Back in July 2015, the then Prime Minister, David Cameron, announced that the government would "end the gender pay gap in a generation". Nearly two years later, and after various reports and consultations the requirement for businesses to report on their gender pay gap is due to come into force on 6 April 2017 under The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 ("Regulations"). The Regulations are accompanied by ACAS and GEO guidance.
Following our article in Law at Work on this issue last year, in this briefing we outline the key features of the new obligation on private employers in England, Wales and Scotland (but not Northern Ireland) with 250 or more employees to report on their gender pay gap between male and female employees and suggest ways in which they can prepare for the new reporting requirements. The Government has published similar reporting obligations for public sector employers which will come into force on 31 March 2017. The main differences between the two sets of regulations are that the public sector duty takes effect as part of the existing public-sector equality duty, rather than as a standalone requirement and the 'snapshot' date, on which certain pay information will focus, is 5 April for private sector employers but 31 March for public sector employers.
Key points of the Regulations are that:
- they will apply to private and voluntary sector employers with 250 or more employees on a "snapshot date" which is 5 April in each year (starting with 5 April 2017)
- publication of the first set of gender pay gap statistics must be by 4 April 2018 and annually thereafter
- employers will be required to provide information on the mean and median gender pay gap and mean and median gender bonus gap, together with the proportion of men and women in receipt of a bonus; and proportion of men and women in each of four pay quartiles
- the gender pay gap is based on the difference in the gross hourly rate of pay of male and female "full-pay" employees for the pay period that includes the 'snapshot date' of 5 April 2017. The bonus pay gap relates to bonus payments made between 6 April 2016 and 5 April 2017. "Full-pay" relevant employees are those not on a reduced pay rate or nil pay during the snapshot period
- "employees" include workers but not partners, including those in an LLP
- there is no express territorial limit to the location of where employees' work
ACAS and the GEO recently published guidance "Managing gender pay reporting in the private and voluntary sectors" (Guidance) found here together with other guides and factsheets on "Key Obligations", "Top 10 Myths" and a template Employee Communication form. The Guidance assists with understanding the Regulations and what ACAS considers "to be good employment practice".
Employers and employees
Each employing entity has a separate obligation to report within a group, based on the number of employees of that entity (rather than the group as a whole).
"Employees" for whom data must be provided include those with employment under a contract of employment, a contract of apprenticeship, and a contract personally to do work, which potentially covers many self-employed workers who are engaged directly by employers as consultants, or independent contractors. As a result, many more employers are likely to come within scope as these workers will count towards the 250-employee threshold. However an employer is not required to include data relating to an employee who is employed under a contract personally to do work if the employer does not have the data and it is not reasonably practicable to obtain it, as may be the case with independent contractors who do not work fixed hours and are not paid through the payroll. Partners, including partners in an LLP, are excluded from the definition of relevant employee so there is no need to provide pay or bonus data for them.
Although the Regulations make no express reference to the status of any employees working overseas the Guidance states that an employer based in Great Britain who sends employees to work abroad may find that they do need to be counted for gender pay reporting obligations. The Guidance cites relevant indications include having a contract subject to GB legislation, continuing to have their home in GB and UK tax legislation applying to their employment.
Only "full-pay" relevant employees should be included in calculating mean and median hourly pay rates. This excludes employees on a reduced pay rate or nil pay during the snapshot period due to being on annual leave, maternity, paternity, adoption, parental or shared parental leave, sick leave or special leave. Employees on leave are also excluded from the quartiles information but are not excluded from the calculation of mean and median bonus or proportions of employees paid a bonus.
Pay is gross pay calculated before deductions at source and will include basic pay, paid leave, allowances, shift premium pay, pay for piecework and any portion of a bonus payment that is proportionate to the relevant pay period. Pay will not include overtime pay, expenses, benefits in kind, redundancy or other termination pay or payment in lieu of leave. The Guidance states that the amount of an employee's ordinary pay and bonus pay must be calculated before deductions are made at "source" i.e. before the deduction of employee pension contributions.
Calculating the "hourly rate of pay"
Pay is calculated over an employee's normal working hours or an average over a 12 week period if the employee has no normal working hours. The Guidance also sets out how to extract the essential information and provides examples of how to calculate weekly working hours for employees with a fixed hourly rate of pay, variable hours contract, piecework and on-call and sleeping-in arrangements.
The relevant period for bonus pay reporting is the 12 month period ending on the snapshot date. So for the first gender pay gap report to be published by 4 April 2018, employers will need to take account of bonuses paid between 6 April 2016 and 5 April 2017 to all relevant employees (not just full pay relevant employees).Therefore employees who have taken maternity leave are included, even though their bonus is likely to have been less as a result. The Guidance also makes clear that bonuses are included in the calculations if they have been received within the period, regardless of the period to which the bonus was attributed. Securities, securities options and interests in securities are included within the definition of bonus and the Guidance explains how to value bonuses paid in securities.
The duty to publish annual information relating to pay
Employers who are caught by the regulations will need to publish:
- the difference in the mean and median pay of male and female employees;
- the difference in mean and median bonus pay of male and female employees;
- the proportions of male and female employees in the workforce who were paid a bonus in the previous year; and
- the numbers of male and female employees employed in quartile pay bands calculated by dividing the workforce into four equal sized groups that are organised according to the hourly pay rate.
Publication of the first report
As an employer must report the pay data within 12 months beginning with the snapshot date, the first set of gender pay gap statistics needs to be reported by 4 April 2018. The report must be accompanied by a written statement confirming that the information is accurate and signed by a director or LLP member. The pay data and statement must be published on the employer's website, be available to the public and remain accessible for at least three years.
The Guidance suggests that employers should also use the statement to add a supporting narrative to help anyone reading the statement "to understand the organisation's view of why a gender pay gap is present and what the organisation intends to do to close it". It also suggests that a narrative should be used where measures to reduce the gender pay gap have already been taken which need time to take effect before an impact is made e.g. review of staff bonus schemes, recruitment processes and career development opportunities. A narrative can then also report on where the gender pay gap has successfully reduced over time.
The Guidance suggests that by publishing earlier in the year employers can been seen as leaders in their sector and gain from brand and reputation enhancement, are working with fresh data, unanticipated issues or complications can be tackled earlier on and earlier action is possible to tackle any pay gaps identified.
No civil penalties are proposed in the Regulations although the Equality and Human Rights Commission could take enforcement action for non-compliance. In reality it will be for employers to recognise that the potential reputational risk of non-compliance with the new gender pay gap reporting regime provides sufficient incentive to provide the data. As the Guidance states, "developing a reputation for being a fair and progressive employer, attracting a wider pool of potential recruits for vacancies and the enhanced productivity that can come from a workforce that feels valued and engaged..".
In the meantime the government has produced a new online tool that uses the Office of National Statistics survey data to show the gender gap according to different professions. The national average gender pay gap is now at a record low of 18.1 per cent, but the average masks significant disparities according to profession.
What can employers do to prepare?
- consider whether the employer is in scope with 250 more employees on 5 April 2017
- if the employer is part of a group of companies, multiple entities may need to comply
- consider the identity of the "relevant employees" (which include workers) and whether they are "full-pay relevant employees"
- ensure that the relevant Boards of Directors are fully aware of the requirements together with PR and HR teams so that the legal and supporting external communications are considered
- ensure that payroll and HR generate figures prior to the finalised report and consider any voluntary additional narrative to put any gender pay gap into context
- consider any relevant training for managers in relation to decisions on bonus, salary review, appraisals
- consider an internal communications strategy for the existing workforce in advance of any published report (see template communication in the Guidance)
- consider whether a review is required within the organisation should disparities arise, and view within the context of other similar organisations using the government's online tool
Guidance: Considerations by employers to implement plans to manage the gender pay gap
Although this is not a legal requirement, the Guidance lists examples of the benefits to business initiating an action plan that aims to reduce the gender pay gap in their workplace. These include assisting a business in monitoring pay, bonus and career progression among staff, being of use to potential candidates, clients and customers and providing a positive message in subsequent gender pay report statements. Suggestions to show employers have effective gender monitoring in place include developing the evidence base, ensuring related policies and practices are up to date, training and supporting line managers, minimising any negative impact from pay systems and considering taking positive action.
And it may be worthwhile for those individuals within an organisation tasked with preparing the report and commenting on its results to have to hand the ACAS/GEO sheet on "Top 10 Myths: Gender pay gap reporting" (available here). This includes the myth that there's no business advantage to gender pay gap reporting. The countering fact is a statistic from global consultancy McKinsey estimating that bridging the UK gender gap in work has the potential to create an extra £150 billion on top of 2025 business-as-usual GDP forecasts.
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.