The Local Government Association highlights the following key findings from the survey:

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1 PAY AND GRADING IN LOCAL GOVERNMENT IN 2014 KEY TRENDS The Local Government Association has recently published its Local Government Earnings Survey for 2013/14, alongside The Local Government Workforce Survey for 2012/13. Their publication provides an opportunity to take stock of where Local Government currently stands on a number of key issues affecting employee remuneration. Steve Vale, HR Consultant, examines the findings and seeks to interpret what they tell us about pay levels and other key HR issues in Local Government in England and Wales. The Local Government Earnings Survey 2013/14 headline findings The Local Government Association highlights the following key findings from the survey: The pay costs for local government as whole are continuing to fall in real terms the basic paybill fell by 1.8% between 2012/13 and 2013/14, and the gross paybill (which includes overtime, shift premia etc) fell by 2.2%. There is a huge difference in the pay rates of fulland part-time staff the median FTE gross pay for full- timers stands at 24,958, but the median FTE gross pay for part-timers is just 16,604. There are now some marked differences in pay levels and patterns between the regions, following 15 years of increased delegation of pay decisions to local level since the 1997 Green Book agreement. Around two-thirds of the local government workforce has a basic pay rate of less than 21,000 per annum. Only 3% of the total mainstream local government workforce earns in excess of 42,050. Amongst full-time employees, this figure is just 5%. The combination of incremental pay scales and turnover levels is continuing to produce an increase in staffing costs, over-and- above cost-of-living awards this amounted to 1.4% of the paybill in 2013/14 (the cost-of-living increase was1%). The gender pay gap for full-time employees in local government is just 1%. Falling paybill costs what are the reasons? Whilst it is clear that basic pay costs are falling in real terms, the survey does not indicate the reason for this, or how much it is due to: Reduced numbers; and/or Reduced pay levels for those continuing to be employed; and/or Pay awards failing to keep pace with inflation. 1

2 All three are likely to be a factor, but the survey suggests that, at least between 2012/13 and 2013/14, some of the real-terms reduction in basic pay costs was due to the last factor. During the 12 months in question the actual basic paybill increased by 0.6%, and it is only the fact that this growth was considerably lower than CPI inflation that produced a real-terms decrease in pay costs. On the other hand, the fact that the actual figure rose by just 0.6% in a period during which there was a 1% pay increase for almost all employees, as well additional pay drift costs from incremental progression (see below), suggests that there were also falls in employee numbers, and perhaps (though less likely) some pay reductions for employees in work. There is also evidence that additional pay costs (costs due to overtime, shift payments, bonus and incentive payments) are being reined in at a faster rate than basic pay costs. Thus the gross paybill (which includes these additional costs) barely rose at all in actual terms between 2012/13 and 2013/14 it increased by just 0.2%. This means that inflation-adjusted gross paybill costs fell by 2.2% over the same period. It is not clear from the survey how much this fall was due to a reduction in the amount of overtime or other working patterns which generate premium payments, and how much was due to changes in terms and conditions whereby overtime and shift working are no longer paid at premium rates. But the figures seem to substantiate a perceived trend of more and more individual councils removing elements of premium pay from non-standard working patterns. Gross v basic paybill costs regional differences An interesting finding from the survey is that the extent to which basic paybill costs are increased by payments for overtime, shift working etc varies considerably from region to region. Overall, the level of increase in England and Wales was 3.0% in 2013/14 (i.e. gross pay was 3% higher than basic pay), But the figure for the South West region was much lower (at 1.9%), whereas that for the East Midlands was higher at 3.9%. Overall the increase was lower than the national position in the North East, North West, South West and West Midlands, but higher than the national position in the East Midlands, East of England, London, South East, Wales and Yorkshire and Humberside. Does this imply that Councils in the former regions have been more effective at controlling and/or removing the costs of premium rates than the latter ones? This may not necessarily be the case. The make-up of each region in terms of types of authority may also be a factor, as the figures indicate that the increase in paybill due to the payment of premium rates is below the national position in metropolitan districts and shire Counties in 2013/14, but above it in all other types of authority (English unitaries, Welsh unitaries, shire Districts and London Boroughs). Looking at the typical employee numbers for these different types of authority, it is possible to reach the tentative conclusion that those councils with larger employee numbers have been better at controlling or reducing additional staffing costs derived from premium rates, so that regional differences may stem from the proportions of these larger employers in each region. (For example, the +3.3% difference between gross and basic pay in the South East may reflect the prevalence of shire Districts and smaller unitaries in that region). 2

3 Whatever the underlying reasons, the figures do suggest that some councils could still reduce their staffing costs further if they did more to control or eliminate the incidence of premium rate work. Part-time and full-time pay rates a major gap There is now a glaring pay gap between the median FTE pay rates for full and part-time employees. The median FTE rate for part-time employees in England and Wales (basic pay) was 16,215, as opposed to 23,946 for full timers a pay gap of around 32%. This pay gap is marginally more pronounced among female employees 32.1%) than male employees (30.1%). (Because of the much higher number of females in the workforce, the gap for females is the real determinant of the overall figure.) This pay gap dwarfs the gender pay gap (see below). But does it suggest a potential problem, in terms of the treatment of part-time employees? Given the prevalence of the use of job evaluation in the local government sector (which should protect against bias in the pay levels of part-time jobs), it may simply indicate that less responsible, lower paid jobs are much more likely to be undertaken on a part-time basis. The fact that the gap exists for both male and female part-timers does not suggest that it is the result of any form of gender discrimination. Thus, on a more positive note, the figures do not suggest that the pay gaps for part-time working and gender are inextricably linked in local government, something which distinguishes the sector from many others in England and Wales. But the extent of the gap is, perhaps, a timely reminder to all council employers, including those using job evaluation, to check on a regular basis that there is no inherent bias against part-time jobs in their pay systems. Regional pay variations A headline study of the data in the survey shows the extent that pay levels vary by region. There is now a gap of over 7,000 per annum in the average FTE pay for all employers in London and in the lowest paying region Yorkshire and the Humber. This is hardly surprising given the historic use of fairly substantial London Weighting in the sector. Perhaps more surprising is the fact that the same gap between Yorkshire and the Humber and the South East is nearly 3,000 per annum and between Yorkshire and the Humber and the East of England nearly 2,500 per annum. These figures suggest that the periodic calls for regional pay in the public sector are rather superfluous when it comes to local government, as the regional variations are already there. The figures in the table below show the relationship of average FTE basic pay for all employees (full and part-time) in each region with the average for England and Wales. 3

4 East Midlands -6.89% East of England +2.77% London % North East -4.42% North West -6.08% South East +5.00% South West +3.10% Wales -7.35% West Midlands -5.06% Yorkshire & the Humber -8.20% These figures show how pay in local government already reflects the differences between regional economies, and the north-south divide in particular. It shows how the latter is more than just London vs the rest, with significantly higher average pay levels in the South East, the South West and the East of England. (Note the corresponding figures based on average FTE gross pay for all employees are very similar to the above) The figures based on the average basic pay for full-time employees only show some subtle differences from those for all employees (and, given that part-time pay is generally lower and the incidence of part-time working may vary from region to region, these are perhaps the best reflection of the true extent of regional differences). East Midlands -9.14% East of England +2.09% London % North East -8.35% North West -4.17% South East +6.55% South West +2.45% Wales -8.30% West Midlands -3.21% Yorkshire & the Humber -6.55% These figures show that pay in London is not as far ahead of the national average as the first table suggested, but also that pay in a number of regions is further below the national average compare the figures in the two tables for East Midlands and North East. On the other hand, the North West and West Midlands are not as far below the national average as in the first table. The South East is further ahead of the national average in terms of pay for full-timers only than for all employees. 4

5 The implication is that there is less variation in pay level for part-time employees. The table below examines whether this is the case, looking at variations in average basic pay for part-timers (at FTE rates) between the regions and England and Wales as a whole. East Midlands -2.78% East of England +2.21% London % North East -4.24% North West -4.44% South East +3.23% South West +5.36% Wales -6.27% West Midlands -3.70% Yorkshire & the Humber -8.55% The table below contrast the differences from the England and Wales position for all employees and part-time employees in terms of basic pay. All employees Part-time employees East Midlands -6.89% -2.78% East of England +2.77% +2.21% London % % North East -4.42% -4.24% North West -6.08% -4.44% South East +5.00% +3.23% South West +3.10% +5.36% Wales -7.35% -6.27% West Midlands -5.06% -3.70% Yorkshire & the Humber -8.20% -8.55% In the majority of regions (all except the South West and Yorkshire and the Humber) the difference between regional averages and that for England and Wales is less extensive for part-time employees than for all employees. Given that part-time employees tend to be concentrated at the lower end of the pay spectrum, this may suggest that, generally, regional variations in pay are less marked for lower paid employees than for more senior employees. Pay distribution The figures from the survey clearly illustrate that the majority of the local government workforce is concentrated at the lower end of the pay spectrum. In terms of the mainstream workforce (excluding teachers etc) 30% of employees earn below a basic of 15,000 FTE per annum. (The Living Wage for a 37-hour week is currently 14,619 ( 16,931 in London)). 5

6 Furthermore, 64% of the mainstream workforce is on an FTE basic salary of 21,000 or less, and only 3% of employees have a basic FTE salary above 42,050 (equivalent to scp 49 on the Local Government Services salary scale.) Readily available figures from the provisional result for the Office for National Statistics Annual Survey of Hours and Earnings for 2013 are not strictly comparable, as they cover gross earnings (excluding overtime) in the UK economy, but these suggest that, in the UK as a whole: 10% of employees earned an hourly rate equivalent to an FTE salary of less than 12,600 50% of employees earned an hourly rate equivalent to a salary of less than 22,240 10% of employees earned more than 48,900. Insofar as any comparison can be made, these figures suggest a higher concentration of employees in the lower pay ranges in local government in England and Wales than is typical in the UK economy. Pay drift and the use of incremental scales As noted above, the figures in the LGA survey confirm the impact of incremental progression on the local government paybill, in that actual gross median pay in local authorities in England and Wales rose by 2.4% between 2012/13 and 2013/14, with only 1.0% of that increase attributable to a costof-living pay award in the majority of Councils (a small number of Councils who agree pay deals locally may have paid more than a 1% increase). It is important to note, however, that the 1.4% pay drift element of the increase picks up any type of pay increase which is not derived from the cost of living award, e.g. from pay reviews and restructuring, or from market supplement payments, additional overtime or honorarium etc. On this basis, the cost of incremental progression will have been less than 1.4%, which is worth bearing in mind when criticisms are made of the incremental pay progression systems used in much of the local government sector. Nonetheless, the average earnings index figures for March 2014 showed that gross earnings in the UK economy had increased by 1.9% in the preceding 12 months, showing that: The 1% cost of living award in local government in April 2013 was likely to have been towards the lower end of pay awards, but that, Local government employees who were eligible for incremental progression in thisperiod probably saw their earnings keep pace with the rate on increase in earnings in the wider economy. Separate research from the LGA The Local Government Workforce Survey 2012/13 indicates that around nine out of ten councils in England continue to use incremental pay progression, which seems consistent with the level of pay drift. Progression based on time-served is still the most common approach to incremental progression about 3 times more common than performance or contribution- related progression, with seven out of ten Councils using it. This probably leaves the sector vulnerable to attacks on its incremental progression systems which allege that, for many employees, increments are little more than a secondary cost of living increase witness the current issues over the 2014 pay award in the NHS. 6

7 However, the Workforce Survey also indicates that, regardless of their incremental progression systems, over 90% of Councils in England have a performance management process in place for employees. The gender pay gap The gender pay gap for local government, based on differences in median FTE basic pay for full-time employees was just 1% in 2013/14,withmedian basic pay for full-time female employees in England and Wales at 99% of the equivalent for males. There are however, considerable regional differences in this gap, as the table below illustrates: East Midlands 103.3% East of England 99.3% London 104.5% North East 100.0% North West 101.0% South East 91.6% South West 96.8% Wales 93.7% West Midlands 91.1% Yorkshire & the Humber 101.7% England and Wales 99.0% The table suggests that the gender pay gap now favours female employees in 4 of the 10 regions, but that the gap in favour of males is significantly greater than the overall national position in the South East, the West Midlands and Wales. The wider gap in the South East is very odd: it may in some way be connected with the largish group of councils using pay and grading systems which are outside the traditional local government structure, although there is no way of proving whether this is a factor or whether other factors are at work. It is difficult to find potential reasons for some of these figures for example, the contrast between East and West Midlands (with its very low figure) appears odd. The gender pay gap for full-time employees obviously excludes a major element of the workforce and is a very different measure to the gap between median earnings of the two genders if part-time employees are included. The table below shows gross FTE median earnings for all female employees (including part-timers) as a % of gross FTE male median earnings (also including part-timers) for all employees in each region and in England and Wales, and is evidence of the extent to which female employees are concentrated in lower-paid part-time jobs. The gender pay gap referred to above does not cover part-time earnings. 7

8 East Midlands 81.71% East of England 80.67% London 83.04% North East 82.73% North West 80.00% South East 74.68% South West 81.94% Wales 77.09% West Midlands 76.73% Yorkshire & the Humber 78.21% England and Wales 79.26% Gender pay gap comparisons between local government and the rest of the economy need careful interpretation to ensure like for like comparison. The headline ONS figure for the gender pay gap in 2013 was 19.7%, but this is based on gross earnings (excluding overtime) for the UK as a whole. There is no precise equivalent figure for local government in the LGA survey, but the latter indicates that, in England and Wales, the median FTE gross pay in 2013/14 for all males (including overtime) was 23,515 and for all females 18,638. This is a pay gap of over 20%, but is distorted by the inclusion of overtime, and the different gender distribution in the local government (England and Wales) workforce to that in the UK workforce as a whole. On the more reliable comparison of the gender gap for full time employees, local government in England and Wales compares very favourably with the UK economy. As has been noted, the gap for full time employees in local government in England and Wales in 2013/14 was 1%, whereas the equivalent figure for the UK economy was in excess of this at every almost age level in the UK workforce as a whole : Age Group Gender pay gap for full time employees % % % % % % The Local Government Workforce Survey 2012/13 looked at the gender make up of the top 5% of earners in local government in England(who will probably almost all be undertaking full-time jobs) and found that 44% were women, which will also compare favourably with many other sectors in the UK. Taken as a whole the figures show how much progress local government has made on gender equality in pay, particularly in the immediate environment of moving to fair pay and grading systems at local level, where the focus on pay and grading reviews and job evaluation has done much to ensure jobs are paid according to their relative responsibility level (regardless of whether they are 8

9 traditionally male- or female-held), and so close the gender gap, especially where full-time jobs are concerned. They also show that, as with the rest of the economy, there is a very long way to achieving what might be termed true gender equality, where female employees are less concentrated in low-paid and part-time jobs. The numbers suggest that, in this arena, local government as a sector has made no more progress than the rest of the economy indeed it is one of the major sources of low-paid part-time work in the economy, and so, arguably, tends to attract female employees. (Looked at another way, of course, it is also a source of flexible jobs which can be undertaken by women with other responsibilities such a child and elder care). Summary and conclusions 1. The local government wage bill is reducing in real terms as a result of a number of factors: Pay increases failing to keep pace with inflation Reduced employee numbers A reduction in hours for which premium rates are payable The precise level of reduction from each of these sources is hard to ascertain, and each factor will, in any case, compound the others. 2. The figures indicate that many authorities have succeeded in reducing paybill costs by reducing the extent to which : overtime is worked and/or paid at premium rates other working patterns are paid at premium rates. They also suggest that more could be done in some regions and some types of authority to reduce costs from this source. 3. There is a very large gap between the FTE basic pay rates payable to full-time and part-time workers, affecting both male and female employees. This is likely to be the result of substantially more part-time working in lower-paid jobs, but the size of the gap (over 30% for both males and females) may imply that action is needed by individual employers to ensure that pay and grading systems are not biased in the treatment of part-time jobs. 4. There is very clear evidence that regional pay markets now operate in local authorities England and Wales, with pay levels reflecting regional economic conditions. This is especially apparent in the pay rates for full-time employees, and needs to be remembered when there are generalised calls for the introduction of regional pay in the public sector. 5. The latest figures on the distribution of employees across the pay spectrum appear to confirm that there is a higher concentration of employees in the lower pay ranges in local government in England and Wales than is typical in the UK economy. 9

10 6. The use of incremental pay scales in the local government sector remains very widespread, with the majority of employers continuing to use time served as the basis for progression. 7. The gender pay gap in local government as a whole, based on full-time employees is now minimal (1%). However, this figure disguises: Regional variations in the pay gap for full-time employees, which remains greater than 5% in a number of regions A large pay gap in the median FTE gross pay for all employees (full-time and part time), which is still above 20% References The latter is principally the effect of the very high concentration of females in lower paid part-time jobs in the sector, and there is little evidence that this concentration is changing across local government. Local Government Earnings Survey 2013/14, Local Government Association. Local Government Workforce Survey 2012/13, Research report, Local Government Association, February 2014 Secondary Analysis of the Gender Pay Gap Changes in the gender pay over time, Department for Culture, Media & Sport, March 2014 Steve Vale is a Consultant in Human Resources and is a regular contributor to Croner-i HR for Local Government. Croner-i HR for Local Government is an on-line employment law and practice reference source designed specifically for HR Managers and their teams in local government. 10

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