The Government Equalities Office has today revealed further details of its proposal to require larger employers to publish details of their gender pay gap ie the difference in pay between male and female employees. It should be noted that the information set out below is based on draft regulations which may be subject to further change before they are finalised.

Who will be affected?

The new regime will apply to British employers in the private and voluntary sectors with at least 250 UK based employees. 

The Government has said that it will bring in equivalent duties for non-devolved public authorities, by adjusting the public sector specific equality duties. Devolved public authorities in Scotland and Wales already have specific duties aimed at reducing the gender pay gap and, as yet, there is no suggestion that those duties will be adjusted.

What will have be reported?

Employers will have to report annually:

  • the ‘mean gender pay gap’ and the ‘median gender pay gap’ for their organisation;
  • the ‘gender bonus gap’ for their organisation; and
  • the number of men and women working across salary quartiles.

Gender pay gaps

The mean gender pay gap is the difference between the average hourly earnings of the employer’s female employees (taken as a single group) and the average hourly earnings of its male employees (again taken as a single group).

The median gender pay gap is the difference between the median hourly earnings of the employer’s female employees (taken as a single group) and the median hourly earnings of its male employees (again taken as a single group). For further information on the gender pay gap calculation, see “Calculating the gender pay gap” below.

Gender bonus gap

In addition to publishing gender pay gaps, employers need to publish the difference in average bonus pay paid to men and women during the period of 12 months to 30 April each year and the proportion of male and female employees who received bonus pay during the period of 12 months preceding the relevant date.

For these purposes bonus pay includes payments received and earned in relation to profit sharing, productivity, performance and other bonus or incentive pay, piecework and commission; long term incentive plans or schemes (including those dependent on company and personal performance); and the cash equivalent value of shares on the date of payment.

Pay quartiles

Employers will also have to divide their overall pay range into four ‘quartiles’ or pay bands and report the number of men and women in each of those four pay bands. It appears that it will be for employers to decide for themselves the precise range of each of the four bands, provided they cover the entire span of salaries paid to UK based employees.

Where will the information have to be published?

Employers will need to publish their pay data information in English on a searchable UK website that is accessible to employees and the public. The information will have to be signed by a director, or equivalent, to confirm that it is accurate. In addition, employers will be required to send evidence of compliance to a government sponsored website. This latter step will allow the Government to produce publically displayed tables, by sector, of employers’ reported pay gaps.

Explaining the gap and what is being done

Some employers will be concerned that highlighting pay differences in this way could damage their reputation for fair treatment or undermine efforts to redress under-representation at certain levels of their workforce. Many will, therefore, be keen to provide additional information, explaining the context for any pay gap, to give a more nuanced and accurate picture, even though this is not required by the legislation. Employers would also be well advised to formulate a communications plan well before they publish any data, to ensure they present information in a considered way and are ready to respond to challenging questions from employees, unions and the media.

How soon will employers have to publish their gender pay gap?

The first data collection date is likely to be 30 April 2017. Employers will then have a year in which to publish their gender pay gap figures, meaning an employer’s first gender pay reports will have to be published no later than 30 April 2018.

Compliance

There will be no specific penalties for non-compliance. Instead the incentive to comply with the new rules will come from the risk of adverse publicity and reputational damage (which could impact on the ability to recruit and retain staff). Defaulters are likely to be easy to identify and unions, campaigners and the media could well be keen to name and shame those who try to keep their gender pay record under wraps, particularly in the case of well-known brands and those competing for work in the public sector.  Indeed the Government has said it may decide to publicise the identity of employers known not to have complied.

What to do now

Many employers will be keen to get their houses in order before being exposed to public scrutiny. If you are one of those employers, here are some practical suggestions to help you prepare:

  • Be proactive – doing nothing is not an option. Understanding your pay arrangements will help you manage and present information meaningfully and in context.
  • Review all current pay practices across your organisation in order to understand the differentials which may exist.
  • Consider gender pay gaps which exist on a departmental/geographical/functional level and compare these with the composition of your workforce.
  • Analyse the rationale behind your current arrangements to identify potential risk areas.
  • If pay gaps are due to underrepresentation of women at more senior levels, look critically at what you are doing to attract, recruit, develop and retain female employees.

More guidance

To help employers prepare, we will be running a series of briefings later in the year with ACAS and the Government Equalities Office. Please do get in touch if you would like to receive an invitation.

Link to consultation response here.

Calculating the gender pay gap – further information

The mean gender pay gap is the difference between the average hourly earnings of the employer’s female employees (taken as a single group) and the average hourly earnings of its male employees (again taken as a single group).

The median gender pay gap is the difference between the median hourly earnings of the employer’s female employees (taken as a single group) and the median hourly earnings of its male employees (again taken as a single group).

The median hourly earnings of a group of employees can be calculated by listing all employees in the group in order of their earnings and identifying the hourly rate paid to the individual who appears in the middle of the list. So if there are 501 employees in a group, median earnings for that group would be represented by the amount paid to the 251st highest earner. If there are 500 employees in a group, median earnings for that group would be represented by the average between the 250th and 251st highest earners.

In both cases, the figures are to be based on gross earnings as at 30 April each year.  Employers need to include in their calculations any basic pay, paid leave, maternity pay, sick pay, area allowances, shift premium pay, bonus pay and other pay (including car allowances paid through the payroll, on call and standby allowances, clothing, first aider or fire warden allowances). However, overtime pay is excluded, as are expenses, the value of salary sacrifice schemes, benefits in kind, redundancy pay, arrears of pay and tax credits.

Example

XCo has 251 employees.

Of its 101 female employees, 50 earn £8 per hour, 30 earn £10 per hour, 20 earn £12 per hour and 1 earns £18 per hour.

Of the 150 male employees, 35 earn £10 per hour, 40 earn £12 per hour, 65 earn £18 per hour and 10 earn £25 per hour.

Average hourly earnings for women are £9.48.

Average hourly earnings for men are £15.

So the mean gender pay gap is 36.8%. This figure represents the difference between men's and women's average hourly earnings (£5.52) as a percentage of men's earnings.

Median hourly earnings for women are £10 (ie the pay of the 51st highest earner).

Median hourly earnings for men are £15 (ie the average pay of the 75th and 76th highest earners).

So the median gender pay gap is 33.3%. This figure represents the difference between men's and women's median hourly earnings (£5) as a percentage of men's earnings