On 12 February the Government published its long-awaited draft regulations requiring private sector employers with 250 or more employees to report gender pay gap information.

The obligation to report gender pay gap data will encourage greater transparency which the Government hopes will act as a catalyst for introducing changes to tackle any inherent pay disparity within organisations.

The expected timetable is that employers will be required to take their first snapshot of pay data on 30 April 2017, and publish it by April 2018.  Employers will need to take action now to ensure they have the necessary tools in place and have time to consider steps to address any disparity.

The draft regulations are subject to consultation until 11 March 2016.

Employers covered

The obligation will apply to employers with at least 250 "relevant employees" (ie, employees who ordinarily work in Great Britain and whose contract is governed by UK legislation). The proposal to phase in the obligation for employers with 250-500 employees has not been adopted.

Level of detail to be published

The draft regulations are not as prescriptive as some feared they would be.  There is no requirement to provide separate data for full and part-time employees or by grade or job type.  (The Government considered that a full-time/part-time split would not be useful or appropriate for many workplaces, while the publication of data by grade or job type would not be workable given that many employers do not have standardised grading structures.) The data required is:

  1. The difference in mean and median pay between males and females.  Overtime pay, value of salary sacrifice schemes and benefits in kind are not included within the definition of 'pay'.
  2. The number of men and women working across salary quartiles.  This is aimed at helping employers "consider where women are concentrated in term of their remuneration and if there are any blockages to their progression".
  3. The difference in mean bonus pay during the previous 12 months. Bonus is defined broadly to include incentive pay, piecework, commission, LTIPs and cash equivalent of shares.  The Government noted that, in sectors such as the financial services sector, bonuses are a significant contributor to the overall gender pay gap. "Traditionally male jobs" are also more often eligible for bonus payments.
  4. The proportion of males and females who received bonus pay in that 12 month period.

Supporting guidance (to be published this year) will "strongly encourage"– but not require – employers to contextualise their data with a narrative. There will be no constraints on the form this narrative should take and we expect that many employers will take full advantage of the opportunity to contextualise the data. The consultation paper suggests that the narrative might include detail of the initiatives employers have implemented to recruit more women or strengthen their female talent pipeline, to mitigate the risk of reputational damage from publication of a significant pay gap.

The supporting guidance will also set out how to account for different governance structures such as subsidiaries and parent companies.

The consultation paper notes that the Government "will not be requiring organisations in scope to publish granular gender pay gap data because protecting anonymity of individual employees is crucial".

Timing and place of publication

Employers will be required to take a data snapshot on 30 April each year and will then have 12 months within which to publish their data on a date that suits them. The plan is to bring in the regulations in October 2016, with the first snapshot to be taken on 30 April 2017 and data published by April 2018.  The Government hopes that annual reporting will aid in demonstrating progress and maintaining momentum.

The data will need to be signed off as accurate by a director or equivalent and will have to be published on the employer's UK website and retained there for at least three years.  The UK website must be searchable and accessible for employees and the public.

Compliance

Employers will have to send evidence of compliance to a government-sponsored website, and the government has stated that it intends to use this to produce publically displayed tables by sector of employers' reported pay gaps. It may also publicise the identity of employers known not to have complied with their reporting obligations.

No additional civil penalties for non-compliance are proposed at the moment, although this will be kept under review.  The Secretary of State will review the effectiveness of the regulations within five years of commencement.

Implications

  • Employers should be aware that pay information may be used as ammunition for equal pay claims. Until now, these claims have been restricted largely to the public sector where pay information is often more readily available. This may have led private sector employers to believe they have no real exposure. However, everything could be about to change and private sector employers may find they have very significant liabilities for which they have not made adequate provision.
  • Companies may face negative publicity in the media as a result of the disclosures.  Careful thought needs to be given to the possibility of including a voluntary narrative, and to what steps should be taken now with a view to ensuring positive steps can be reported.
  • Disclosure of the pay information may lead to a more transparent culture around pay within private sector organisations.
  • Increased transparency may lead to greater levels of communication between staff and between senior management and employees.
  • More benchmarking between comparable companies in the same sector could impact on recruitment and retention rates.
  • Shareholders, investors and interested public bodies may respond to the data disclosed in their investment.

Practical advice

  • Ensure the necessary data capturing tools are in place and make plans for resourcing the required gender pay analysis.  The consultation paper suggests that the average time to analyse and publish a gender pay gap, based on those employers who already do so, is 22 hours.  The Government anticipates that the majority of employers in scope should be able to calculate and publish the required information using existing HR data.
  • Undertake an internal audit on pay now, preferably on a privileged basis, to identify any potential risk areas. Ascertain how your data compares with the sectoral/industry average.  Consider the reasons for any pay gap - are women clustered in particular roles or at more junior levels and, if so, why?  Are there steps that need to be taken to address this - could there be problems with the female talent pipeline, unconscious bias, lack of work flexibility, for example.  Are there pay disparities within the same roles and, if so, why? Is the performance appraisal and reward system robust, is there a consistent approach to pay on external recruitment or promotion or has extensive manager discretion and lack of pay transparency lead to discrepancies? Where possible, take steps to improve problem areas and correct any unlawful pay practices which come to light.
  • Internal PR teams will need to be briefed in advance of publishing any potentially controversial pay data.
  • Make the business case for diversity if you want to achieve real change in the business: measuring and publishing pay information alone will not achieve behavioural change.  However, it may trigger opportunities for wider discussions around cultural change and facilitate broader strategies to address gender imbalance.