Pay parity: it's complicated

Equal pay refers to two people doing the same work being paid the same, regardless of variables (other than merit) such as gender or ethnicity. It is what people typically think of when talking about pay gaps.

Pay equity seeks to address the historic undervaluation of work traditionally carried out by women and other minority groups, such as nursing, childcare, and teaching.

While equal pay addresses being paid the same for the same work, pay equity is where different work is paid the same if the work involves equal efforts, responsibilities, and skills.

Legal avenues to equal pay, pay equity

Employees who believe they are not receiving equal pay have several legal avenues available to them. These include making an equal pay claim under the Equal Pay Act 1972, an unjustified disadvantage claim under the Employment Relations Act 2000, or an unlawful discrimination claim under the Human Rights Act 1993 (this option is also available to contractors).

As for pay equity, women who believe the work they perform has been subject to sex-based undervaluation may bring a claim through the Equal Pay Act 1972. Doing so will commence a bargaining process between the employee (or their union) and the employer. Since the pay equity framework came into force in November 2020, 13 pay equity settlements have been reported to the Ministry of Business, Innovation and Employment (MBIE).

While work traditionally carried out by ethnic minorities may also be subject to historic undervaluation, there is currently no framework in Aotearoa New Zealand for pay equity claims to be made in the case of historic ethnic-based undervaluation of work.

The push for legislative change

We are seeing a local and global push for pay parity. This is consistent with the increased focus within the business community on ESG (environmental, social, and governance) reporting and prioritising the people side of sustainability.

In August 2023, the then Labour-led Government made a commitment to legislate mandatory pay gap reporting. This commitment followed similar trends in Australia, France, Spain, and Sweden, where mandatory pay gap reporting has been legislated. However, we do not expect mandatory pay gap reporting to be a priority for the current Government, given its focus on de-regulation. We are unlikely to see legislative change in this area in the near future.

We are seeing positive changes to legislation to achieve pay transparency. This ultimately improves pay parity as it removes traditional barriers and “taboos” on talking about pay. In December 2022, Australia passed legislation which prevents employers from using pay secrecy terms in employment contracts. A comparable Bill, the Employment Relations (Employee Remuneration Disclosure) Amendment Bill, was introduced in New Zealand Parliament on 20 March 2024, (read more here).

We anticipate the pay parity discussion in Aotearoa New Zealand progressing in the years to come, regardless of whether legislative change takes place.

Pay gaps in Aotearoa New Zealand in 2023

Why is pay parity so complicated?

Despite the push towards pay parity, achieving pay parity is not straightforward and there is a number of barriers to making improvements in this space:

• Achieving pay parity requires addressing the disproportionate representation of women and ethnic minorities in lower valued roles, such as support and administrative roles. It also requires considering whether lower paid roles are valued less because of the traditional undervaluation of work done by women and ethnic minorities, or because they are objectively of lower value to an organisation.
• In respect of gender pay gaps, these are partly caused by the longstanding cultural expectation that women perform most of the unpaid labour, such as home maintenance and care of children. This means women have less time to carry out paid work, so are more likely to have periods of unemployment and/or part time work. These periods of unemployment and/or part time work can hamper career progression for these women, making it harder for women to be placed in senior and higher paying roles.
• There is a perception that working towards pay parity would hamper the pay progression for men and ethnic majorities - if women and ethnic minorities have their pay increased to close a pay gap, less money will be available to pay their male and European counterparts, so these workers may experience reduced pay progression and lower wages generally. In turn, there is a perception that reduced pay progression and lower wages for men and ethnic majorities could impact the productivity and morale of these workers, and inadvertently act as a “dis-motivator” for them. If this were the case, presumably any drop in productivity among these workers would be offset by increased productivity by those who have experienced an increase in pay to close a pay gap. Nonetheless, this perception may be stalling improvements in the pay parity space for some organisations.
• The current financial climate means that many businesses are facing significant cost pressures, with job cuts becoming increasingly common. These cost pressures further complicate achieving pay parity.

Employer steps to pay parity

Due to pay parity requiring systemic change, achieving pay parity within your business is a long game; there is no quick fix and businesses need to be proactive.

Identify the issue: We recommend taking account of your business’s current state of affairs – to address the issue, you need to be aware what it is. Conduct an audit to identify any gender and ethnic pay gaps within your organisation. This could also include conducting a pulse check to determine your employees’ views on these issues, and their views on the business’s approach to them.

Recruitment: Look at who you are recruiting and which roles within the business your new recruits are filling. To combat systemic issues, your organisation could consider offering work experience programs to individuals in underrepresented groups.

Addressing the impact of gender and ethnicity

The status quo has long been to not proactively consider identity-based factors, such as gender and ethnicity, when looking at pay. With this approach we have seen pay gaps for women and ethnic minorities. Unless women and ethnic minorities are not as good at their jobs as their male and European counterparts – which of course is not always the case – proactively addressing the impact that gender and ethnicity have on a person’s pay must be needed to achieve pay parity and truly merit-based pay.

Accordingly, we encourage organisations to proactively consider the impact that gender and ethnicity may be having on staff remuneration.

Benefits

Salary increases are not the only way to compensate employees who are affected by pay gaps. You may consider other benefits such as bonuses, company cars, flexible working arrangements, increased KiwiSaver contribution, additional leave, and discounted memberships.

Compensating employees through a variety of measures allows time for your organisations’ pay to catch up to a parity level, whilst still recognising the existence of these issues and remedying them as much as possible.

Pay transparency

Pay transparency is another tool being used to combat pay parity issues. While there is no mandatory reporting requirement in Aotearoa New Zealand, there are various voluntary avenues available to businesses, should they want to participate:

• Mind the Gap is a New Zealand pay gap registry, which over 100 businesses have published their pay gap data on. As a firm, MinterEllisonRuddWatts has reported our pay gap information since 2022. 
• The 2023 NZX Corporate Governance Code encouraged issuers (particularly issuers within the S&P/NZX 50 with more than 50 employees) to provide gender pay gap information either on their website or in their annual report.

Participating in these initiatives can assist businesses to identify where they are falling short with pay parity and create collective accountability among businesses.

Pay parity is a nuanced issue, but one we predict will become more important to Aotearoa New Zealand employees in the years to come. Because of this, you should consider what your business can do to address pay parity issues, to ensure your workforce feel valued and is paid fairly, thereby mitigating your litigation risk.

Better pay parity will also be a point of pride and difference in some organisations where the fight for talent continues.

June Hardacre is a partner at MinterEllisonRuddWatts in Auckland, specialising in all aspects of employment law. Bonnie Simmonds is a senior solicitor at MinterEllisonRuddWatts.