Siobhan Bishop and Louise Clifford, a director in our Employment, Labour & Equalities team, discuss the gender pay gap and the reporting obligations that organisations will shortly face.
Siobhan Bishop: I'm Siobhan Bishop and I am talking today with Louise Clifford, a director in our Employment, Labour & Equalities team, about the gender pay gap and the reporting obligations that organisations will shortly face.
So Louise, first of all, what is the rationale behind the gender pay gap reporting?
Well, it's all part of the Government's wider initiative to improve pay transparency and the reason for that is that the Government has committed to eliminate the gender pay gap within a generation.
Louise Clifford: Now, the gender pay gap as things stand is currently 19.2%, and that is despite having equal pay litigation since the 1970s. So, what the Government has been trying to do is to look at different ways in which we can improve pay transparency to try to start to erode that gender pay gap.
Now we have tried various ways in recent years, this is the latest initiative. In a sense what it is seeking to do is to compel employers to report details of their gender pay gap as a way of essentially making sure that they focus more on their gender pay information and what they can do to address any disparities.
Siobhan: Thanks Louise, so where are we up to with the proposed legislation?
Louise: Well, following a consultation last summer, we finally got draft regulations in February this year. There followed a period of consultation which ended in mid-March. So we are now essentially waiting for the revised regulations which will then, in theory at least, be introduced in October this year. The Government hasn't yet stated when specifically the revised regulations will be available, but we are expecting some time over the summer.
Siobhan: So, based on the draft regulations that we've got now, what are the key obligations that employers are going to face?
Louise: Okay, well the first point to make is that the regulations only apply to large employers, those with 250 or more employees and only at the moment to employers in the voluntary or private sector. For those employers that are covered, the obligations essentially break down into three main categories.
- So first of all, employers have to publish details of the average difference in pay between male and female employees in a relevant pay period.
- Secondly, they have to publish information on the number of male and female employees in each quartile pay band, taking into account the employer's overall pay distribution.
- The third area is bonuses, and there are two aspects to that. So first of all, again, employers have to look at the difference in average pay, bonus pay in this case, between male and female employees, and secondly, they have to look at the proportion of male and female employees that are actually receiving a bonus in any given pay period.
Now, we're expecting that the first snapshot period for collecting data will be April 2017 and employers will then have until April 2018 to publish those first reports.
Siobhan: That's right, bonuses is going to be a really tricky area, why is that?
Louise: There are a number of things. I think there are three that I will probably focus on for today.
The first is timing, for the pay information generally needs to be reported, the critical period is going to be April in each year. Essentially, the employer is required to take a snapshot of the pay data at that particular point in time for the purposes of producing the report that then needs to be delivered by April in the following year. With bonuses, the situation is slightly different, you need to look at bonuses earned and paid in the 12 months preceding April in each year.
So, for the first reports, essentially the clock has already started running in terms of the bonuses that need to be captured in the report.
The second point I'd make is that, as I've said, the regulations currently provide for bonuses that are received and earned in a particular year to be reported. Now, of course, many bonus schemes operate on the basis that they are earned in one year and then received in the next. So there's going to be an issue there for employers to work out what exactly they do need to report on and how they deal with the potential ambiguities with the regulations as they currently stand.
The third point about bonuses is that often you'll find that employers have schemes that only apply to a very small number of employees, maybe a senior executive group within an organisation, so what you might find is that, in circumstances where you're reporting on information for that type of group, if you are demonstrating the gender pay gap in terms of bonus pay, that might start to throw up some questions which could lead to equal pay risk in a way that the more generic date about pay might not.
Siobhan: Now, there aren't any penalties for non-compliance with this legislation, so what incentive will employers have to comply?
Louise: That's right Siobhan, there are no civil or criminal penalties for failing to comply, but what we need to remember is that the requirement is to not only publish the information on the employer's own website but to publish it on a central Government website. So employers could be conspicuous by their absence from that website, if you like, and there has been talk about league tables. So, there is a reputational concern here for employers who may decide not to report on the basis of the lack of penalties.
I think the other thing to remember is that the Government made the case in its consultation document that, you know, having a good story to tell in terms of your gender pay gap actually can be positive for employers and can be a good aid in terms of recruitment and retention of staff and, conversely, obviously employers who choose to shy away from the problem and not report could find that, you know, that then has an impact on retention and recruitment issues.
Siobhan: There's lots of potential issues to think about here and employers do have some time to prepare. So, what steps should they be taking now?
Louise: Well, I think the first thing is to work out whether you are going to actually be covered by the regulations at all. Are you going to be a large enough employer and that, as I have said, is going to depend on the definition of relevant employee – which may well change with the revised regulations. That's step one.
The next step, obviously, is to make sure you have the relevant systems in place to be able to collate the data and do the relevant number crunching.
Thirdly, I think bonuses is an important area to focus on. We've talked about some of the difficulties with bonuses and, of course, that there is time there in the run up to April 2017 to potentially address any issues and get your house in order in terms of bonuses.
I think the final thing to think about is, you know, trying to assess what those gender pay gap figures are going to look like for your organisation. Potentially considering some kind of audit around that, but bearing in mind that any results from that may be disclosable in any future equal pay litigation.
The other thing employers need to be aware of is that there will be an opportunity with the Government website to actually publish a narrative to give some context to the results. So, if employers have an explanation for why their gender pay gap is as it is, that is not a discriminatory reason, then they may want to be preparing that narrative in advance, so that they have a story to tell. They may also be wanting to work on, you know, policies and procedures around that, which show how they are going to address gender pay gap issues in the future.
The final thing to say is that when you take your snapshot of data in April 2017 and you look at the bonus data in the preceding 12 months, you then need to collate that data and report – by the latest – April 2018.
So, there is some time there and some flexibility for employers to choose when, in that 12 month period, they actually want to report and there may be tactical, strategic reasons that they want to report at a certain time of year rather than another, so its worth giving some consideration to that.
Siobhan: Thank you very much Louise.
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