The Office for National Statistics report in 2015 found that on average women earned around 19.2% less than men in the UK. A gender pay gap, while not necessarily signifying unequal pay (which has been unlawful between men and women for over forty years), does show the that there is still a difference between the average earnings of men and women as a percentage of men’s earnings.
In an attempt to tackle this issue, the Conservatives made a commitment in its election manifesto to require organisations with more than 250 employees to publish the difference between the average pay of their male and female colleagues which will provide “stronger incentives for women to work and advance their careers, which might in turn lead to a more diverse and equal workforce”.
Following consultation last summer the government published its Response to that consultation last month. It had received almost 700 responses, including over 200 from employers and business organisations. Of these, 82% of organisations agreed that the publication of gender pay gap information would encourage employers to take action to close the gender pay gap and 62% of organisations who are in scope of the regulations stated they could currently calculate an overall gender pay gap figure. The government has also issued consultation on draft regulations to implement s78 Equality Act 2010 (EqA 2010) which gives the government power to make regulations requiring private and third (voluntary) sector employers in Great Britain with at least 250 employees to publish information relating to differences between the pay of male and female employees across the organisation and to provide the number of male and female employees employed in quartile pay bands.
Proposed gender pay gap regulations: key points
- due to come into force on 1 October 2016 (but a further 18 months lead in time);
- will apply to private and voluntary sector employers with 250 or more employees;
- employers will be required to publish:
- overall gender pay gap figures between men and women, calculated using both mean and median average;
- separate information about men and women working across salary quartiles based on the employer’s overall pay range
- the difference in mean bonus pay, during the period of 12 months preceding the relevant date, between male and female relevant employees
- the proportion of male and female relevant employees who received bonus pay during the period of 12 months preceding the relevant date.
- data to be used from a specific pay period with a “snapshot date” of 30 April 2017 and annually thereafter;
- organisations will then have 12 months to report the data, publish it on their UK website, upload it to a government website and will be required to retain the information online for 3 years;
- no civil penalties are proposed but the government has said that it will run periodic checks to assess for non-compliance.
Who will the gender pay gap reporting regulations apply to?
Relevant employers: The new rules will apply private and voluntary sector employers in England, Wales and Scotland with 250 or more “relevant employees” on the “relevant date” (30 April 2017) or on any anniversary of that date. This will include LLPs, partnerships, companies, unincorporated bodies or other types of employing entity. Currently it appears that group companies will not be required to aggregate employees across different subsidiaries so that a large employer could be outside scope if it does not have a single entity that employs 250 or more employees. However further guidance is expected on this. Public sector employers are not included but the government previously announced that it would extend the mandatory reporting obligation to public sector employers, and it is expected that a further consultation will be published on this soon.
Relevant employees: They ordinarily work in Great Britain and have a contract governed by UK legislation. The regulations define a narrower category of employee than was suggested in the original consultation which also included the wider category of “workers” under the EqA2010. We await the final regulations for clarification on this issue.
Publication of the gender pay gap information
Where: Employers will need to publish the information on their UK website together with a written statement confirming the information is correct, signed by a member of the managing body (e.g. a director if a company). The details will also have to be linked to a government-sponsored website (which is being developed). This will enable the government to produce publically displayed tables, by sector, of employers’ reported pay gaps. This reporting requirement is entirely separate from other corporate reporting requirements.
When: The government has set a specific date (30 April) for employers to take a “snapshot” of data about a particular pay period. This approach mirrors that of the Office for National Statistics (ONS) used in the Annual Survey of Hourly Earnings (ASHE). The proposed reporting cycle allows an employer to analyse and publish the required information any time within 12 months of the snapshot date. The government notes that having a snapshot avoids seasonal fluctuations in workforce.
For how long: Employers will be required to retain the information online for 3 years in order to show progress made. The government will review the regulations within 5 years of their commencement.
Definition of pay
Employers will be required to publish information on the overall gender pay gap figures relating to pay. Pay is calculated using gross figures, before any deductions. The “pay period” is the period over which an employee is usually paid e.g. weekly, monthly to include 30 April. To generate average earnings figures unaffected by hours worked, employers will need to calculate an average hourly rate for each employee (using weekly pay divided by weekly basic paid hours for each relevant employee).
“Pay” includes 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).
“Pay” does not include overtime pay, expenses, the value of salary sacrifice schemes, benefits in kind, redundancy pay, arrears of pay and tax credits.
The regulations do not explain how employers might calculate hourly pay rates for those on an irregular working pattern or on maternity leave, shared parental leave or sickness absence.
Information the employer needs to publish
Employers will need to publish figures information which shows:
- the difference in mean pay between all relevant male and female employees during the pay period (i.e in which 30 April falls).
- The difference in median pay (expressed as a percentage), during the pay period (which is consistent with the ONS approach for nattional data).
- The number of male and female employees in each salary quartile band based on the employer’s overall pay range. This will illustrate the bottom 25% of earners in an organisation, then the next 25% and so on. The objective is to identify the numbers of women and men in each quartile by the overall pay distribution. The government states that this “will help employers consider where women are concentrated in terms of their remuneration and if there are any blockages to their progression”.
Employers must also publish separate information on the gender pay gap relating to bonuses. “Bonus pay” includes payments received and earned in relation to profit sharing, productivity, performance and other bonus or incentive pay, piecework and commission. It also includes 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. Employers to whom this provision applies will required to publish:
- the difference in mean bonus pay, during the period of 12 months preceding the relevant date (30 April) between male and female relevant employees. The regulations only require the mean bonus payments to be analysed separately, not the median.
- the proportion of male and female relevant employees who received bonus pay during the period of 12 months preceding 30 April each year expressed as a percentage of the total number of all male relevant employees and all female relevant employees respectively.
Bonuses are also included in the overall calculation of mean and median pay, but only if they happen to be paid in the relevant pay period (for example, the month prior to the snapshot date of 30 April, for monthly-paid employees). This means that they could be included for some employees, but not others. The government recognised that bonuses are often paid at other times of the year which is why it has included a separate bonus reporting requirement.
Contextual information which may be included with the gender pay gap figures
The government has decided that the figures should not be broken down by full- and part-time, grade or job type, etc. (one of the options in the consultation) but in its Response to the consultation did state that additional narrative that provides context, explains any pay gaps and sets out what actions will be taken would be “strongly encouraged” within the guidance accompanying the legislation especially given potential interest from media and wider society.
What are the penalties for non- compliance
The Government stated in its Response to the consultation that it did not intend to create any additional civil penalties in the regulations. Instead it is proposing a pro-active compliance regime and will run periodic checks to assess for non-compliance (and may publicly identify those relevant employers). It also wants to produce publically displayed tables by sector of employers’ reported pay gaps and would aim to identify and highlight employers publishing particularly full and explanatory information.
So while there are no legal sanctions there may be potential reputational consequences for failing to comply with the reporting obligations. Any “naming and shaming” could have knock-on problems of recruitment and retention.
Review of the regulations
The government has stated that it will review the regulations within five years of commencement (so by October 2021) and does have the power under the primary legislation to introduce criminal and civil penalties for non-compliance so will be monitoring employers’ willingness to comply with the reporting requirements during the first few years of implementation.
Preparatory steps by employers
Employers should consider whether they have, or are likely to have 250 or more employees in 2017. This view may need to be re-assessed when the final regulations are published as they may contain a wider definition of employees than currently appears in the draft regulations. Reviewing current bonus structures if relevant, payroll processes and the best time of year to publish data may also be appropriate.
What happens now?
Consultation on the draft regulations closed on 11 March 2016 and the final regulations are due in the summer prior to the implementation date of 1 October 2016. The government has also promised a “package of guidance” for relevant employers before commencement of the regulations which we hope will provide more details. The first publication of gender pay gap information will be made within 12 months of the first data snapshot (April 2017).
Whether the government’s policy objectives are achieved through these regulations will be a case of “wait and see” but there is no doubt about their potential reach which, according to the government, includes an estimated 960 employers and 11.3 million employees equating to 34% the of UK workforce.