercise within a period of four years, starting on January 1 of the next year.

For instance, if you had an average of 10 employees in 2018, your deadline for completing the exercise is December 31, 2022.

The CNESST has created a useful deadline calculator that will help you calculate the correct time frame for your business.

I have determined that my business is subject to the Act. What do I do now?
Please note: Our focus here is on the obligations of businesses with fewer than 50 employees. If you have more than 50 employees, you face additional obligations. Please contact us for further information. 

Before you start
We suggest that you gather the following information and have it handy to facilitate your pay equity exercise.

• A list of your employees, including the following information for each one:
  • gender;
  • hourly wage;
  • job description;
  • list of monetary value benefit entitlements (group insurance, RRSPs, vehicles, cell phones, etc.)
• A list of all jobs within the business;
• You also need to be well versed in the tasks and prerequisites associated with each job (qualifications, responsibilities, effort involved and working conditions).

Step 1: Make a list of your job classes

The first step is to draw up a list of job classes. Later in the exercise, this information will be crucial and decisive because it is these job classes that will be evaluated and then compared.

A job class may include a number of positions as long as they share all the following characteristics: 

• similar duties or responsibilities;
• similar qualifications;
• same compensation, that is, the wage rate or pay scale is the same.

Here is an example: A mechanical workshop foreman will not be in the same class as mechanics, even though the foreman may perform mechanical work. The responsibilities are not similar because the foreman also has a supervisory role.

If you are not sure, it would be advisable to create separate job classes.

Step 2: Determine the gender predominance for each job class

The goal of pay equity is to compare predominantly female job classes with predominantly male job classes. This means that you must assign a predominance to each class. While it is possible for a job class to be equally male and female, this happens only rarely.

The gender predominance analysis takes the following four factors into consideration:

• The stereotype associated with this job type.
• The rate of representation within the class: At least 60% of employees in the job class are of the same gender.
• Significant gap between the rate of representation of women or men in the category and their rate of representation in the company.
  • For example: Women represent 55% of employees in the “Clerk” class while they represent 5% of all company employees. 
• The historical evolution of the incumbency rate for the position. For example: over the past 10 years, the bookkeeper position has always been filled by a man.  

There is no single determining factor. All relevant factors must be taken into account when making a decision.

Specific provisions apply if the gender predominance is the same for all job classes in the business. Please contact your CFIB Business Counsellor for advice on how to proceed in this scenario.

Step 3: Determine the value of each job class

Analyzing the value of jobs requires taking four factors and their subfactors into account. Each factor must then be weighted and assigned a weight value that will be used when making the final calculation of the value.

Since the weighted value of the four factors must be the same for all job classes, it is important to ensure that the factor weighting is aligned with the business’s mission. The weighting must also be neutral, i.e. it must not favour male-dominated job classes over female-dominated job classes and vice versa.

The following table lists the factors and sub-factors that should be used in your evaluation. We also indicate the weighting that should be associated with each factor.

This is the stage where you will likely find CNESST’s software package to be particularly useful because it calculates the value of each job class based on your answers to the questions about factors and subfactors.

Step 4: Calculate the total compensation

Total compensation is made up of the following: 

• Base wage: Must take into account the maximum wage rate or the maximum pay scale.
• Flexible pay: Commissions, gratuities, bonuses, fee-for-service or piecework pay. 
• Monetary value benefits: Group insurance and pension plans, company-supplied vehicles, payment of professional dues, paid sick leaves, etc.

Note: If all job classes have access to a particular monetary value benefit, there is no need to factor this benefit into your calculation because it will not affect the results.

Step 5: Compare job classes and calculate wage gaps

If you use the software package, it will select the classes that need to be compared and calculate the wage gaps according to the method you have chosen.

There are two comparison methods, and you are free to choose either. However, you must use the same method throughout the entire process. Once you have chosen a method, you must never lose sight of the intent of the Pay Equity Act.

1-    Global Method
This method compares each predominantly female job class with the earning curve of all predominantly male job classes.

Here is an example taken from the CNESST’s pay equity guide:

2-    Individual Method
This method compares each predominantly female job class with the predominantly male job class or classes identified as a comparator or as comparators. If there is no predominantly male job class of equal value of a predominantly female job class, the comparison must be made with the job(s) with the closest values. Salaries must be proportional. The Act does not dictate a calculation method, but the CNESST guide provides several examples.

Step 6: Pay the adjustments

If it emerges from the process that you will need to make pay adjustments to your employees, you must proceed to do so. The Act states that these adjustments apply only to predominantly female job classes and that the compensation for a predominantly male job class cannot be reduced to achieve pay equity.

Employers can choose to make the adjustments in a single payment or spread them out over time. If the decision is to spread the payments out, the following conditions apply:

• Payments may be spread over a period of not more than four years.
• Within the time period chosen by an employer, the adjustments must be paid in five or fewer payments. Payments must be of equal value and must always be made on the same date. 

Pay attention to your dates: If you complete your pay equity exercise after your deadline, the pay adjustments must be calculated retroactively and will incur interest.

Step 7: Post the results

The pay equity exercise is not over until you have posted the results. Posting the results lets your employees know that the exercise has been carried out and gives them an opportunity to ask questions. You must ensure that your employees can access the results easily, in either a printed or electronic version. Posting is a two-step process.

First posting: Results must be posted for a 60-day period and contain the following information:

• a summary of the process that was used;
• a list of the predominantly female job classes;
• a list of the predominantly male job classes that were used as comparators; 
• the percentage or amount of the adjustments payable, or a notice stating that no adjustment is required;
• the pay adjustment payment procedure, if applicable;
• information about employee rights and the time limits for exercising them, including the right to make comments and request additional information;
• information on what recourses are available to employees or a certified association representing employees and the time limits for exercising these recourses;
• a statement indicating that this first posting will be followed by another.

The second posting must occur no later than 30 days after the first and, like the first posting, it will last 60 days. The following information must be included:

• an indication of the changes made as a result of the observations received, or a statement to the effect that no changes are necessary;
• information on what recourses are provided by the Act and the time limits for exercising them.

And then what?