Despite delay of Pay Transparency Act, employers should prepare now: experts
In August, the federal government released proposed amendment to the Employment Equity Regulations that govern the reporting of salary data by employers.
The move is part of the government’s push for pay transparency, which included the passage of the Pay Transparency Act in 2018, though it has yet to come into force.
The regulations were originally made pursuant to the Employment Equity Act in 1996 and were last amended in 2006. Now, the government wants to “update and streamline the regulations, increase clarity, improve data gathering and reduce the reporting burden.”
The most significant issue to be resolved involves the definition and calculation of “salary” for reporting purposes, said the government in its Aug. 10 release. The current calculation is complex and has been an administrative burden for years.
“These regulatory amendments seek to modify the current salary reporting requirements to collect information in support of determining an hourly rate of pay, hours of work, bonuses, overtime pay and overtime hours, information that will be used to publicly report on the wage and bonus gaps of employers.”
Other changes in the proposed amendments would cover: expanded reporting against all census metropolitan areas used by employers to understand the availability of members of designated groups in their specific recruiting market; the mandatory use of definitions in identifying designated groups (including women, Aboriginal peoples, persons with disabilities and members of visible minorities); and the capturing of salary data above $100,000.
Focus on transparency
It’s hoped the new rules will provide transparency, which will be beneficial in helping to solve the wage gap, said the government.
“Experience in other jurisdictions has shown pay transparency to be helpful in raising awareness about the gender wage gap. In Canada, the intention is to extend this transparency beyond gender to the other designated groups. Therefore, pay transparency will help to raise awareness of wage gaps that affect women, Aboriginal peoples, persons with disabilities and members of visible minorities.”
While the new rules may address the gender wage gap, they’re not going to completely solve the imbalance, says Simmy Sahdra, an employment lawyer at McCarthy Tétrault in Toronto.
“I do not believe the intention is to fix the gender wage gap entirely through amending the employer reporting obligations of [the] federally regulated private sector.”
But they will “will help to raise awareness of wage disparity among organizations,” according to Natalie Garvin, an associate at Filion Wakely Thorup Angeletti in Toronto.
“Employers generally support the overarching goal of the federal government, and many agree that the proposed changes will more accurately depict employee earnings.”
A lot of work was done before the act was passed, she says, which also contributed to the delay.
“Before completing the proposed amendments, the government extended invitations to employers, stakeholder groups, unions, special interest groups, industry associations and other interested representatives from provincial and municipal orders of government to provide feedback on the proposed amendments,” she says.
More than 2,200 people were consulted, according to the government.
And the new regime is tied in with other regulations, says Garvin.
“It appears the government’s intent is to bring more attention to the wage gap between men and women and other identified groups by improving the data collected from employers on the topic of pay equity. The other stated goal of these proposed changes is to streamline the reporting process for employers.
Federally, there’s never been a specific piece of legislation to regulate pay equity, unlike Ontario and Quebec which have clear pay equity acts, according to Cynthia MacFarlane, principal of talent consulting at Mercer in Ottawa, and now the federal government is playing catchup.
“If you are federally regulated up to now, you’ve been governed by a number of different pieces of legislation. We think what the government is doing now is just coming up with a very clear piece [of] legislation that directly addresses pay equity, rather than taking from pieces of other legislation.”
In implementing the structures, employers will have to address a number of areas, says Sahdra.
“Employers will need to be aware of the changes in their reporting obligations. In some respects, such as the changes to salary calculation, the proposed regulatory amendments will resolve uncertainties that existed previously and provide a simplified process.”
In addition, employers will need to more fully disclose how employees are paid, says Ian Cullwick, a partner at Mercer in Ottawa.
“Formally, it’s going to require pay equity with respect to total compensation so, in other words, not just base pay but total compensation in terms of benefits and pension.”
This is expected to be a much different outcome from what has happened in the past with federally regulated employers, says Garvin.
“The current legislation involves a complicated system for calculating salary. To simplify salary reporting, the federal government proposes to broaden the definition of salary and proposes to add definitions for the terms bonus pay, overtime hours and overtime pay. The proposed requirements for reporting salary is more aligned with accounting and human resources practices which will make it easier for organizations to report accurate data of an employee’s earnings.”
For employers, many of them will not face an onerous task to comply, says Cullwick.
“Many, if not all the federally regulated employers are fairly sophisticated and quite progressive in terms of having gender-neutral job evaluations, classification and pay practices in place. This likely won’t be too much of a surprise to them.”
But a successful implementation includes learning about the new regime, says Sahdra.
“Managers or HR professionals in the federally regulated private sector would be ahead of the game at this point to make themselves aware and familiar with the proposed amendments. As these proposed amendments progress through our legislative process, they should consult with their legal counsel, as necessary, to prepare for the changes to their reporting obligations.”
During the consultation process, employers expressed concerns that the new reporting requirements would involve upfront costs around human resource systems and internal processes, says Garvin.
“The government has attempted to rectify this issue by simplifying the reporting process by collecting salary data that employers will more likely have readily available through payroll. Overall, the changes for employers should not be overly burdensome and are simply a matter of changing how information is collected and provided to the ministry.”
Employers will also have to make public a formal pay equity plan, says MacFarlane.
“You have to put the final draft out and actively solicit comments from your employees, from your management representatives [and] from your bargaining agents.”
Then companies must take those comments and publish; revise if necessary; and come up with a final plan, she says.
Pay transparency efforts will have to be ongoing, which could create some new pitfalls.
“One of the risks here is that a pay-equity gap could be identified, and an employer can make a one-off pay equity adjustment or correction that could have a broader impact on broader internal equity within an employer’s overall compensation framework and the classification schedule. In that regard, we’re encouraging our clients to look at both pay equity and internal equity at the same time,” says Cullwick.
“We would encourage federally regulated employers to examine their existing job evaluation, classification and practices in terms of ‘Are they viewed as being gender neutral and pay equity compliant?’”.
Even though the new rules are not yet in force, it makes sense for business to prepare, says Garvin.
“They act as a good reminder to employers to review their compensation policies and their efforts to combat wage disparity among their workforce, if any.”
But the reason for the delay is a valid one, says Cullwick.
“To do this properly, and to their credit, they’re thinking this through very thoroughly, and they’re not rushing to implement,” he says.
“There’s a need to set up the pay equity commission, to hire a commissioner, to get a team on board, to literally guide, manage and administer some pretty complex processes for federally regulated employers,” says Cullwick. “We suspect that once that infrastructure is in place, there will be some sort of indication of the formal compliance dates and the timelines, and then everything becomes real when that happens.”