Back in February the Government consulted on draft Gender Pay Gap Reporting (GPGR) regulations. A number of concerns were expressed over the initial draft, particularly around the definitions of pay and bonus pay and confusion over what were the pay 'quartiles' to be used - giving lawyers maths is never a good idea!
The final version of the draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, initially promised for 'the summer', was finally published on 6 December. Subject to parliamentary approval, the Regulations are expected to come into force on 6 April 2017.
While the publication deadline for the first GPGR reports is some way off, the reports must be based on pay data as at 5 April 2017 including bonuses paid within the 12 month period ending on 5 April 2017.
While the core obligations on employers are largely unchanged in the final version, there are lots of changes to the detail. On the plus side the government does appear to have taken on board many of the concerns raised about previous ambiguities. But, employers who have already made headway with their reporting plans, based on the original draft, will need to check that their methodology is in line with the new highly prescriptive requirements. The headline changes include:
- New snapshot date of 5 April, and first reporting deadline of 4 April 2018
- Extended to cover those who are employees, apprentices or those contracted personally to do work ('workers').
- Relevant employees for both pay and bonus pay figures must be employed on 5 April
- A new concept of "full-pay relevant employee" which, for the purposes of calculating pay gap figures removes those on leave and paid at reduced or nil pay. Tweaks to the definition of 'ordinary pay' and 'bonus pay'. Particularly welcome is clarification around bonuses paid via securities and when such remuneration is treated as paid.
- New six-step process for working out the 'hourly rate of pay' for comparison purposes.
- Clarification that pay quartiles are calculated by dividing the workforce into four equal sized groups, after ranking employees in terms of pay, as opposed to dividing the overall pay distribution into four equal proportions.
Here we provide a comparison of all the key changes between the draft and final regulations:
1. Snapshot date & reporting deadline
"Snapshot date" (previously called "relevant date")
First required reporting date
29 April 2018
4 April 2018
Who is a 'relevant employer' for the purposes of reporting requirements?
Person who has 250 or more employees on the relevant date.
Person who has 250 or more employees on the snapshot date. Public sector employers are now expressly excluded but are expected to be covered by similar legislative provisions in due course.
The explanatory notes state that 'employment' is as defined under section 83 of the Equality Act 2010 which includes employment under a contract of employment, a contract of apprenticeship, or any other contract personally to do work (i.e. workers included).
Reporting requirements apply to each separate legal entity with at least 250 employees within a group structure.
Who is treated as a 'relevant employee' for the purposes of the reporting requirements?
Someone "who ordinarily works in Great Britain and whose contract of employment is governed by UK legislation".
A person who is employed by the relevant employer on the snapshot date (see above) but excluding partners in firms including members of LLPs. Note that:
- individuals not based in GB are now potentially relevant employees if they meet the 'strong connection with GB' test
- obligations will not cover workers if the employer does not have and cannot reasonably practicably obtain the necessary data
- when calculating differences in hourly rates of pay (as opposed to bonus pay) only a 'full-pay relevant employee' is counted
- 'full-pay relevant employee' means a relevant employee who is not, during the relevant pay period, being paid at a reduced rate or nil as a result of the employee being on leave
- individuals who are paid bonuses in the 12-month period ending on the snapshot date but subsequently leave the employer before the snapshot date no longer need to be included
3. Ordinary pay
Meaning of 'ordinary pay' (simply referred to as 'Pay' in first draft) as used to calculate an employee's hourly rate of pay, treatment of bonus pay and meaning of allowances
All bonus pay paid in the relevant pay period was included in the definition of pay.
Language modernised. Substantive changes include:
- Bonus is no longer included in the definition of 'ordinary pay', but a proportion of bonus may need to be added to the ordinary pay figure to carry out the 'hourly rate of pay' calculation (see below)
- 'Allowances' is extended to any sum paid with respect to the recruitment and retention of an employee
4. Bonus pay
Meaning of 'bonus pay'
A non-exhaustive definition which included:
- payments received and earned in relation to profit sharing, productivity performance and other bonus or incentive pay, piecework and commission;
- long term incentive schemes, and;
- cash equivalent value of shares on the date of payment.
Confusing references to bonuses received and earned have been removed. Bonus pay now defined as remuneration in the form of money, vouchers, securities, securities options, or interests in securities relating to profit sharing, productivity, performance, incentive or commission.
Piecework is now dealt with as part of ordinary pay.
It is now also clear that elements of bonuses that are awarded as securities, securities options and interests in securities are to be treated as paid at the point in time when they would give rise to taxable earnings or taxable specific income.
5. Information that must be published
The difference in mean hourly pay of male and female relevant employees.
The difference between the mean hourly pay of male full-pay relevant employees and female full-pay relevant employees.
The difference in median hourly pay of male and female relevant employees.
The difference between the median hourly pay of male full-pay relevant employees and female full-pay relevant employees.
Mean bonus pay
The difference in mean bonus pay during the period of 12 months preceding 30 April between male and female relevant employees.
The difference between the mean bonus pay paid to male relevant employees and female relevant employees during the 12-month period ending 5 April.
Median bonus pay
The difference between the median bonus pay paid to male relevant employees and female relevant employees during the 12-month period ending 5 April.
Proportions for bonus pay
The proportions of male and female relevant employees who received bonus pay during the period of 12 months preceding the 30 April.
The proportions of male and female relevant employees paid a bonus during the 12-month period ending with 5 April.
Proportions in relevant pay quartiles
The number of male and female relevant employees in quartile bands A,B,C,D.
Meaning of 'pay quartiles' not defined. Confusion over whether to be calculated by dividing the workforce into four equal sized groups, or dividing the overall pay distribution into four equal proportions.
The proportions of male and female full-pay relevant employees in the lower, lower middle, upper middle and upper quartile pay bands.
Four new steps to work out the proportion of men and women in each pay quartile.
Quartiles are calculated by ranking the employees in order of hourly rate of pay and dividing into four, with equal numbers of employees.
If there are multiple relevant employees on the same hourly rate of pay such that they would fall within more than one quartile, the employer must ensure that the relative proportion of male and female employees receiving that rate of pay is the same in each of those pay bands.
6. Relevant pay period
Period for taking snapshot date for pay reporting purposes
Period in respect of which the employer usually pays the relevant employee, whether weekly, fortnightly, monthly or a longer or shorter period within which 30 April falls.
Period in respect of which the employer usually pays the employee basic pay, whether weekly, fortnightly, monthly or any other period within which 5 April falls. If no basic pay, the period in respect of which the employer most frequently pays the employee one of the other elements of ordinary pay within which 5 April falls.
7. Hourly rate
How to work out gross hourly rate of pay for comparison purposes
Simply defined as 'the weekly pay divided by weekly basic paid hours for each relevant employee'.
The Regulations now set out a six-step detailed method by which employers must calculate employees' gross hourly pay, using an employee's normal working hours where applicable, and adopting a 12-week reference period for employees whose working hours vary from week to week.
For calculating the gross hourly pay;
- a week is seven days
- a month is 30.44 days
- a year is 365.25 days
Bonuses paid during the snapshot pay period
Bonuses paid during the snapshot pay period included.
Criticised as it is common for bonuses in respect of a whole year to be paid in a single payment and, if that payment fell within the relevant pay period for calculating the gender pay gap, this could significantly distort the figures.
Under step three for calculating employees' gross hourly pay, only a portion of a bonus payment that is proportionate to the relevant pay period should be included for the purposes of determining the employer's mean and median gender pay gap. However, for employers who pay bonuses in April this does still mean that there will be an element of double reporting in respect of bonus pay.
Publication on employer's website
On employer's website in UK, it must be:
- in English;
- in a manner accessible to all employees and the public; and
- for a period of three years from publication
On employer's website, it must be:
- in a manner accessible to all employees and the public; and
- for a period of three years from publication
(No requirement that the website be a UK website & express reference to 'in English' removed)
Publication on Government designated website
Upload the information required to website designated by Secretary of State.
Publish on website designated by Secretary of State:
- the information required; and
- the name and job title of person who signed the statement
Penalties for non-compliance
Failure to comply will constitute an 'unlawful act' within the meaning of s34 of the Equality Act 2006, which empowers the Equality and Human Rights Commission to take enforcement action.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.