Primer to the Pay Equity Act
As noted in our last Federal Employer Alert, starting August 31, 2021, most federally regulated employers will need to comply with the requirements of the new Pay Equity Act.
For a summary of the Pay Equity Act’s purpose, please see our last Alert.
This Alert will explain employer’s obligations under the Pay Equity Act in more detail. Note that this remains an overview of the complex obligations under the Pay Equity Act only.
Which employers are affected and what must they do?
Federal employers with 10 to 99 employees must establish a pay equity plan (“Plan”) and are not required to establish a Pay Equity Committee (“Committee”) but may do so voluntarily.
Within 60 days after becoming subject to the Act, those employers must post a notice that sets out their obligation to establish a Plan and, if they have decided to have a Committee, set out the requirements for its membership and the employees’ right to designate members to represent them.
Federal employers with 100 or more employees, or those with 10 to 99 employees if some or all of its employees are unionized as of August 31, 2021, must establish a Plan and “make all reasonable efforts” to establish a Committee.
Within 60 days after becoming subject to the Act, those employers must post a notice setting out their obligation to set up a Plan and Committee, setting out the requirements for the Committee’s membership, informing any non-unionized employees of their right to designate Committee members, and informing any unionized employees that their bargaining agent will select committee members to represent the bargaining unit.
Multiple employers may apply to be recognized as a single group of employers for the purposes of the Act. Employers may choose to do so to save on the costs of complying with the Act. Note that there are specific requirements that must be followed for a group of employers who choose this option.
What are the requirements for a Pay Equity Committee?
The Act provides the following requirements for a Committee:
- It must have at least three members.
- Two-thirds of the members must represent employees covered by the Plan.
- At least 50% of the members must be women.
- At least one member must be a person selected by the employer to represent them.
- If any of the employees related to the Plan are unionized, there must be a member for each union, selected by the union to represent the employees in the bargaining unit.
- If any of the employees related to the Plan are non-unionized, then there must be at least one member selected to represent them.
The Act provides further details regarding how to select members and includes requirements such as providing sufficient time, information and resources for their Committee to fulfill its functions.
If an employer is unable to establish a Committee that meets those requirements, they must apply to the Pay Equity Commissioner for authorization to establish a Committee with different requirements.
The Committee will be responsible for preparing the Plan.
How to create a Pay Equity Plan?
The Act sets out the following steps for employers (or their Committees) establishing a Plan:
- Identify job classes for employees. Job classes are comprised of positions that have similar duties and responsibilities, require similar qualifications, and that are part of the same compensation plan and are within the same range of pay.
- Determine which job classes are predominantly female and which are predominantly male. A job class is considered predominantly one gender if either:
- at least 60% of the positions in the class are occupied by that gender;
- historically, at least 60% of the positions in the job class were occupied by that gender; OR
- the job class is one that is commonly associated with that gender due to gender-based occupational stereotyping.
- If there is at least one predominantly female job class and at least one predominantly male job class, then the employer/Committee must determine the “value of the work performed” (“Value”) in each of the predominantly female and predominantly male job classes. The Value is the composite of:
- the skill required to perform the work,
- the effort required to perform the work,
- the responsibility required in the performance of the work; and
- the conditions under which the work is performed.
- Calculate the compensation (in dollars per hour) associated with each job class for which a Value was determined.
- Using the methods set out in the Act, determine whether there is any difference between the compensation associated with the predominantly female job classes and the compensation associated with the predominantly male job classes.
Note that there are nuances and specific requirements for each step above.
What must be in a Pay Equity Plan?
A Plan must do the following:
- Indicate the number of Plans the employer is required to establish. The Act allows employers to apply to have more than one Plan e.g. for separate regions;
- Indicate the number of employees that the employer has;
- Indicate whether a Committee has been established;
- Set out a list of job classes that have been identified to be job classes of positions to which the Plan relates;
- Indicate whether any job classes were determined to be predominantly female job classes and/or predominantly male job classes and, if so, set out a list of those job classes;
- Indicate whether a group of job classes has been treated as a single predominantly female job class and, if so, set out a list of the job classes that are included in the group of job classes and identify the individual predominantly female job class;
- If there was a determination of the value of work performed in certain job classes, then, for each of those job classes, describe the method of valuation that was used and set out the results of the valuation;
- Indicate any job classes in which differences in compensation have been excluded from the calculation of compensation under section 46 and give the reasons why;
- If a comparison of compensation was made, indicate which method was used and set out the results of the comparison;
- Identify each predominantly female job class that requires an increase in compensation under the Act and describe how the employer will increase the compensation in that job class and the amount, in dollars per hour, of the increase;
- Set out the date on which the increase in compensation, or the first increase, as the case may be, is payable under this Act; and
- Provide information on the dispute resolution procedures that are available under the Act to employees to whom the pay equity plan relates, including any timelines.
What happens with the Plan?
Once prepared, the employer must post a draft of the Plan along with a notice informing affected employees that they may provide written comments to the employer/Committee within 60 days of the posting of the draft. Employers must consider those written comments in preparing the final version of the Plan.
The employer must post the final version of the Plan no later than the third anniversary date on which the employer or group of employers became subject to the Act; for most employers affected by the Act, that mean they must do so by August 31, 2024.
If a pay equity plan discloses differences in compensation between predominantly female job classes and predominantly male job classes, the employer must increase the compensation payable to its employees in the predominantly female job class. Generally, such an employer must affect the increase in compensation by the day after the third anniversary of the date on which the employer became subject to the Act; for most employers affected by the Act, that mean they must do so by September 1, 2024. However, the Act includes an option to phase in the increased compensation if the employer meets certain requirements.
In addition to establishing a Committee and Plan, employers have ongoing obligations under the Act. The Act requires employers to update the Plan and sets out procedures for doing so. Additionally, employers will need to submit an annual statement about their Plan to the Commissioner on or before June 30 in the calendar year following the year that the employer is required to post the Plan. Employers must continue to do so on June 30 in each subsequent year. For most federal employers, the first annual statement must be submitted by June 30, 2025.
As noted in our last alert on this topic, the Pay Equity Commissioner has the ability to order monetary penalties for contravention of the Act. The maximum allowable penalty ranges from $30,000 to $50,000, depending on the size of the employer.
The information above is a brief summary of the Act. We caution that there are obligations, procedures and details in the Act that we do not cover in this article. If you are a federal employer with over 10 employees across Canada, we recommend you contact us to discuss compliance with the Act at: