LIVING WITH PAY EQUITY (June 1999)

Retroactive pay equity funding cheques finally arrived in late March and early April after much anticipation. Regretfully the Ministry of Community and Social Services sent out no instruction for distribution and no indication of how payments were calculated. Calculation details would have been very helpful especially as many payments were incorrectly calculated and funding for the January 1999 to March 1999 period was missed altogether. Based on the numerous conversations we continue to have about pay equity, it is clear that there is still much confusion regarding organizations' ongoing responsibilities and obligations. In this article we will address a number of issues that we deal with on an almost daily basis.

Retroactive Versus Ongoing Payments

Payments received in March, 1999 included both a retroactive portion for the period to December 31, 1998 as well as funding for the 1995 to 1998 salary increases for April to June, 1999. The two amounts are quite different and should be dealt with separately in your financial records.

The retroactive pay equity amount covering salary increases from 1995 to 1998 should have been either paid out to staff as increases prior to receipt of the cheque in March, 1999 or paid as a lump sum bonus after receipt of the cheque by the organization. Once these payments have been made you should have fulfilled your organization’s retroactive obligation for 1995 to 1998. Nothing more need be done for this period.

The March, 1999 cheque also contained funding to cover pay equity increases for the period April to June, 1999. This was often in the order of 804 per hour. This funding is intended to cover raises already being paid to staff by virtue of incorporating 1995 to 1998 pay equity increases into base salary. It should therefore not be disbursed again to staff as they are already receiving it.

Pay equity raises are increases in base pay and are not dependent on continued government funding. As a result, if you did not increased base salaries on January 1, 1999 by the pay equity entitlements from 1995 to 1998 then we strongly recommend that you do so now. This is true even if you distribute DOG and WEG salary grants in periodic lump sums. As an example, if you calculate pay equity increases of 214 per hour on average for each year from 1995 to 1998 then you must increase your base pay effective January 1, 1999 by 844 per hour. An employee receiving $10 per hour prior to the increases should now be paid $10.84 per hour in their regular pay cheque.

Differentiate Pay Equity From Operating Grants

As noted above, pay equity and direct operating/wage enhancement grant funding are fundamentally different and should be treated differently from a payroll perspective. Confusion arises because pay equity and operating and wage enhancement grant payments are lumped into the same cheque by municipalities. In addition, we understand that municipalities may not receive sufficient information from the Province to differentiate between the two categories.

Childcare centres must pay direct operating and wage enhancement grants to staff as long as the funding continues. Once funding stops then your organization need not, in most circumstances, continue to pay employees an amount equal to the salary grants. You can, however, continue to make the payments if you want to and can finance them.

Pay equity obligations on the other hand result in an increase in base salary regardless of whether or not you receive funding from the government. If pay equity funding stops, your organization is still obligated to make pay equity payments required under the Pay Equity Act.

To help prevent a possible administrative nightmare we suggest you do the following:

·         Distinguish between pay equity and salary grant receipts in your accounting records. For instructions on how to identify the pay equity portion of quarterly subsidy payments you should see the pay equity section of the preceding article.

·         Organizations that pay direct operating grant and/or wage enhancement grant payments out in lump sum payments should distinguish in their financial records between pay equity amounts and wage grants. The pay equity portion of the quarterly cheques should not be distributed as a lump sum payment on the assumption that it has been incorporated into staff’s regular base pay. Unfortunately some organizations will undoubtedly give their staff an increase in base pay and at the same time distribute the full amount of the quarterly cheques thereby effectively doubling the pay equity payments.

·         Organizations that incorporate operating and wage enhancement grant payments into regular pay should continue to clearly distinguish the cumulative annual amount of these payments in their payroll records. Pay equity should, again, be excluded from operating and wage enhancement grants in your payroll records as these payments are base salary and not salary supplements.

·         It is possible that Toronto Children’s Services will reduce DOG and WEG payments effective July 1, 2000 where centres are receiving more than they are allowed under provincial guidelines. You want to ensure that quarterly grant payments to staff recorded in your records are not inflated by pay equity receipts thereby making it look like your centre is receiving more than its share of salary grants.

Pay Equity In 1999 And Beyond

The requirement to provide pay equity salary increases does not stop with 1998. In our newsletter of January, 1999 [Volume III] we discussed the requirement for organizations to make pay equity adjustments affective January 1, 1999 in addition to those for 1994 to 1998. For most organizations this will entail again going through the calculation of dividing 1% of the 1998 payroll by the number of hours expected to be worked in 1999, determining the per hour increase required and then increasing base pay accordingly. The same procedure must be followed in 2000 and annually thereafter until all female job classes have reached their proxy pay equity rates. There is no indication that any level of government will fund these raises in the foreseeable future.

This ongoing requirement will place a severe financial strain on many organizations within two to three years. For example, an organization with a $500,000 annual payroll will be required to make an unfunded $5,000 increase in salaries in 1999. This becomes a cumulative $10,000 increase in the year 2000 and a cumulative $15,000 increase in the year 2001. At some point these increases will be unsustainable, especially if funding for organizations remains frozen and/or scarce over the next few years. We suspect a political solution will be required to maintain the legislated salary increases beyond a year or two.

When To Stop Pay Equity Increases

Some organizations are confused as to when pay equity has been achieved for a given employee class. Simply put, each employee job classification has a pay equity target rate. Pay equity for the entire job class has been met when the salary for the highest paid employee in that class reaches that pay equity target rate. Note that "salary" includes an employee’s share of any government salary grants but excludes one-time lump sum payments.

As an example, take an organization with a pay equity target rate of $14.21 for its ECE job classification. There are 3 ECE’s earning $14, $13 and $12 per hour respectively as at December 31, 1998. Assume that the January 1, 1999 pay equity increase is 214 per hour. This raise would increase the salary of the highest paid ECE to $14.21, an amount equal to the pay equity rate for the class. Consequently, no employees in the class would be entitled to pay equity raises in 2000 and subsequent years. The 1% pay equity entitlement would still be fully distributed among the other female job classes not yet at their pay equity targets.

This requirement underlines the need to formally establish salary grids for all employee job classes. Pay equity legislation does not attempt to ensure that employees with equal job classifications are paid the same salary (i.e. equal pay for work of equal value is not an objective of pay equity legislation). Differences are allowed for seniority and competence. We recommend that you inform your staff when it is likely that their job class pay equity target will be met (i.e. when the highest paid member of the group will reach the target). This will help prevent surprises when some lower-paid members of a group find that they are ineligible for a pay equity raise.

One final note on pay equity: It is important to clearly distinguish between pay equity salary increases and other pay increases. To ensure there is no confusion you should inform employees of amounts that are pay equity raises in writing before or at the time raises are given. If an increase is not specifically identified as a pay equity increase then it is deemed to be a regular salary increase and not a pay equity increase. In this situation your organization would still be required to make an additional pay increase to cover its pay equity obligations.