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Fair pay and reward means paying people consistently and transparently for the work they do, and ensuring decisions are based on the skills, effort, responsibility and contribution required for a role – not on who is doing it.

Pay and reward include more than basic salary. They can also cover pay progression, bonuses, commission, overtime, benefits and other incentives. Inequality can arise at any of these points, particularly where decisions rely on discretion, negotiation, or informal practices.

Fair pay and reward systems typically share some common features:

• Clear structures, such as pay bands or ranges, that set out how pay is determined
• Transparency, so staff understand how their pay is made up and how progression or rewards work
• Consistency, so people doing similar or equal work are treated in the same way
• Objective criteria, rather than assumptions about commitment, availability or potential

Where pay systems are unclear or overly flexible, gender inequality can become embedded over time. Women are more likely to be paid less at entry point, penalised for negotiating, progress more slowly, or be excluded from additional pay such as bonuses or overtime. These differences can accumulate and contribute to unequal pay and wider gender pay gaps.

Understanding what fair pay and reward look like in practice is an important first step in identifying where inequality may be arising in your business, and where changes could support fairer outcomes for all staff.

Equal pay and the gender pay gap are related, but they are not the same thing.

Equal pay is a legal right. It means that women and men must receive equal pay for equal work. This includes basic pay and contractual benefits such as bonuses, overtime rates, pensions and allowances. Equal pay focuses on individual roles and comparisons within your business.

The gender pay gap looks at the average difference in pay between women and men across the whole workforce. It is usually expressed as a percentage and reflects how work is structured and valued in an organisation. A gender pay gap can exist even where there are no obvious equal pay breaches.

An employer can:

• comply with equal pay law, and still have a gender pay gap, for example where women are concentrated in lower-paid roles or excluded from progression; or
• have no gender pay gap overall, but still have equal pay problems within specific roles or teams.

Understanding the difference matters because the actions needed to address each are not the same. Equal pay issues require immediate action to correct unfair differences, while closing a gender pay gap involves longer-term changes to pay structures, progression, recruitment and workplace culture.

TBTE can help you understand how your pay and reward practices operate in practice, and where they may be contributing to unequal pay or wider gender pay gaps.

Under the Equality Act 2010, women and men have the legal right to receive equal pay for equal work. This applies regardless of the size of the business and covers employees and some workers.

Equal pay applies where women and men are doing:

• Like work – the same or broadly similar work
• Work rated as equivalent – work that has been given the same value under a job evaluation scheme
• Work of equal value – work that is different but requires a similar level of skill, effort and responsibility

Equal pay covers more than basic salary. It includes contractual pay and benefits such as bonuses, overtime rates, allowances, pensions, holiday entitlement and other financial rewards.

It’s important to know that the law on pay inequality extends beyond equal pay law. For example, because women are more likely to work part-time, treating part-time staff less favourably in pay or benefits can result in indirect sex discrimination unless it can be objectively justified.

When can pay be different?

Differences in pay between women and men may be lawful if they are based on a genuine material factor that is not related to sex. This could include factors such as skills, qualifications, experience, or performance – but only where these are applied consistently and objectively.

Reliance on factors such as market rates, negotiation, or historical pay can be risky, particularly where these practices disadvantage women or reinforce existing inequality.

Understanding your legal responsibilities on equal pay is essential. It provides the foundation for reviewing your pay and reward practices and identifying where changes may be needed to ensure pay decisions are fair, transparent and non-discriminatory.

Decisions about starting pay and pay progression are some of the most common ways pay inequality is introduced and then reinforced over time.

Setting starting pay inconsistently – for example, based on negotiation, previous salary, or what a candidate is willing to accept – can result in women being paid less than men from the outset. Small differences at entry point can widen over time through pay rises, bonuses or progression that build on an unequal starting position.

Clear pay structures help reduce this risk. This might include:

• defined pay bands or ranges for roles
• clear criteria for progression within a role or grade
• consistency in how pay increases are awarded

Where formal structures are not in place, it is especially important to be clear about how decisions are made and to apply the same approach to everyone doing comparable work.

Pay progression can also be affected by assumptions about commitment, availability or potential. Women who work part-time, take maternity leave, or have caring responsibilities may be overlooked for pay increases if decisions rely on visibility, long hours or informal judgement rather than performance and skills.

Regularly reviewing starting pay and salary review outcomes – for example, by comparing how women and men move through pay ranges over time – can help you identify whether your pay practices are operating fairly in practice, and where adjustments may be needed.

Pay practices that rely on individual negotiation can produce unequal outcomes. Evidence shows that women are less likely to negotiate pay, and when they do, they may face negative perceptions or be less successful. Where negotiation plays a significant role in setting pay, gender differences can quickly become embedded.

Using salary history to set pay can also reinforce inequality. Because women are more likely to have experienced lower pay earlier in their careers – due to occupational segregation, part-time work or discrimination – basing new pay on previous earnings can carry those inequalities forward.

Clear and transparent approaches help reduce these risks. This includes:

• setting pay using defined ranges or bands, rather than individual bargaining
• making clear what skills, experience or responsibilities justify different pay points
• not asking questions about previous salary when recruiting staff

Where flexibility is needed to respond to market pressures or skills shortages, it is important to apply the same approach consistently and to record the reasons for decisions.

Reviewing how starting pay is set, and whether negotiation or salary history plays a role, can help you identify where inequality may be entering your pay system and take steps to address it.

Bonuses, commission, performance-related pay and other rewards can make up a significant part of overall pay. Where these payments are not designed and applied carefully, they can widen pay gaps and reinforce inequality.

Variable pay often relies on discretion or subjective judgement, for example around performance, potential or contribution. This can disadvantage women where criteria are unclear, where decisions are influenced by visibility or confidence, or where assumptions are made about commitment or availability.

Some reward systems can also disproportionately exclude part-time staff or carers. For example, bonuses linked to long hours, availability outside normal working time, or targets that are harder to achieve on a reduced-hours basis can put women at a disadvantage unless adjustments are made.

To support fairness in bonuses and rewards, it is important to consider:

• whether eligibility criteria and performance measures are clear and transparent
• how decisions are made and who is involved
• whether targets and rewards operate fairly for part-time and flexible workers
• how outcomes differ for women and men in practice

Regularly reviewing who receives bonuses or rewards, and the amounts awarded, can help you identify whether these systems are operating fairly or contributing to inequality.

As pay arrangements are often complex, features that can give rise to unlawful pay inequality are not always obvious. Although not currently a legal requirement, the most effective way for a business to uncover unequal pay is to carry out an equal pay review. The key elements of equal pay reviews are:

• Identifying jobs involving similar levels of skill, effort, decision making, and knowledge (work of equal value);
• Comparing the pay of women and men doing like work, work rated as equivalent, and work of equal value;
• Identifying gaps and the reasons that the gaps exist;
• Develop an action plan to eliminating those pay gaps that cannot satisfactorily be explained on grounds other than sex.

The Equality and Human Rights Commission has a toolkit that businesses with more than 50 employees can use to do this. For smaller businesses, they offer a three-step guide to equal pay.

Keeping clear records of pay and reward decisions helps ensure fairness, consistency and accountability over time. It also makes it easier to explain decisions, identify patterns, and address issues before they become more serious.

Good record-keeping doesn’t need to be complex. It should help you understand:

• how starting pay is set
• how and why pay increases or bonuses are awarded
• who makes pay and reward decisions
• whether decisions are applied consistently across roles and staff

Recording the reasons for pay decisions is particularly important where discretion is used, for example to respond to market pressures or recognise performance. Without clear records, it can be difficult to assess whether similar decisions are being made for women and men.

Regularly reviewing pay and reward practices helps ensure they continue to operate fairly as your business grows or changes. This might include revisiting pay ranges, progression criteria or bonus arrangements, and checking whether previous decisions have had unintended impacts.

Clear records and regular reviews support transparency and trust, reduce the risk of unequal pay, and help embed fair pay and reward practices as part of everyday business decision-making.

Close the Gap

Pay and reward guidance

Equality & Human Rights Commission equal pay audit tool – 50 employees and over

Equality & Human Rights Commission – under 50 employees