Public sector pay policy for staff pay remits 2019-2020: technical guide

3. Key Pay Policy Priorities and Key Metrics For 2019-20

What are the key metrics that will be used to assess pay remits?

3.1 In 2019-20, each remit will be assessed on the following:

• affordability and sustainability - the financial impact of the pay remit proposals
  • this includes: the cost of paying progression; any known changes to staffing over the year; as well as any mandatory changes and/or changes outwith the annual pay award (such as an increase in employer's pension contributions) that may create budgetary pressures
• meeting the measures for addressing the lower paid
• application of the increases within the pay thresholds
• the use of paybill savings to address inequalities

What are the pay thresholds for 2019-20?

3.2 The policy sets a lower and upper pay threshold to continue to target higher increases for lower earners. The lower pay threshold is set at a point which provides a guaranteed increase that recognises the real life circumstances for as many staff as possible while ensuring public sector budgets remain in balance, sustaining public sector jobs and protecting public services.

3.3 For 2019-20, the Lower Pay Threshold (LPT) continues to be set at £36,500. The threshold includes all staff earning a full-time equivalent base salary of £36,500 or less. Setting the threshold at this level will ensure around 75 per cent of employees subject to the pay policy will directly benefit from a guaranteed minimum 3 per cent increase.

3.4 For 2019-20, the Upper Pay Threshold (UPT) will remain at £80,000. The threshold includes all staff earning a full-time equivalent base salary of £80,000 or more.

What is the limit on the overall increase to the paybill?

3.5 The aim of the policy is to assist public bodies to reach effective pay settlements that help them to fairly reward staff and manage their staffing numbers to deliver services within constrained budgets.

3.6 The pay policy does not set any metric relating to the overall increase in paybill. Each body covered by the policy must ensure that their pay proposals are affordable within their financial settlement for 2019-20.

3.7 The amount a public body can add to its paybill as a result of its pay proposals will be determined by their agreed^[3] financial settlement. Public bodies will need to include the cost of all elements of their proposals to determine the total value of the proposed increase in pay and benefits for staff in the organisation. The public body must confirm the total value of their pay proposals are affordable within their agreed³ financial settlement. They must also demonstrate, particularly where there are proposed changes to existing pay and grading structures, that their pay proposals are sustainable and that all savings identified to part-fund the proposed award are deliverable.

3.8 It is a matter for individual public bodies and their staff representatives to make decisions on their proposed pay remit and how they will meet the cost within the agreed^[3] financial settlement. Employers and their staff representatives should give consideration to securing productivity improvements and flexibilities to help them afford pay increases while ensuring public services continue to deliver best value for the public purse. Such decisions should take into account the policy requirements while ensuring that there is no detrimental impact to staff and the provision of services. Where there are affordability pressures, the public body must in the first instance address the lower pay measures and any equality issues prior to taking decisions on paying progression and paying a basic pay award increase for staff earning above the Lower Pay Threshold.

3.9 Public bodies have the choice to submit proposals to vary the levels of basic pay increase across their workforce to take account of local pay issues:

• For staff earning below the Lower Pay Threshold (£36,500), employers must apply a 3 per cent basic award. If a public body proposes to award more than this, the additional cost of applying more than 3 per cent requires to be met from the 1 per cent limit for flexibilities (paragraph 3.48).
• For staff earning between the Lower and Upper Pay Thresholds (£36,500 and £80,000 respectively) the overall cost will require to be met from within the 2 per cent limit in the increase in baseline salaries for such staff.
• For staff above the Upper Pay Threshold (£80,000), employers can chose to vary the level of basic pay increase as long as it does not exceed the £1,600 cap.

It is the responsibility of each organisation to ensure their full paybill costs can be met from within their agreed³ budget provision.

What is the position on applying the pay uplift to individuals where a public body has an established policy on pay protection?

3.10 If a public body has an established policy on pay protection (sometimes known as "red-circled staff") and/or linking pay to performance, this may be taken into account in developing pay proposals and may be used to determine whether or not an individual is entitled to the minimum pay uplift. The public body would be required to set out the details of their relevant remuneration policies and the number of staff affected in their business case.

Can paybill savings be used to part-fund the pay award?

3.11 Public bodies can use paybill savings to part fund their proposals but such savings should not be used to award pay increases that would otherwise result in the pay proposals exceeding the pay policy limits. Savings include those arising from staff turnover (recyclable savings), reductions in staffing and the removal of allowances or reductions in overtime.

3.12 In addition, public bodies may use paybill savings of up to 1 per cent of baseline salaries to make changes to their existing pay and grading structures to address evidenced equality issues; to award higher increases for lower paid staff; and/or to fund non-consolidated payments for employees already on the maximum of their pay range. For further detail refer to paragraphs 3.75 to 3.83.

3.13 Where a public body proposes to part fund any consolidated increase from an in-year non-recurring saving they will be required to confirm that future baseline paybills are affordable.

3.14 The proposals should include confirmation from the public body that they will deliver the specified savings during the period of the proposed remit. Public bodies should provide a risk assessment on their likelihood of achieving the projected savings. The Chief Executive/Accountable Officer will be expected to confirm in the outturn proforma that the proposed savings were delivered.

What costs must be included in the pay remit?

3.15 The pay remit costings must include the cost of all^[4] proposed increases in pay and benefits as well as with the consequential increases to allowances, overtime rates, employer's pension and National Insurance contributions that directly relate to the pay remit proposals. This is the Total Increase for Staff in Post of the proposals and reflects the aggregate value of the increases in pay and benefits existing staff will receive.

3.16 The pay remit costings should also include the costs of any changes to existing allowance rates^[5], the buy-out of existing allowances or the introduction of new allowances⁵ that will form part of the negotiations. Changes in overtime rates or proposals for new allowances will only be considered where these can be demonstrated to be cost neutral. If your proposals include any changes to existing terms and conditions you will be expected to consider the impact on the overall remuneration package particularly in regard to delivering the pay policy expectations for the lower paid.

3.17 Proposals which carry a notional cost (such as, for example, changes in the qualifying period for annual leave) must also be included in the remit proforma. There should be a supporting business case which sets out the current arrangements as well as the benefits and the read across for other public bodies. The additional benefit for staff will not add an actual cost to the paybill and will therefore not impact on the Net Paybill Increase. However, if the proposals result in ancillary costs such as additional staffing, overtime or any other staffing costs these costs will require to be included in the remit proforma with confirmation the costs can be met within the agreed budget for the period. Such costs are not required to be included within the pay policy limits (paragraph 3.68).

3.18 The Scottish Government encourages employers to offer assistance with green transport initiatives. Where a public body proposes to introduce such initiatives, the detail should be set out in the business case and the associated costs for setting-up and maintaining the scheme should be included within the pay remit costings as well as an indication of the value to staff with confirmation the costs can be accommodated within the agreed budget for the period. Such costs are not required to be included within the pay policy limits (paragraph 3.68).

3.19 Proposals to introduce non-pay rewards such as salary sacrifice schemes also fall under this category. As above, the financial proforma should include the administrative costs of setting-up and maintaining any such schemes as well as an estimate of the value to the individual. Public bodies should provide evidence to support any proposals in their business case.

3.20 Salary sacrifice proposals which aim to reduce employee's pension contributions to a public service pension scheme with off-set increases to the employer contribution will not be considered acceptable.

3.21 As noted in paragraph 3.9, where there are affordability pressures, the public body must ensure they address any equal pay risks and target resources at staff earning below the Lower Pay Threshold (£36,500), balanced with decisions on paying progression.

3.22 Once these decisions have been taken, to ensure consistency in assessing individual proposals, the expectation is that each public body should model the paybill costs of their proposed pay award in the following order:

• progression (if proposed)
• Scottish Living Wage
• the pay uplift for staff earning below the Lower Pay Threshold (£36,500)
• the pay increase for staff earning between the Lower and Upper Pay Thresholds (£36,500 and £80,000 respectively)
• the pay increase for staff earning above the Upper Pay Threshold (£80,000)
• proposals to access additional flexibilities
• associated increases in the costs of overtime, allowances

Public bodies must also include the employer's pension and National Insurance contributions that result from the increases in pay and benefits that are proposed.

What costs are excluded from the pay remit?

3.23 Any changes to the baseline paybill such as: mandatory increases to the employer's pension and/or National Insurance contributions; or increases related to ensuring the financial health of the pension fund; or any other changes to terms and conditions directly outwith the control of the public body are not to be treated as increases within the annual pay award. Such costs however should be included in the baseline paybill. Where the actual costs are not known at the time of preparing the remit costings, then an estimate should be provided along with a note of the methodology for the calculation.

3.24 The costs of paying the employer's Apprenticeship Levy should be noted in the pay remit as the cost could have a potential impact on the affordability of the annual pay award.

What is the position on progression?

3.25 Nothing in the policy is intended to interfere with existing pay progression arrangements nor to constrain discussions between employers and staff on this issue.

3.26 Where there is no contractual commitment to pay progression, bodies may continue to pay progression if they choose to subject to any established policy they have on pay protection and/or linking pay to performance (see paragraph 3.10). Decisions taken to pay progression should be based on business needs, maintaining headcount and affordability.

3.27 It remains a matter for individual public bodies and their staff representatives to agree a pay settlement that is affordable. However where there are affordability pressures, decisions may be required on whether to cap progression increases or suspend progression in order to maintain headcount and services and meet the policy requirements for lower paid staff within the agreed financial settlement. In taking such decisions, consideration is required to ensure that no direct or indirect discrimination is introduced or perpetuated, noting that the pay policy encourages public bodies continue work towards ensuring maximum journey times are no more than 5 years.

3.28 Where necessary, public bodies must ensure they have sought legal advice as to the extent of contractual obligations in relation to paying progression.

3.29 All proposals to cap or suspend progression will be considered by Remuneration Group. The supporting business case will require to include the rationale for the decision taking into account affordability and legal advice.

3.30 The cost of paying progression under existing arrangements continues to be costed outwith the pay policy limits (see paragraph 3.68) and, as with all pay increases, will require to be met fully from within the agreed budget provision. Where a public body proposes to make a change to existing progression arrangements, such as reducing journey times, the cost of introducing the change should be included within the 1 per cent flexibilities allowed to address pay inequalities.

3.31 The cost of progression should be based on a full 12 month cost regardless of whether or not a public body awards increments to staff based on individual anniversary dates. Therefore the cost should not be scaled down to the cost payable within the pay remit period if that is different. Any savings arising from paying staff on individual anniversary dates should take in to account the residual progression costs from the previous year. The savings may be noted for affordability of the pay remit but may not be used to off-set the costs of any proposals which seek to address pay inequalities as detailed in paragraphs 3.79 and 3.80.

What are the measures to support lower paid staff?

3.32 Employers covered by the policy are required to:

• apply the Scottish Living Wage
• ensure all staff earning below the Lower Pay Threshold (£36,500) receive a 3 per cent increase in addition to any entitlement to progression.
• the option to use the 1% paybill savings for flexibilities to award up to £750 cash underpin for staff earning less than £25,000

Further details are set out below.

What is the policy position on the real Living Wage?

3.33 The policy intention is that the employer of every worker whose pay is controlled directly by the Scottish Government will be paid at least the real Living Wage rate set out in paragraphs 3.35 and 3.36.

3.34 While not a pay policy requirement, public bodies are encouraged, if they have not already done so, to demonstrate their backing of the Scottish Government's commitment to support lower paid staff by becoming Accredited Living Wage employers.

How should the real Living Wage be applied?

3.35 To meet the Scottish Government's commitment to support the real Living Wage, the pay policy expectation is for the real Living Wage to be applied as an annualised rate, referred to as the Scottish Living Wage.

3.36 For 2019-20 pay remits, the Scottish Living Wage is set at an annual gross salary of £17,385^[6]. The calculation for the 2019-20 Scottish Living Wage is based on an hourly rate of £9.00 which is consistent with the real Living Wage rate announced during the 2018 Living Wage week. Therefore public bodies are require to ensure they pay at least £17,385 and that all salaries meet the real living wage rate of £9.00 per hour based on actual working hours. See paragraphs 3.39-3.40 for the position for Interns and Modern Apprentices.

3.37 The Scottish Living Wage is the minimum annual full-time equivalent salary forall employees in public bodies covered by the pay policy regardless of the number of conditioned hours worked. Public bodies have the responsibility to ensure that in delivering the annual gross salary of £17,385 that all their salaries meet the statutory hourly rates for the National Living Wage and the National Minimum Wage.

When is the Scottish Living Wage applied?

3.38 All public bodies will be expected to apply the new Scottish Living Wage rate by 1 April 2019 at the latest. Where a public body has just received Living Wage Accreditation^[7] they will be required to apply it from that date.

3.39 The cost of applying the uprate should be included in the pay remit proposals based on the 12 month cost (i.e. as if the increase had been applied on the settlement date).

How does the pay policy apply to Modern Apprentices and Interns?

3.40 The pay policy supports the Government's target for Modern Apprentices, recognising the importance of providing opportunities for youth training and employment, and as such it does not provide a barrier to delivering on this. Where a public body takes on a Modern Apprentice in a:

• recognised/existing job role - then the public body is expected to pay them the rate for that grade.
• specific training role - they are expected to pay at least the Scottish Living Wage unless it is the lowest pay point in the existing pay and grading structure and there is a need to create a differential between established roles and the training role. In such circumstances the public body would be expected to pay at least the adult National Minimum Wage rate rather than the statutory Youth Development or Apprentice rates. Where a public body pays a Modern Apprentice at a lower rate than the Scottish Living Wage they would be required to provide details of the rates paid. The public body would be required to pay the Modern Apprentice the established rate for the job on completion of the agreed training period.

3.41 The pay policy does not apply directly to interns who are on short-term, developmental placements. However, public bodies are encouraged to consider best practice when offering an internship particularly if they are in a recognised/existing job role or specific training role as set out in paragraph 3.40 for Modern Apprentices. Where it is appropriate and where they can afford to do so, employers should pay the Scottish Living Wage, particularly where the intern is undertaking a job equivalent to other staff within the organisation.

What is the increase for staff earning below the Lower Pay Threshold (£36,500)?

3.42 The policy intention is that every worker earning £36,500 or less and whose pay is controlled directly by the Scottish Government should receive a guaranteed 3 per cent^[8] basic pay award. For 2019-20, the policy expects employers to provide an increase of 3 per cent to staff if their current^[9] full-time equivalent base salary is within the Lower Pay Threshold (£36,500). The policy position is that this payment should be in addition to any progression increase (where eligible). The only exception to this being where a public body has an established policy on pay protection and/or linking pay to performance (see paragraph 3.10).

3.43 Employers can use all or part of the 1% paybill savings allowed in 2019-20 for pay inequalities to provide a basic award increase of more than 3% in order to reduce any gender pay gap and/or the overall pay gap between the highest and lowest earners. This would require to be evidenced, affordable and may be costed from the flexibility allowed in the 2019-20 pay policy to address evidenced equality issues (see paragraphs 3.79 to 3.81).

3.44 Employers may also choose to use the 1% paybill savings to award up to a 1% non-consolidated payment to staff who were on their maxima prior to the pay award on the basis that such staff do not receive a progression increment. The normal expectation is that where it is proposed to award such a non-consolidated payment that it would apply to all grade maxima and any deviation from this would require to be considered by Remuneration Group.

3.45 The policy encourages public bodies to apply the 3 per cent pay increase as a consolidated basic pay award. The exceptions being:

• where there are demonstrable affordability, structural pay or equality issues, then a public body may seek to pay part of the 3 per cent as a non-consolidated payment.

In such circumstances the expectation is that the consolidated increase for such staff should take into account what is proposed for staff above the Lower Pay Threshold. Any remit proposing this approach may require to be considered by the Remuneration Group.

• where an existing pay point is aligned to the Scottish Living Wage and the increase is less than the pay policy.

In such cases the difference for employees between the increase in the Scottish Living Wage and the pay policy uplift should be awarded as a non-consolidated payment.

What can a public body do if they have staff whose base pay is currently just above the Lower Pay Threshold (£36,500)?

3.46 A public body may propose to pay a higher increase of up to 3 per cent to staff who are currently on a base salary that is just over the Lower Pay Threshold (£36,500) to address any possible "leapfrogging" and to maintain the integrity of their current pay systems. In such circumstances, the proportion of the cost which is above 2 per cent is included under the costs for those within the lower pay threshold and not within the 2 per cent limit^[10].

3.47 A public body can choose to pay the difference as either a consolidated or a non-consolidated payment, taking into account affordability and the impact on their pay and grading structure.

3.48 Where a public body proposes to apply more than the 3 per cent for lower paid staff then the additional amount above the 3 per cent would require to be costed from the 1 per cent flexibility allowed in the 2019-20 pay policy to address evidenced equality issues (see paragraphs 3.79 to 3.81)^[11].

What does a 2 per cent limit on the increase in baseline paybill for those earning between the Lower and Upper Pay Thresholds (£36,500 and £80,000 respectively) mean?

3.49 The pay policy intention is that the cost for a basic pay increase for all staff earning above £36,500 and below £80,000 should not exceed 2% of baseline salaries for that cohort of staff.

3.50 Public bodies may propose a basic pay increase for staff who currently earn between the Lower and Upper Pay Threshold. The level of increase for individual employees or groups of staff within a public body is a matter for individual employers subject to the limit of a 2 per cent increase in the cost of baseline salaries for all staff earning between the Thresholds (£36,500 and £80,000 respectively). All proposed increases will be subject to any established policy a public body has on pay protection and/or linking pay to performance (see paragraph 3.9).

3.51 Within the 2 per cent limit, a public body can choose either to pay up to a 2 per cent across-the-board basic pay award or to vary the level of basic award between grades to take account of local issues, such as recruitment, retention and motivation issues; or to make changes to existing terms and conditions. See Annex B for a worked example on the application of differential increases in basic award.

3.52 Where the proposals result in a pay range minima and maxima increasing by more than 2 per cent then the public body should consider the wider read across to other public bodies. The policy expectation remains that any proposal to increase a pay range maximum by more than 2 per cent should not result in the pay range maximum being more than 5 per cent above the median of the maxima in the relevant labour market.

3.53 While there is no similar expectation for the pay range minima, public bodies nevertheless should ensure that any proposed increases to a pay range minima will not result in paying above the relevant market for that grade or build in future paybill pressures as a result of paying new recruits and/or promotees a higher starting salary.

3.54 Employers may also choose to use the 1% paybill savings to award up to a 1% non-consolidated payment to staff who were on their maxima prior to the pay award on the basis that such staff do not receive a progression increment. The normal expectation is that where it is proposed to award such a non-consolidated payment that it would apply to all grade maxima and any deviation from this would require to be considered by Remuneration Group.

How should the basic pay increases for staff earning between the Lower and Upper Pay Thresholds (£36,500 and £80,000 respectively) be applied?

3.55 The basic pay increase is normally consolidated. The exception to this is where there are: budgetary pressures; structural issues; equality issues; or where a public body has an established policy on pay protection for employee's outwith the recognised pay ranges.

3.56 While public bodies can identify savings to part-fund their pay award (see paragraphs 3.11 to 3.14) they cannot use any such savings to make a case to exceed the policy limits.

3.57 A public body's policy on pay protection may be taken into account in developing pay proposals and used to determine whether or not an individual is entitled to the minimum basic pay increase. Depending upon local arrangements some staff may receive a non-consolidated payment in line with the basic award for other staff in the same grade or for others their pay may be frozen. In all circumstances, the public body would be required to set out the details of their relevant remuneration policies and the number of staff affected in their business case.

What is the increase for staff earning above the Upper Pay Threshold (£80,000)?

3.58 The policy limits the basic pay increase for those earning £80,000 or more to £1,600. This limit will also apply to all pay points which are £80,000 and above.

3.59 The £1,600 is the limit on the increase in base pay. Where an individual is eligible, they may also receive a progression increment in addition to this, if this is proposed for other employees. It is noted all proposed increases will be subject to any established policy a public body has on pay protection and/or linking pay to performance (see paragraph 3.10).

3.60 Employers may also choose to award up to a 1% non-consolidated payment for staff above £80,000 who were on their maxima prior to the pay award on the basis that such staff do not receive a progression increment. The normal expectation is that where there it is proposed to award such a non-consolidated payment that it would apply to all grade maxima and any deviation from this would require to be considered by Remuneration Group.

3.61 In determining the level of increase for those staff earning above the Upper Pay Threshold (£80,000), each public body should take in to account the progressive approach set out in this pay policy and what they propose for other staff to ensure that pay inequalities are not exacerbated.

How should pay increases be applied to part-time employees?

3.62 The policy intention is for all increases to be based on an individual's full-time equivalent salary so that part-time employees will receive all increases on a pro-rata basis. The reason for this is that it is the most equitable approach and maintains the integrity of existing pay and grading structures. This approach provides all staff in the same grade and job weight the same proportionate increase ensuring equal pay for like work or work of equal value.

3.63 However the pay policy provides flexibility for employers to take their own decisions in this regard. It does not prevent individual employers choosing to submit proposals to pay the same level of increase to all staff regardless of work-pattern to address their own specific circumstances. The additional cost above the policy limits would require to be met from the 1% flexibilities (paragraphs 3.79 to 3.81) allowed in the pay policy to address inequalities.

3.64 If the same consolidated monetary increase was paid to all employees regardless of hours worked this could undermine some pay and grading structures. It could also create a legacy of a future higher base salary for some individuals solely as a result of part-time working rather than contribution compared within other employees with the same length of time in post and contribution but have worked full-time. There is also a risk that to pay all staff the same increase regardless of hours worked could undermine working relations between employees.

3.65 This may be better illustrated by the following example where the full-time and part-time equivalent salaries cross the £36,500 threshold:

Employee A works full-time with a salary of £33,000
Employee B works part-time with a salary of £33,000 (based on a full-time salary of £40,700)
Employee C works full-time with a salary of £40,700

Employee	Hours worked	Current salary	Current Hourly rate*	Increase	Revised Salary	Revised Annual Salary FTE	Revised Hourly rate*
		£	£	%	£	£	£
A	37	33,000	17.09	3%	33,990	33,990	17.60
B	30	33,000	21.07	3%	33,990	41,921	21.70
C	37	40,700	21.07	2%	41,514	41,514	21.49

*Annual salary divided by hours worked and 52.2 weeks per year

3.66 In the above example, both employee A and B have a salary of £33,000 regardless of hours worked, however the full-time employee's hourly rate is £17.09 compared with the part-time employee of £21.07. Therefore if the part-time employee were to receive a 3% increase, on the basis that their take-home pay was less than £36,500, this would mean that their hourly rate would then be higher than their full-time equivalent co-workers on the same grade and equivalent full-time pay point (£21.70 compared with £21,49).

What is included within the pay policy limits?

3.67 All increases to pay must be included within the specified policy limits (i.e. the increases for each of the thresholds) unless they are specifically identified to address evidenced equality issues and it is proposed to seek to use the flexibilities within the pay policy outlined in paragraphs 3.81 to 3.85. Increases within the limits will include:

• the basic award
• any costs arising from proposed changes to existing terms and conditions that are not covered by the additional flexibility for addressing equality issues (see paragraph 3.81)
• the cost of any payment to staff on pay protection

What are outwith the pay policy limits?

3.68 The following costs are all outwith the respective pay policy limits for basic pay increases:

• progression
• applying the Scottish Living Wage
• flexibility to use paybill savings to address inequalities
• introducing assistance with green transport initiatives
• costs directly related to harmonisation under the Simplification Agenda
• proposals which carry a notional cost (where there is no actual cost to the employer)
• the ancillary increases to allowances, overtime, employer's pension and National Insurance Contributions as a result of the pay proposals

3.69 For costs that are outwith the pay remit refer to paragraphs 3.23 and 3.24.

What is the policy position on Fair Pay and pay inequalities?

3.70 The Scottish Government recognises the importance of treating people fairly in the work place and encourages best practice among its public bodies as set out in the Fair Work Framework^[12]. This recognition is embedded in Scotland's Labour Market Strategy^[13].

3.71 The Scottish Government is committed to ensuring pay systems in the public sector are fair and non‑discriminatory. Each public body should make sure it has due regard to its obligations under the public sector equality duties when considering its pay systems. This must include the legal requirement on public bodies to assess the impact of their policies and practices on people from different ethnic groups, disabled people and gender. In terms of pay proposals, public bodies are expected to have carried out equal pay reviews and set out in their business case the results of such reviews and the steps they propose to take to address any inequalities they have identified.

3.72 Public bodies should carry out a proper assessment of the pay arrangements for different groups or roles including considering the impact of reward policies on equality groups. This should also consider the appropriate length and progression journey time for all jobs, in line with equalities legislation.

3.73 Where a public body has identified a potential pay inequality they wish to address, they will need to provide evidence of the extent of this inequality. A full risk assessment, including the likelihood of claims and the extent of potential liability as well as the costs of dealing with the issue, should form part of the business case which supports all proposals to address inequalities. They will also need to propose ways of tackling this in a cost‑effective way, subject to affordability constraints and policy limits.

3.74 It is important public bodies meet their public sector equality duty and review their pay systems on an annual basis after they have implemented pay awards, and ensure they carry out a full equality impact assessment of their reward policies and practices in line with the recommended time scales. Public bodies are encouraged to work jointly with their trade union(s) in undertaking their equal pay reviews. Further information about equality impact assessment is available on the Scottish Government's website at: www.gov.scot/Topics/People/Equality/18507/EQIAtool.

Does the pay policy provide flexibility for public bodies to use paybill savings to address inequalities?

3.75 Public bodies will be able to use paybill savings of up to an additional 1 per cent of baseline salaries, beyond those limits set out above to address any or all of the following:

• apply a cash underpin for lower paid staff of up to £750 for staff earning below £25,000.
• make non-consolidated payments to employees already on the maximum of their pay range or those on spot rates.
• consider affordable and sustainable changes to their existing pay and grading structures or terms and conditions to address evidenced equality issues.
• address inequalities arising from recruitment and retention issues.

What is required if a public body is seeking to award a non-consolidated payment to staff?

3.76 The 2019-20 pay policy again allows public bodies to be able to use paybill savings to award a non-consolidated payments to employees either on the maximum of their pay range or those on spot rates. This is to recognise that these staff, many of whom will have been on the same point for several years, will have faced the greatest detriment from the pay restraint.

3.77 The payment only applies to those staff who are on their maxima prior to the recognised settlement date or those on spot rates of pay and is based on their 2018-19 salary.

3.78 Public bodies have the flexibility to award non-consolidated payments of up to 1 per cent of salary for eligible employees, on the basis that they can demonstrate:

• the cost of applying the non-consolidated payment can be wholly funded from paybill savings.
• a risk assessment of being able to deliver the identified paybill savings.

What is required if a public body is seeking to award a cash underpin to lower paid staff?

3.79 The 2019-20 pay policy enables public bodies to use paybill savings to apply a cash underpin to provide higher increases for lower paid staff above the 3 per cent to help reduce overall income inequality.

3.80 Public bodies have the flexibility to award a cash underpin of up to £750 for staff earning less than £25,000 on the basis that they can demonstrate:

• the cost of additional cost of applying the cash underpin over and above the 3 per cent can be wholly funded from paybill savings.
• a risk assessment of being able to deliver the identified paybill savings.
• the proposed increase is sustainable (that it does not create pressure on future baseline paybills).

What is required if a public body is seeking to use paybill savings to address inequalities?

3.81 The following sets out some examples of the types of proposals that public bodies might submit to address inequalities:

• reviewing existing pay and grading structure, including:
  • ­ reducing progression journey times (removing minima and/or recalibrating pay steps)
  • ­ recalibrating existing pay steps
  • ­ reducing and/or removing overlaps between grades
• equalising contractual and working hours.
• removing / changing out-dated allowances.
• changes to wider HR policies, including:
  • ­ increases to maternity, paternity and adoption leave
  • ­ changes to recruitment/promotion policies to encourage greater uptake of individuals with a protected characteristic where they are under-represented in a specific grade or grades.
  • ­ reviewing service related benefits such as reducing the qualifying time for maximum annual leave entitlement
• future-proofing for the real Living Wage and National Living Wage

3.82 To assist public bodies in framing their proposals, the following sets out some guiding principles/benchmarks:

• public bodies should aim to have journey times of no more than 5 years for all grades.
• the proposed changes should not result in terms and conditions becoming more generous than the majority of other public bodies.
• any increases to existing band maxima of more than the limits set out in the 2019-20 pay policy should not result in the band maxima exceeding the median of the equivalent market maxima by more than 5 per cent.
• public bodies should aim to have a qualifying time for maximum annual leave entitlement to be no more than 5 years.
• any increases solely based on market erosion will require to be costed from within the pay policy limits.

3.83 Where a public body provides clear evidence of significant and business critical equality issues they must demonstrate:

• the cost does not exceed 1 per cent of baseline salaries
• the proposals can be evidenced to show a tangible improvement (such as reducing the overall gender pay gap)
• the cost of making the changes can be wholly funded from paybill savings. However, where a public body has difficulty in meeting the full cost from paybill savings, but meets the other criteria outlined, they are invited to contact the Finance Pay Policy team to discuss options
• a risk assessment of being able to deliver the identified paybill savings
• the proposed changes are sustainable (that they do not create pressure on future baseline paybills).

3.84 Proposals which seek to make changes to pay structures to address recruitment and retention issues only, such as increasing pay range minima or maxima, require to be costed from within the 2 per cent limit for staff earning between the Lower and Upper Pay Thresholds (£36,500 and £80,000 respectively).

3.85 See Annex B for a worked example on using paybill savings to address equality issues.

Can a public bodies use paybill savings to make a non-consolidated payment to staff on their maxima as well as making changes to existing structure to address evidenced inequalities?

3.86 Each public body can submit proposals to use paybill savings to make a non-consolidated payment to staff on their maxima (or on spot rates of pay) as well as introducing any other changes to their existing pay and grading structures or terms and conditions to address identified inequalities. This is on the condition that the total cost does not exceed 1 per cent of baseline salaries and can be wholly funded by paybill savings in line with the details set out in paragraph 3.78.

What is required if a public body submits proposals for amending or restructuring their pay and reward system?

3.87 If a public body is developing proposals that make any changes to their existing pay and grading structure it should take into account the following:

• the wider read across of their proposals for other public bodies
• the policy expectation is that any new pay range maxima should not result in it being more than 5 per cent above the median of the maxima in the relevant labour market. In most instances the expectation is for the relevant labour market to be the other public bodies subject to the public sector pay policy and public bodies should ensure any job evaluation scheme they use enables them to fully utilise this data
• there is no similar expectation for the pay range minima. However, public bodies should ensure that any proposed increases to a pay range minima will not result in paying above the relevant market for that grade or build in future paybill pressures as a result of paying new recruits and/or promotees a higher starting salary
• affordability - the costs arising from changes to an existing pay and reward structure must be included within the remit proforma along with confirmation they are affordable within the agreed settlement
• sustainability - the changes are affordable and sustainable in the years following the implementation of the restructuring. To demonstrate this public bodies are expected to projected annual progression costs for the 3 years following implementation of the restructuring

3.88 Where a public body is considering proposals which include restructuring their existing pay and grading system they should discuss them with the Finance Pay Policy team at the earliest opportunity.

What is required to extend a No Compulsory Redundancy agreement?

3.89 The statutory definition of "redundancy" encompasses three types of situation: business closure, workplace closure, and reduction of workforce. The dismissal of an employee will be by reason of redundancy if it is "wholly or mainly attributable to" the employer:

• Ceasing or intending to cease to carry on the business for the purposes of which the employee was employed by it (business closure) (section 139(1)(a)(i), ERA 1996);
• Ceasing or intending to cease to carry on that business in the place where the employee was so employed (workplace closure) (section 139(1)(a)(ii), ERA 1996); or
• Having a reduced requirement for employees to carry out work of a particular kind or to do so at the place where the employee was employed to work (reduced requirement for employees) (section 139(1)(b), ERA 1996).

3.90 The intention behind the Ministers' No Compulsory Redundancy commitment is to ensure that, in any of the above circumstances, the employer works closely with affected staff and their unions, to identify suitable alternative employment opportunities.

3.91 This pay policy continues to support the Scottish Government's position on No Compulsory Redundancy. The Government believes this commitment creates the right environment to provide staff with job security while enabling employers and their staff representatives to take a range of steps to manage their headcount and budgets to realise the necessary savings to deliver efficiencies.

3.92 Public bodies will be expected to negotiate extensions to their No Compulsory Redundancy agreements for the duration of their 2019-20 pay settlement as part of constructive and collaborative discussions between employers and their trade unions to make the most effective use of the funding available for the pay award, within the bounds of the pay policy.

3.93 The details will be for agreement between employers and their staff groups as part of collective bargaining negotiations for 2019-20. The key aim remains for public bodies to manage costs and protect staff numbers to deliver the quality of services within constrained budgets. The Scottish Government expects all public bodies to engage with this framework.

3.94 The No Compulsory Redundancy agreement extends to all directly employed staff and public bodies would be expected to look at all appropriate measures to avoid compulsory redundancy such as transfer to other areas of work both within the organisation or to another public body (if agreed arrangements are in place); reviews of working practices such as reducing overtime; restricting promotions/recruitments; or restricting the use of temporary workers or fixed-term appointments, etc. The No Compulsory Redundancy agreement does not apply to the termination of a temporary appointment or the end of a fixed term contract where staff are recruited for a limited period.

What does the suspension of non-consolidated performance payments mean?

3.95 The policy position remains that all non-consolidated performance payments^[14] remain suspended. This approach allows public bodies to maximise the resources available to them to address fair pay issues. The suspension applies to all non‑consolidated performance payments (normally based on performance in the preceding year).

3.96 The suspension does not apply to non-consolidated payments awarded to staff on their maxima or on spot rates of pay; or where part of a basic pay award is proposed to be paid as non‑consolidated; nor does it apply to allowances and supplements^[15]. Such payments will need to be considered as part of delivering a pay remit within the overall financial settlement.

3.97 Although existing non‑consolidated pots may be available for payment under future policy, 'earned' performance in the current and previous performance years will not be taken into account in future payments. Any future payments will require to be paid from agreed budget provision at that time. The value of all suspended non‑consolidated pots is based on the percentage of baseline paybill and not the monetary value and is recorded in the financial proforma.

Can a public body align to another public body's pay proposals or submit joint pay proposals?

3.98 The 2019-20 policy continues to encourage smaller^[16] bodies to make a business case to align with another appropriate existing pay system (such as the Scottish Government or another Agency / Non‑Departmental Public Body). Where a case is approved, the public body would just be expected to complete the settlement proforma providing the details and the costs of implementing the settlement.

3.99 Thereafter, a brief review of the alignment arrangements should be carried out every three years to ensure it remains fit for purpose and continues to allow the body to recruit, retain and motivate its staff.

3.100 Public bodies wishing to put forward a case to align to another public body's pay system should speak with the Finance Pay Policy team in the first instance and well in advance of their 2019-20 settlement date.

3.101 While the alignment arrangements continue to be available only for the smaller public bodies, there is no restriction on larger public bodies seeking to submit joint remit proposals where there are clear business benefits of doing so. Where two or more bodies propose to submit a joint pay remit they should seek early discussions with the Finance Pay Policy team.

Can pay remit proposals be submitted that cover more than one year?

3.102 This is a matter for public bodies, subject to affordability. There is an expectation that public bodies will submit pay proposals which cover one year, given budget allocations are for a single year, although this is not a mandatory requirement of the Pay Policy. The pay policy for 2019-20 applies to public bodies with settlement dates for the year between 1 April 2019 and 31 March 2020 (inclusive). Where a public body wishes to submit pay proposals for more than one year they should contact the Finance Pay Policy team and their Sponsor Team (where applicable) at the earliest opportunity.

3.103 A settlement covering more than one year may provide certainty for employers and their staff; help to ensure annual pay awards are paid on time and reduce the administrative burden and costs associated with the pay process. It may also provide public bodies with the opportunity to take a phased approach to addressing evidenced workforce or structural pay issues ensuring affordability and sustainability. It may also help to provide for meaningful pay negotiations between employers and staff representatives.

3.104 While it is for the public body to decide how the award may be packaged, taking account of their specific circumstances, the total increase must not exceed the equivalent annual average of the parameters set in the 2019-20 pay policy and take in to account forecast budget allocations.

What happens if a public body is legally committed to elements of the pay award?

3.105 There may be rare occasions when a public body is contractually obliged to pay progression or where the pay award is legally linked to that of another group of staff (such as local government employees), for example after the transfer of staff or the creation of a new public body. Where this is the case and the commitment is not compatible with meeting the requirements of the pay policy, the public body should set out in its business case: the basis of the contractual obligations; whether or not they have sought legal advice; how it intends to resolve the situation; the potential impact with other employees and the timeframe for its resolution.

3.106 Public bodies should note the basis of approval of pay remits in paragraphs 5.5 and 5.8 and ensure they do not create any new contractual obligations.