Our article on Pay Equity in the previous issue of The Not-for-Profit Financial Advisor created a flurry of questions and requests for clarification. There appears to be confusion as to the rights and obligations of employers under the Pay Equity Act and the Pay Equity Amendment Act of 1993 (collectively referred to as "the Act") and the mechanics and rules of implementing pay equity increases. In this issue we will review the pay equity obligations of your organization and its Board of Directors. We will also review the rules for calculating pay equity adjustments and the mechanics of distributing the funds to employees.

Obligations and Rights

Organizations covered by the Act

The Act covers employers in both the private and public sectors in Ontario. In the private sector employers who employed an average of ten or more employees in 1987 or at any time since 1987 are covered by the Act. All organizations in the public sector in Ontario are covered by the Act. A list of entities defined to be in the public sector is included as a schedule to the Act. The list covers a wide range of independently incorporated not-for-profit organizations providing services funded by the Ontario government. The detailed list includes, among many others, all organizations operating:

·         a day nursery or private home day care agency licensed under the Day Nurseries Act.

·         programs providing service to day nurseries under the Ministry of Community and Social Services Act.

·         elderly persons centres funded under the Elderly Persons Centres Act.

·         children’s services programs funded and purchased by the Ministry of Community and Social Services under the Child and Family Services Act.

The list in the appendix is lengthy and essentially mandates that all organizations funded in part by a Ministry of the Ontario government must comply with the requirements of the Act.

Note: All organizations in the public sector that were incorporated on or after July 1, 1993 are not required to use the proxy method. The job-to-job and proportional value methods still apply to them.

Intent of the Act and implementation dates

The Act is intended to correct the historical undervaluing and lower pay of work performed by women. The intent of the Act is to specifically address gender imbalances and provide wage parity between women and men working in jobs of equal value. The intent is not to equalize wages between jobs of similar value.

The Pay Equity Act became effective January 1, 1988. The Act requires employers to compare, within the same organization, jobs done by women to those done by men. The "job-to-job comparison method" may not be adequate to achieve pay equity where there are too few male job classes against which to compare all female job classes. The Ontario government passed the Pay Equity Amendment Act on July 1, 1993 to promote pay equity in organizations not able to use the job-to-job comparison method for all female job classes. It provides a mechanism for:

·         comparing female to male jobs within a specific organization used the "proportional value method". This method allows an employer to infer a pay equity job rate for female job classes where there is no exact male job class for comparison purposes.

·         employers in the "broader public sector" to compare their own female jobs to female jobs which have already been compared to male jobs in a different organization. This is called the "proxy method".

The proxy method is only available to employers in the broader public sector. Also, the proxy method must be used for all female job classes where even one female job class cannot be compared to a male job class within the organization.

The proxy method for public sector employers is effective as of January 1, 1994. The implementation process is gradual and could take many years.

Organizations using the job-to-job and proportional value methods, on the other hand, must have achieved pay equity on or before January 1, 1998. For these organizations, pay equity should have been fully implemented by now. Compliance in future will be limited to ensuring pay equity is maintained between male and female jobs of equal value.

Background to the Proxy Method

Most organizations required to use the proxy method have already prepared and commenced implementing a pay equity plan by now. Those required to use the proxy method applied for the proxy method by first notifying the Pay Equity Commission that they tried but could not find a male comparator position for at least one of the female job classifications in their organization. This situation applied to all organizations that have no male job classes at all such as childcare centres. A review officer from the Pay Equity Commission then verified that the organization was an employer in the broader public sector and that it could not achieve pay equity by job-to-job or proportional value methods. The organization was issued an order requiring it to use the proxy method.

Once an organization received its proxy order from the Pay Equity Commission it had to use the proxy method for all job classes in the plan regardless of whether or not a male comparator existed for one or more female job classes. Organizations that did not get a plan in place previously must now go through the application process.

Preparing Pay Equity Plans

Organizations receiving an order requiring use of the proxy method then prepared a pay equity plan using the proxy comparison method. Note that organizations with unionized and non-unionized staff pools must prepare one pay equity plan for non-unionized employees and also negotiate a separate pay equity plan with the bargaining agent for each separate bargaining unit. The steps to complete a pay equity plan are:

·         identify your key female job classes

·         select your proxy organization and request job information

·         assign values to your organization’s job classes

·         receive information from your proxy employer

·         determine the value of proxy job classes and job rate of proxy job classes

·         develop a proxy job rate line and compare your own job classes to the job rate line

·         determine required pay equity adjustments for your female job classes

·         post your pay equity plan

·         begin to make your pay equity adjustments

Most organizations required to have proxy comparison pay equity plans will have already performed the above steps, prepared the pay equity plan and posted it. ("Posting" a plan refers to making it available to all the employees of the organization.) If you have not prepared a pay equity plan and you believe your organization may be required to do so then you should call the Pay Equity Commission (416/481-4464) and commence the process now. For an excellent description of how to complete a pay equity plan, ask the Pay Equity Commission to send you a copy of their booklet: A Guide to the Proxy Comparison Method.

Changes Subsequent to Posting a Plan

Organizations creating a new job classification (not to be confused with creating more jobs under an existing job classification) should value the job in a way similar to how existing jobs were valued. The new job classification should then be compared to the proxy job rate line and the new position should receive pay equity adjustments in the normal course of business.

Calculation of annual pay equity adjustments

Once you post your pay equity plan you must calculate and distribute pay equity adjustments. Pay equity salary adjustments (i.e. pay equity salary increases) are required effective January 1, 1994 under the Act. This implementation date is also effective for pay equity plans posted subsequent to January 1, 1994.

Calculating total salary increases

Employers are required to make annual pay equity adjustments by distributing a minimum of 1% of the organization’s previous year’s payroll. The increases must be distributed among all job classes entitled to a pay equity adjustment. Using 1994 as an example, employers should have adjusted job rates in that year by distributing a minimum of 1% of the organization’s 1993 total payroll. For each subsequent year, the organization must make pay equity adjustments again using a pool of funds equal to at least 1% of the previous year’s payroll. The annual adjustment process continues until actual job rates equal their pay equity job rates.

Calculating annual payroll

Your organization’s total annual payroll for purposes of the minimum 1% proxy method job rate adjustment is the gross employment income of employees for that year. In most situations this amount will equal gross employment earnings as noted in Box 14 of your T4 Summary prepared at the end of each calendar year. For example, if the 1996 T4 Summary shows total earnings of $278,500 then in 1997 your organization is required to increase job rates of staff by not less than $2,785.

Note that generally total payroll excludes statutory and non-statutory benefits that are not included in employees’ T4 taxable income. You should also exclude one-time bonuses paid to staff where the bonuses are not expected to occur on a regular basis.

Distribution of pay equity adjustments

The distribution of the minimum 1% annual pay equity adjustment must follow four basic rules:

1.       Every job class that requires a pay equity adjustment must receive at least some increase each year.

2.       Every employee in the same job class must get the same dollar value adjustment.

3.       The lowest paid female job class in each pay equity plan must receive the largest dollar value pay equity adjustment.

4.       No pay equity adjustment should be made to male or gender neutral job classes.

The first three rules can make distribution of pay equity adjustments among staff problematic. We recommend you adopt the following method for distribution of pay equity raises:

1.       Determine the minimum required amount of the salary increase for the year (1% of your prior year’s total salaries from box 14 of theT4 Summary, less one-time bonuses).

2.       Refer to your posted pay equity plan and identify all staff whose current pay is lower than their pay equity job rate.

3.       Set the increase for the lowest paid female job class.

4.       Allocate increases to all other positions at amounts less than the increase allocated to the lowest paid female job class.

There are several factors to take into account in the process.

·         Employees covered: The Act applies to full and part-time staff only. For purposes of the Act, part-time staff are deemed to be those employees working at least one-third of the regular workweek of the organization and whose positions are ongoing. All non-full time employees whose jobs do not fit this description are not covered by the Act.

·         Job rates: The term job rate needs clarification, especially where remuneration includes bonuses and salary grants. The job rate is defined in the Act as the highest rate of compensation for a particular job class. Compensation includes:

- regular salary
- bonuses that are a regular part of a remuneration package
- salary grants paid to staff (e.g. DOG and WEG)
- benefits where only some job classes and not others        receive them.

·         Calculation of job rates: For ease of pay equity calculations, all job rates should be expressed as a dollar per hour amount (e.g. $10.25/hour). To calculate the job rate for staff paid an annual salary, divide annual salaries, including salary grants, by the number of hours in your organization’s standard work year [e.g. $32,000/(261 days worked x 8 hours per day) = $15.33/hour].

·         Correctly distributing pay equity: The lowest paid female job class must receive the largest dollar value adjustment. All other job classes can receive the same or different adjustments providing they are less than that received by the lowest paid female job class. As an example, assume the cook, earning $8.50/hour, is in the lowest paid female job class. If this class receives a 124 /hour adjustment then all other job classes must receive an adjustment of 114 /hour or less.

·         Annual adjustment deadline: Pay equity adjustments must start January 1 of any given year. The September 30 deadline ceased to exist once Schedule J amending the Act was repealed in September 1997. Staff employed in the year who have left the organization before the pay equity adjustments have been made are still entitled to receive their adjustment for the period they worked.

·         Informing staff of annual adjustments: Staff must be specifically informed that a raise is intended to be the annual pay equity adjustment. In some instances organizations gave staff raises in 1997 without realizing that a 1% pay equity increase was also required. Retroactive characterization of the raise as the annual pay equity adjustment is not technically permitted. The organization is supposed to make the pay equity adjustment in addition to the regular raise unless an agreement can be reached with the staff. Staff may agree to the reclassification if management can demonstrate that the organization has insufficient funds to give a raise over and above that already given. See the section on Review and Compliance Process below.

Pay Equity Funding

Many not-for-profit organizations currently receive pay equity funding from either the Ministry of Community and Social Services or the Ministry of Health. There is some confusion as to whether the funding received completely offsets the recipient organization’s funding obligations.

The position of the Pay Equity Commission is that, regardless of funding arrangements made by various Ministries, organizations must always base distributions on 1% of the actual preceding year’s payroll. This calculation must be done each year.

The Ministry of Community and Social Services ("MCSS") started funding pay equity in 1994. The amount received annually by many organizations from MCSS equals 3% of 1993 base salaries. We understand from discussion with MCSS that this funding is to cover pay equity adjustments for 1994, 1995, and 1996. This pay equity funding will only be sufficient to cover an organization’s funding obligations where payroll costs in 1994 and 1995 did not increase over those in 1993. In situations where payroll costs have increased from 1993 amounts and the pay equity funding (based on the 1993 amounts) has not been supplemented then the full amount of required pay equity adjustments may not have been made.

Where funding is received from the Ministry of Health, the 1994 pay equity adjustment of 3% is considered to be a 1% 1994 adjustment and a 2% "bonus" to help speed up the equalization process. Organizations receiving this type of pay equity funding are still required to make 1995 and 1996 pay equity adjustments. Given that funding is so scarce these days, most organizations in this position are treating the 3% 1994 adjustment as coverage for the 1994, 1995 and 1996 obligations.

The relationship between compliance and funding is made more complicated by the fact that the Pay Equity Commission has no responsibility for funding of the payments and the funding ministries have no responsibility for compliance. Staff on the Pay Equity Hotline does not provide information on Ministries’ funding plans. Therefore they are not in a position to determine whether an organization is in compliance with the Act without a full review. In our experience, staff at the various funding Ministries have limited knowledge of pay equity requirements. When trying to resolve issues with the "authorities" be very careful that all parties involved are dealing with the same set of facts and assumptions.

Review and Compliance Process

Compliance with pay equity requirements is based on self-assessment. Organizations are required to comply with pay equity legislation regardless of their financial circumstances. There are currently no annual filing requirements with the Pay Equity Commission. Consequently, a review of your pay equity practices for failure to comply with the regulations will not be initiated unless there is a formal complaint filed with the Commission.

If your organization cannot afford to make its annual pay equity adjustment in any given year then we recommend you discuss this with the employees. You may be able to negotiate a plan for pay equity increases in the event that funds become available.

In the event you cannot reach agreement with employees, a complaint may be lodged with the Pay Equity Commission. A pay equity review officer will contact your organization. The Act sets out processes for resolving disputes that may arise in establishing, implementing and maintaining pay equity. Review officers will often mediate pay equity adjustment claims between organizations and employees in an attempt to reach a compromise position that the organization, the employees and the Commission can live with.

Directors’ personal liability

Note that Directors of not-for-profit organizations are personally liable for unpaid wages and salaries of an organization under their incorporating legislation and/or the Employment Standards Act. We understand that unpaid pay equity adjustments may fall under the definition of wages and salaries in the relevant Acts. If that is the case then the directors could have personal liability for unpaid amounts. If your organization is unable to fully comply with its pay equity obligations then we recommend that you obtain legal advice.

What To Do If You Have Lost Your Pay Equity Plan

You will need your original posted pay equity plan to make the 1997 pay equity adjustment. Original plans were never filed with the Pay Equity Commission. From our talks with the Ministry of Community and Social Services we understand that that they did not retain a copy of the plans originally filed with them. Toronto area childcare centres may be able to obtain a copy their plan from Metro Children’s Services. If you can no longer locate a copy of your organization’s original pay equity plan then you unfortunately may have to re-do it and re-post it.

How to Get Help

If you have questions or require detailed assistance regarding the legislation you should contact the Pay Equity Commission in Toronto at 416/481-4464. The staff are extremely helpful and a pleasure to deal with. For questions about funding of your pay equity obligations you should contact your funding Ministry directly.

We can also be of assistance. If you would like your pay equity implementation plan reviewed please contact either Barb Scott or Phil Cowperthwaite at 416/323-3200. We will review your current pay equity implementation policies and procedures, ensure you are in compliance with the Act, help ensure your system is administered as efficiently as possible and prepare a brief report of our recommendations for your Board of Directors.