It is a common misconception that a gender pay gap means there is an equal pay issue – i.e. unlawful discrimination relating to pay. They are two very distinct issues, but they are often confused and conflated.
What is Equal Pay?
The key principle behind equal pay is that men and women who are in the same employment and do the same job, or like work (or work "rated as equivalent" or "work of equal value"), must be paid the same.
Every contract of employment has an equality clause implied into it and so it is a breach of this clause to pay men and women differently for doing like work. In successful equal pay claims, employees may be awarded up to six years' back pay (or five years in Scotland). However, a claim will not succeed if the employer can defend its pay decisions by showing that the difference in pay is due to a material factor which is not relating to sex and so not discriminatory - such as a shortage of skills, or the need to pay more to recruit or to retain certain individuals.
What is a Gender Pay Gap?
By contrast, the gender pay gap is merely about statistical averages. It is the difference between the average earnings of men and women across an organisation or the labour market as a whole. It does not compare individual employees doing the same work. So, unlike equal pay, it is largely blind to what job an individual employee does.
As the gender pay gap is the difference between the average men's wages and the average women's wages, the fact an employer has a gender pay gap does not mean that they have an equal pay issue.
Although there can be a variety of causes of the gender pay gap, most commonly it is because more men are in higher paid roles than women, and when pay is averaged out, it can result in a significant gender pay gap.
If a company's staff is made up of 50% men and 50% women, unless they are evenly distributed across all posts in the organisation, there is likely to be a gender pay gap. If more female staff work in junior roles and more men work in senior roles then the average male earnings will be greater and as such there will be a gender pay gap.
Mandatory reporting alone will not significantly reduce the gender pay gap
The intention behind gender pay gap reporting is to increase transparency of gender pay equality with the aim of closing the gender pay gap. Mandatory gender pay reporting for larger organisations has put the issue of pay differences between men and women in the spotlight. Never before has gender pay been so widely reported in the news. But an issue that is widely debated is whether mandatory gender pay gap reporting alone will close the pay gap and in turn reduce instances of unlawful equal pay.
The Nordic comparison
Nordic countries, which demonstrate considerably lower gender pay gaps, have adopted a number of strategies over recent years to promote gender pay equality and are the highest-performing countries in terms of gender equality.
Sweden, for example has a strong system of accountability for pay which requires most companies to collect pay data every year, and companies with large gender pay gaps that do not take steps to close those gaps are fined. In the UK, however, there is currently no financial sanction for failing to publish a gender pay report, or for having a large gender pay gap.
Significant differences in gender pay gaps may also be influenced by varying levels of pay transparency. Each year the governments of Finland and Norway publish all income tax returns and in Sweden, you can find out your colleagues' salary by phoning the tax authorities.
In these countries, fathers are entitled to a significant period of paid paternity leave. Sweden offers 480 days' parental leave per child which can be shared between the mother and father as they see fit. At least three months' parental leave is allocated to each parent, and if either parent does not take the leave, they lose it.
In addition, in Sweden, when a child reaches their first birthday they are then guaranteed a childcare place for a modest sum to enable the primary carer to return to work.
The first year of mandatory gender pay reporting has shown that the vast majority of large UK companies have a gender pay gap and that it is more significant in certain sectors such as financial services.
As the UK leaves the EU a number of employee rights may be looked at "afresh" by the UK government but it is unlikely at present that anything like the Nordic model will be adopted. In any event, the gender pay gap is an entirely separate issue from whether any particular female employee has a valid equal pay claim.
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.