The Pay Equity Act, which Canada’s federal government passed in 2018, is going into effect on August 31, 2021. The act aims to address the systemic gender-based discrimination faced by women in federally regulated sectors by achieving pay equity through proactive measures. The act will require all federally regulated employers to analyze their compensation practices, even if they have not received a complaint and even if they believe there is no wage gap in their organization. The new law requires employers to take proactive steps to ensure they are providing equal pay for work of equal value.

Requirements and Key Compliance Time Frames

Federally regulated employers with 10 or more employees as of the date the act goes into effect will be required to develop a pay equity plan for their workplaces within 3 years after the effective date of the act. The law requires employers to post a notice stating their obligations under the act within 60 days of becoming subject to the act. Employers must keep the notice posted until they provide the final version of their pay equity plans to employees. Employers must post a draft version of their pay equity plan for 60 days. During that period, employees may provide comments to their employers regarding plans, and employers must consider those comments. Employers must post a final version of their plans no later than three years after the date on which they became subject to the act.

Once an employer develops and posts its plan, it must review and update the plan no later than the fifth anniversary of the day on which it posted the pay equity plan or the previous revised final version of the plan. The updates will ensure that pay equity is maintained and any new wage gaps are addressed. For employers with an average workforce of fewer than 10 employees, the old regime will continue to apply, and no further action would be required.

Developing the Pay Equity Plan

Employers are required to consider the following when developing their pay equity plans.

1. Similar Positions

The act requires employers to identify positions with similar duties, responsibilities, and qualifications that form a job class. This may first require a review and update to existing job descriptions that are out of date or inaccurate.

2. Gender Predominances

Employers must then determine the gender predominances of each of those job classes. A job class is to be considered predominant in one gender if:

• at least 60 percent of the positions in the job class are occupied by one gender at the time of the review,

• at least 60 percent of the positions in the job class were historically occupied by one gender, or

• the job class is one that is commonly associated with one gender due to gender-based occupational stereotyping.

3. Compensation Associated With Job Classes

Employers must determine the value of the work and calculate the total compensation associated with each gender-predominant job class. (The act requires an hourly rate of pay for comparison purposes, even if employees are paid by salary, commission, etc.) The criteria that employers must apply to determine the value of work is the skill, effort, and responsibility required to perform the work, and the conditions under which the work is performed.

4. Male- Versus Female-Predominant Job Classes

The act requires employers to compare the compensation associated with female-predominant and male-predominant job classes of similar value in order to determine if any female-predominant job classes require an increase in compensation. Employers must use one of two methods provided for in the act to calculate the comparison of compensation between predominantly-female and predominantly-male classifications.

6. Annual Statement

Once an employer has developed a final plan, it must submit an annual statement to the “pay equity commissioner”—a new government position created under the Pay Equity Act—regarding the status of its pay equity plan. The statement must contain the following:

• “the name of the employer;

• the date on which the employer became subject to this Act;

• an indication as to whether the version of the pay equity plan most recently posted … was established or updated, as the case may be, with or without a pay equity committee;

• the number of employees employed by the employer on the last day of the year immediately before the year in which the annual statement is submitted,” and “the number of predominantly female job classes for which an increase in compensation is required in accordance with the version of the pay equity plan most recently posted.” This includes reporting the increase in compensation and the aggregate amount of all lump sums paid.

• “the total number of employees occupying positions in that job class who are entitled to the increase and lump sum,” and the total number of employees in that job class who are women.

Pay Equity Committee

The act requires employers with 100 or more employees, as well as employers with 10 to 99 employees if some or all of their employees are unionized, to form a pay equity committee that would be responsible for developing and implementing the pay equity plan. The committee must “be composed of at least three members and must also meet the following requirements:

• at least two-thirds of the members must represent employees to whom the pay equity plan relates;

• at least 50 percent of the members must be women;

• at least one member must be” an employer representative; and

• in unionized workforces, representation must be equal between all bargaining units.

The committee is responsible for developing a pay equity plan and identifying pay equity gaps that exist between predominantly male and female job classifications of equal value. Furthermore, the committee will determine any wage increases owed to employees in job classifications where pay gaps are identified. Employers will have to make retroactive lump-sum payments for any pay equity gaps identified, and implement ongoing wage adjustments as needed. These obligations begin once employers post their updated pay equity plans.

Pay Equity Commissioner—Enforcement Under the Act

Under the new act, the federal government must appoints a pay equity commissioner who is responsible for ensuring compliance with obligations under the act. The commissioner may order an employer to conduct internal audits or to prepare reports on the results of a pay equity plan. Additionally, the commissioner has the power to issue monetary penalties, ranging from $30,000 to $50,000, for noncompliance with the act or the commissioner’s orders. The act also establishes a dispute resolution mechanism overseen by the commissioner if a pay equity dispute arises between an employer and its employees (or union) during the development of a pay equity plan and thereafter.

Key Considerations for Employers

The new act introduces stringent additional obligations on federally regulated employers that may require significant planning and efforts to proactively address the pay equity gaps that may exist in their workplace. The act also introduces significant penalties for lack of proactive compliance. Employers may want to take steps to address their new pay equity obligations to ensure they have enough time to become compliant with the new posting and plan development requirements within the three-year buffer period.