On 1 October 2016, regulations are expected to come into force in the UK which will require large private and voluntary sector employers to report annually on gender pay gap information. To give employers time to get to grips with the new obligation, the Government is expected to set 29 April 2018 as the deadline for the first report. However, with a lot of work to do to prepare, this is not as far away as it seems – particularly given that companies will be required to report on bonuses paid for a 12-month period which started 1 May 2016.

We explain below what employers should be doing now to get their house in order and to ensure they are ready to report on time and in a way which promotes and protects their businesses.

The reporting obligation

Employers with 250 or more employees will be required to publish an annual gender pay gap report on their website setting out the following:

  • The mean and median difference (in percentage terms) between the pay of men and women in the organization.
  • The mean difference (in percentage terms) between the bonuses received by men and women over a 12-month period.
  • The proportion of men and women who received a bonus in the same 12-month period.
  • The number of men and women in each of four pay bands, based on the employer’s overall pay range.

Although the reporting obligation requires a number of figures to be produced, the obligation is relatively narrow in that employers are not obliged to provide explanations of their statistics. Most employers are, however, likely to want to provide at least some information about justifiable reasons for a pay gap unrelated to sex (e.g., the proportion of women in part-time work compared with men, analysis of pay gaps by role and seniority, etc.).

Reporting periods

Employers are required to report on a “snapshot” of pay taken each April, starting in April 2017 (for the first reporting deadline of April 2018). For bonuses, in order to capture different bonus practices across companies and within companies themselves, employers must include in the calculation of the bonus pay gap all bonuses paid in the 12-month period running up to the relevant April date. For the reporting deadline of April 2018, that means all bonuses paid between 1 May 2016 to 30 April 2017.

Tricky points

What is “pay”?

Pay includes most types of payroll remuneration apart from overtime, which is excluded (because there was a concern that if more men work overtime than women this would distort the pay gap results). Pay means pay actually received rather than pay an employee would otherwise have been entitled to receive, but for reasons such as sick leave or maternity. This has created some concern in relation to maternity pay. Women on maternity leave often receive lower (or no) pay. Accordingly, where one or more employees are on maternity leave, this may result in the gender pay gap appearing to be larger than it, in fact, is.

Including bonus pay in the definition of pay also means there is a risk that bonus pay will be double-counted because bonuses paid in April will need to be included in both pay and bonus gap figures. Where large annual bonuses are paid in April to a proportion of staff, this may have a significant impact on the gender pay gap.

How do we treat non-cash bonus schemes?

It is not clear how certain non-cash bonus schemes fit within the regulations. For example, how should a share scheme which provides for vesting of shares over a number of years be valued? The “value” of an award will change over time as the share price goes up and down, and the award may ultimately not be payable in certain circumstances (e.g., if evidence comes to light of poor performance). It is also not clear when such awards would be deemed “paid” for the purpose of inclusion in the calculations. The relevant date could be the date of award, date of vesting, or date of exercise, on each of which the shares will have a different value.

Hopefully the government will provide additional information on how to approach these issues in the guidance due out in the summer. But these points also flag the importance of carrying out a proper analysis of gender pay and bonus statistics, and including an explanatory narrative in an employer’s report.

Consequences of non-compliance

There is currently no indication that the Government intends to take enforcement action through the courts against employers who don’t publish a report (or those that publish a non-compliant report). However, the Government has stated it will monitor compliance and publish its own reports analysing gender pay gaps by sector. Companies with significant pay gaps should therefore be wary of “naming and shaming”.

Of course, even without government involvement, significant pay gaps can damage the reputation of an organisation, impacting its competitiveness and ability to retain customers. The figures could also lead to employees feeling dissatisfied with the pay levels and bringing grievances and potentially discrimination and/or equal pay claims. If any employee is minded to bring one of these claims already, he or she may seek to use the employer’s gender pay gap report as evidence to support the claim.

Next Steps:

  • Consider whether your company is likely to be required to report on gender pay, i.e., will the company have 250 or more employees on the first “snapshot” date (30 April 2017)?
  • Review your payroll and IT systems to ensure you have all the information required to generate the gender pay gap statistics.
  • Run provisional calculations based on April 2016 pay to understand what the current pay gap is, and identify problem areas. Consider what changes you might want to make to address any issues before April 2017.
  • Consider whether it would be helpful to obtain additional information for the company’s analysis of gender pay gap information (e.g., part-time / full time breakdown, historic statistics regarding pay gaps and numbers of women in senior roles, etc.)
  • Identify who will be responsible for preparing the report internally. Consider appointing external consultants to carry out the gender pay gap analysis and prepare an appropriate explanatory narrative.
  • Inform senior management of the need to produce a report. Consider whether any steps need to be taken in relation to bonuses due to be paid in the next 12 months (e.g., additional training for managers making decisions, additional level of analysis / moderation before bonuses are paid).
  • Keep a look-out for government guidance expected to be published this summer and any changes which may be introduced in the final version of the regulations.
  • Remember that any documents produced in the course of preparing the report could be disclosable in future litigation. Consider involving internal or external lawyers in sensitive areas to bring documents under legal-advice privilege.