The Government published draft regulations on 12 February 2016, which will require employers with 250 or more “relevant employees” to report annually on their gender pay gap. The consultation period in respect of the draft regulations closes on 11 March 2016 – and the final regulations are likely to come into force on 1 October 2016 (subject to Parliamentary approval). Whilst these regulations will impose important new obligations on employers, the draft regulations raise various concerns about their practical application and interpretation.

The key features of the draft regulations are, in summary:-

  1. Employers with 250 or more “relevant employees” will need to publish a report on an annual basis. The first report must be made by no later than 30 April 2018 - in respect of pay as at 30 April 2017. The current draft regulations do not appear to require the number of employees to be calculated across group companies – therefore groups with more than one employing entity may not, if the regulations remain as drafted, be required to aggregate their staff numbers in determining whether the regulations apply to them.   
  2. “Relevant employees” are those ordinarily working in Great Britain and “whose contract of employment is governed by UK legislation” – the meaning of which is somewhat unclear.  
  3. Employers need to publish five different reports in respect of pay:
    • the difference (expressed as a percentage) between pay for male and female employees on a mean basis “during the pay period”;
    • the difference (expressed as a percentage) between pay for male and female employees on a median basis “during the pay period”;
    • the difference in mean bonus pay, during the 12 months preceding the “relevant date” (which is 30 April each year from 2017);
    • the proportion of male and female employees who received bonus pay during the 12 months preceding the “relevant date”; and
    • the number of male and female employees employed on the relevant date in “quartile pay bands”.  
  4. The calculations must effectively be performed in respect of pay and bonus pay on 30 April each year (with publication within a year of that data “snapshot”). The draft regulations prescribe the method of calculation for the mean and median pay and bonus figures. The quartile salary figures are determined by employers based on their own overall pay range (i.e. the regulations do not provide any benchmarking figures).   
  5. According to the consultation paper mean figures are useful because women are often over represented at the low earning extreme (with men over represented at the high earning extreme). Median figures are described in the consultation paper as the best representation of the typical difference in pay - since those figures are unaffected by a low number of very high earners. It is interesting that only mean figures (and not median figures) for bonus need be produced.   
  6. Pay is very widely defined in the draft regulations to include "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); and does not include pay for a different pay period, overtime pay, expenses, the value of salary sacrifice schemes, benefits in kind, redundancy pay, arrears of pay and tax credits”. Pay must be calculated before deductions for PAYE, national insurance, pension schemes, student loan repayments and voluntary deductions. These inclusions and exclusions may have the potential to produce some skewed figures. For example, the inclusion of maternity pay is a potential anomaly. Since the right of those on maternity leave to normal pay is suspended, it would possibly have made more sense to exclude that group from the calculations.  
  7. Bonus pay is defined as including “payments received and earned in relation to profit sharing, productivity, performance and other bonus or incentive pay, piecework and commissions; 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.” This is arguably the most difficult aspect of the regulations as it appears to include non-cash awards without any indication of how such non cash awards are expected to be valued.  
  8. The draft regulations detail the mechanics of the calculations for mean and median pay. A key element is to determine each employee’s “gross hourly rate of pay” - which is “determined using the weekly pay divided by weekly basic paid hours for each relevant employee”. Neither weekly pay, nor weekly basic paid hours are defined - begging the question how such figures should be appropriately determined. Further confusion persists because the calculation must relate to mean and median pay during “the pay period” - which is defined by reference to the way in which the employer usually pays the individual relevant employee (and can be “weekly, fortnightly, monthly or a longer or shorter period”). Assuming the employer only has one method of pay this should not be an issue but it does leave some scope for differing approaches between employers – making it potentially more difficult to compare data across different organisations.  
  9. Employers within the scope of the regulations must publish their gender pay reports on their UK website (as well as being uploaded to a Government sponsored website). Information must be maintained online for at least three years. Employers are not required to produce explanatory narrative alongside the figures reported – but it seems likely that many will wish to do so voluntarily.   
  10. There are no civil penalties for non-compliance – but the Government may “name and shame” those who fail to report. This is a change from the Government’s original proposal - which suggested that fines of up to £5,000 would be levied for non-compliance.

Due to the short lead time on consultation it is unlikely that the regulations will change substantially and, in particular, it seems very unlikely that the reporting concepts and requirements will be altered. Employers may be relieved that there will be no formal sanctions but concerned by the various areas of uncertainty identified in this note.