Gender pay gap reporting is a fascinating and divisive subject: is it a necessary tool to achieve pay equality or is it a potentially misleading minefield that will achieve nothing? This month’s head-to-head addresses the issues and Hilary Aldred and Sarah Johnson discuss the pros and cons. It will be very interesting to gauge feeling on this important topic my feeling is that it’s much like Brexit in the polls – close. In January we discussed whether the English language should be required in the staff room and I am pleased to say that most people thought that was not necessary and even more pleased to say that no-one seems to have a problem with the issue anyway.
For those with more than 250 employees who are covered by the gender pay reporting regulations, the data presented will, for the first time provide meaningful information both to businesses and employees as to the real gender pay gap. The regulations could easily have shied away from this but having taken the decision to implement section 78 of the Equality Act 2010, the Government has published draft regulations.
These will require enough detail to be collected, analysed, and then published about any actual gender pay gap which exists in the organisation.
The regulations stipulate that both mean and median pay gap figures are made available. The requirement to publish differently calculated averages (the median and the mean figure) should enable companies and their staff to identify a typical gender pay gap given:
- the median figure will typically be unaffected by a small number of very high earners which could present a misleading picture, as those very high earners would be outweighed by the much larger number of typical employees within the organisation;
- the mean figure will highlight organisations where women may well be over-represented at the lower earnings level and men over-represented at the higher earnings levels. The mean is usually considered to be a better representation of a full range of earnings. It is also more easily understood by employees as it equates to the average within popular usage.
The gender pay reporting obligations will also specify that information is published by salary quartile which means that it is not possible to hide pay differentials across large pay bands.
As such while employers won’t have the onerous task of publishing all the information about pay by each grade or job type, the figures should give an accurate representation of the pay differential.
For example, they will show the difference between senior male and female staff in management roles which would typically fall within the top quartile, and junior male and female staff in the lower bands.
This should assist employers to identify where women are concentrated in terms of their remuneration and if there are any blockages to their progression.
Pay is broadly defined. It will include not just basic pay, but also paid leave, sick pay, shift premium pay and most importantly bonuses, whether by way of cash, profit sharing, long term incentives and share option payments.
Employers will therefore need to report on the difference between mean bonus payments paid to men and women. This covers bonus payments in the previous 12 months.
Given that over £40 billion was paid out in bonuses, and the current statistics indicate that male managers are more likely to receive a bonus, publication of the annual bonus gap figure will highlight gender differences at the organisational level. As such, it will no longer be possible to hide unequal pay in discretionary payments.
Overall the regulations constitute a positive step in requiring information to be published, and balancing the information which could have been required (ie gender pay gap details by grade) against ensuring that information is simplified. Both companies and employees should understand what the gender pay gap is, allowing them to ask why any identified disparity persists in an organisation.
While a gender pay gap need not mean discrimination, the regulations mean organisations will now have time to analyse, and then consider their own policies and practices and close the pay gap if gender is the underlying cause of a pay difference.
Gender pay gap reporting obligations are a blunt instrument. They are unlikely to provide an accurate view of pay inequality in an organisation.
The rationale behind reporting is laudable; to increase transparency and reduce the gender pay gap, currently 19.2% overall in the UK. Many employers will have a male/female pay differential. This does not necessarily mean there has been unlawful discrimination.
The rules will come into force on 1 October 2016 and cover private and voluntary sector employers in England, Wales and Scotland with 250 plus “relevant employees”. (Separate legislation will be introduced for public sector employers.) Figures will have to be published regarding male and female relevant employees showing the:
- percentage difference (during the pay period) in mean and in median pay;
- percentage difference in mean bonus pay (during the 12 months before 30 April);
- percentage proportion of employees who received bonus pay during that 12 months; and
- numbers of employees on 30 April in quartile pay bands.
If employees work variable hours, there is apparently no mechanism for averaging pay. Accuracy may also be affected by taking a snapshot as at 30 April. Recruitment could be geared around this date to avoid reporting or to massage numbers.
Mean and median figures do not give a truly accurate picture. When calculating mean and median pay, bonuses will only be included if paid in the relevant pay period. This could upset figures if there are different bonus schemes and payment dates.
Overtime and benefits in kind are not included in the definition of “pay”. The Government was concerned that including overtime could create a perverse incentive for employers to force women to work more overtime. Fair enough, but benefits in kind may be used to manipulate figures. Fancy a company car instead of a pay increase?
A breakdown by part-time/full-time status is not required. Instead, employers must calculate an hourly pay rate for each relevant employee using weekly pay divided by weekly basic paid hours. Actual hours seem fairer, but more difficult to assess. The final regulations will probably focus on contractual hours. If one employee is paid more because he works twice as many hours, gap figures ignoring this would not give a truly accurate view.
There is also no requirement to report figures by job grade or type. Basic figures could create a misleading picture. Additional voluntary narratives are likely to be a key part of reporting, providing context or outlining what steps the organisation is taking to close the pay gap, eg showing London weighting affects the results.
The risks of reporting a big gap are obvious; possible adverse publicity, employee relations problems and legal claims. The Government is planning to name and shame non-compliers and publish league tables showing the pay gap by sector. The temptation to massage figures could be enormous.
There is no penalty in the draft regulations for non-compliance or providing misleading information, but employers should expect the figures to be scrutinised (not least by employees). Some may avoid reporting by keeping employee numbers below 250. However, the definition of employee is likely to be broad, including workers and those providing services personally, eg some partners and contractors.
Currently, it seems each group subsidiary would count separately. So reporting could be avoided if staff are employed across a number of group companies, none of which have 250 employees.
Gender pay gap reporting is not a panacea and is unlikely to provide a truly accurate view of pay inequality. However, the new rules are definitely a step in the right direction.