Gender pay equality is no doubt a noble cause. It is understandable that David Cameron wants his daughters to receive equal treatment in the workplace when they are old enough to join the country’s workforce. There is however some significant problems with the Government’s proposals to force employers with 250 or more employees to publish their gender pay gap information.
The consultation launched on 14 July 2015 (with an end date for responses of 6 September) notes that the causes of the gender pay gap are complex and cannot simply be explained by pay discrimination. They include a range of issues for which employers are not directly accountable, including social conditioning, the concentration of women in lower paid occupations and the greater burden of caring for children and elderly relatives that falls on women, and that in turn impact on their work related choices including the kind of jobs they do and their hours of work.
The consultation confidently announces that the publication of gender pay information will encourage employers to take action to help close the gender pay gap. They are however only obliged to do so where sex discrimination is in play and establishing that this is the case is incredibly difficult. The consultation acknowledges that a gender pay gap does not necessarily signify unlawful discrimination or reveal differences in rates of pay for comparable jobs. It is further recognised that an employer delivering equal pay may still have a large pay gap and an employer with no pay gap may be breaching the law. The plan gets as far as assisting employers to identify that there is a problem, but offers little to assist employers to establish whether they are the cause of the problem.
At the same time forcing employers to highlight their gender pay gap could have what can only be assumed to be unintended consequences. In the words of Friends Life, an organisation that voluntarily published its gender pay information, “What gets measured gets managed. What gets publicly reported gets managed even better”. Employers could be forgiven for being concerned that what gets publicly reported also gets challenged. The law firm Leigh Day reported receiving 19,000 enquiries from potential claimants after it publicised its involvement in the prosecution of equal pay claims against Asda.
Employees who believe that they may have been paid less than they should have been paid can utilise a reported gender pay gap difference to mount an equal pay claim in an employment tribunal and in doing so can seek up to six years’ back pay, as well as higher pay going forward. Little effort is required on the part of the employee to do this, in contrast with the enormous effort required of an employer to establish that any difference in pay is not the result of sex discrimination. As equal pay specialists with almost 20 years’ experience of acting for employers in defending mass equal pay claims backed by trade unions or by solicitors on a ‘no win no fee’ basis, we are acutely aware of the serious problems such claims can cause large organisations.Equal pay claims are notoriously complex to defend, and typically take five years to resolve. Larger cases, such as that involving Asda, can easily take more than 10 years to reach a conclusion.
The consultation issues
The suggestion that the figure reported should be the median gender pay gap based on hourly earnings is sensible, as it limits the undue influence of small numbers of particularly high or low paid employees.
However, if employers are only required to report on basic pay, excluding other elements of pay, there is a risk that could distort the result and reporting could be meaningless. This is particularly so in sectors or job groups where employees are rewarded by way of bonuses or have enhancements applied to their salaries. Only if employers are required to report in such a way that is detailed and meaningful in the context of their organisation is it likely to put pressure on them to close any gender pay gap which does exist.
This in turn leads to another challenge. An overall figure for all employees and different figures for full time and part time employees is also relatively straightforward to produce. More problematic would be a requirement to produce information by grade or job type, to enable a greater like-for-like comparison. The challenge here is how to define a ‘like-for-like comparison’.Taking employees by grade may be appropriate, there again it may not if the grades are particularly wide. In such a situation there is no guarantee that jobs that fall within the same grade are truly comparable.
Equal pay is not just about paying employees who do the same job the same rate of pay. Employees who do different jobs but their work is of equal value are also entitled to equal pay. The question of whether two jobs are of equal value has seriously taxed employment tribunals for years.
The Equal Value Procedure that is operated by employment tribunals provides for the tribunal to defer the question to an independent expert, who establishes and applies a methodology that is designed to take into account the facts of the particular case. The methodology is applied to the effort, skill and decision making demands of each role as set out in a ‘job description’ that describes every aspect of the job in minute detail. The process takes months to complete in the case of a single comparison and can take a number of years where many jobs are being compared.
The prospect of Regulations being able to establish a test that would achieve the same result for all employers in all situations is, frankly, absurd. It is therefore likely that employers will have some discretion in the way in which they present their reports, thus enabling them to ‘cut the cake’ in a particular way and disguise a gender pay gap which exists within their organisation.
Estimating the cost of compliance
Employers are asked to estimate their costs of compliance with the potential requirements, for example by means of the acquisition of suitable software. It is however unclear what is intended and therefore difficult to see how employers could accurately estimate their costs of compliance. Granted, it is a simple matter to work out the median gender pay gap for a defined group of staff.
All that is required is to determine the median average pay of male employees, ie the level of pay at which 50% of male employees are paid more, and to do the same for female employees and then compare the two, for example if the figure for female employees is £15,200 and for males is £19,800, this would mean that female employees are paid 76.76% of the male rate producing a gender pay gap of 23.23%.
The problem is how to identify the group of staff that are to be compared. Until this is clarified the cost of compliance is hopelessly difficult to estimate.
The consultation goes on to note that many employers will want to provide some additional narrative that provides context, explains any gender pay gaps and details any action plan to address any issues that are identified. Employers are asked to comment on whether such additional narrative should be voluntary, set out in the Regulations or contained in non-statutory guidance.
The reason for pay differences will vary from employer to employer. There is rarely one reason for differences in pay. They often have historical roots or have developed over time and/or have many different influences. The analysis of the reason for such differences and the extent to which they can be relied on to explain, and if necessary justify, the difference in pay is one of the most challenging areas of employment law.
The consultation asks whether employers would find supporting analysis helpful. It is unclear what is anticipated here in respect of an employer who does not have in place a grading scheme that could be easily utilised to identify comparable employees. The average employer who does not have experience of the issues that arise in the defence of equal pay claims will not be well placed to say what assistance they would require to analyse any pay differential in an appropriate fashion. They simply won’t know what they don’t know.
There is a significant risk that the consultation will not therefore address matters that ought to be addressed and that in an effort to be useful to the largest possible number of diverse employers any assistance that is provided will be of little real help to any of them.
Based on employers of 250 or more employees it is estimated that the Regulations will affect 7,855 employers and 40% of the working population, over 11 million people. There is no ‘one size fits all’ solution and any attempt to legislate on this basis is likely to create more problems than it solves.
The consultation offers the ability to identify the risks or unintended consequences of implementing a requirement to report on the gender pay gap and to explain any views that it should be dropped or the implementation of it modified. The consultation paper is available at GOV.UK , and responses to the consultation must be entered by 6 September 2015.