There has been recognition for some time now in the UK that legislative intervention is required to make inroads into the gender pay gap. Last year compulsory equal pay audits were introduced for employers that lose equal pay claims. With certain exceptions (such as if there had already been an audit in the previous three years), a tribunal must order an equal pay audit if there has been an equal pay breach. The results of the audit have to be shown on the company's website for three years.
Just before the UK General Election this year the previous Coalition government agreed to activate a gender pay reporting provision of the Equality Act which had been dormant for four years. As a result, the current government must introduce, by the end of March 2016, mandatory reporting (annually, at most) of differences in pay between men and women, for employers with 250 or more staff. Consultation took place over the summer on how the reporting requirements might work in practice and we are now waiting for more details.
It is clear that a lead-in period is envisaged to give businesses an opportunity to prepare for implementation. This might include phasing in the new law, perhaps starting at a later date for employers with between 250 and 500 staff.
Mandatory reporting will apply to UK employers but whether overseas employees will be taken into account in calculating the threshold and/or will be covered by the reporting requirement, or whether it will be limited to UK employees, is as yet unclear.
The gender gap is likely to be calculated using median hourly rates, excluding overtime. The key issue for employers is what level of information will have to be provided. Options include:
- An overall figure for the organisation – the difference between the earnings of men and women as a percentage of male earnings. This is not the current favourite as it does not deal separately with part-timers and does not reveal much about the cause of the gender pay gap.
- Figures split between full-time and part-time employees.
- Figures broken down by grade or job type. Whilst providing a greater like for like comparison, this method could raise confidentiality issues for smaller firms.
In conjunction with any of these three options, additional narrative reporting to put the information in context may be required, or it might be voluntary. Despite adding to administrative burdens, this could benefit employers – raw figures without explanation can be misleading and potentially more damaging to reputation. It is also likely that employers will be required to highlight particular elements of pay, such as bonuses.
Many employers will not currently have structures in place to assess anything other than the overall figure so if one of the other options for reporting the gender pay gap is chosen there will be significant costs. And it seems inevitable that, whichever metric is selected, the result of a spotlight being thrown on any existing pay gap problems is likely to be more equal pay claims being brought. Given that, in the UK, equal pay claims typically take the form of class actions and include claims for compensation going back up to six years prior to the claim, they tend to be amongst the most complex and long-running of employment disputes.