Gender Pay Gap Information Act
Explaining gender pay gaps
Potential problems with the Act
UK gender pay gap reporting
Following the passing of the Gender Pay Gap Information Act(1) in July 2021, preparations have been made to make gender pay gap reporting a greater priority for many organisations. This article examines the act and explains what employers need to know.
COVID-19 issues notwithstanding, there was a lot of pressure on the Government to progress the legislation quickly, having recently received the Citizens' Assembly's report on gender equality.(2) Almost 97% of the Assembly's members recommended that the legislation be enacted and implemented without delay.
Gender Pay Gap Information Act
The act itself does not contain gender pay gap reporting obligations but creates a power to create regulations mandating employers to report on their gender pay gaps. As such, the act is relatively light on detail and a consultation on draft regulations can be expected soon, now that it has become law. The regulations are expected to provide clarity for employers on what will be required (see below), although there is the potential for delay because they will need to properly implement the requirements of the proposed EU pay transparency directive.(3)
Under the Minister for Justice and Equality's upcoming regulations, employers will be required to report on:
- mean and median gender pay gaps;
- mean and median bonus gaps;
- mean and median gender pay gaps for part-time workers;
- the proportions of men and women within each of four quartiles;
- the proportion of men and women who received a bonus; and
- the proportion of men and women who received a benefit in kind.
In addition, the regulations may include a requirement to report mean and median pay gaps for temporary workers.
The act currently provides that the regulations will initially only apply to those organisations employing 250 or more, before reducing to 150 after two years and 50 after three years.
As with similar legislation in the United Kingdom,(4) employers in Ireland will have to produce a report on their gender pay gaps; however, the Irish legislation will be significantly stricter. Employers will have to publish the reasons for the gaps, which is often a complex task.
A range of different techniques may be useful to establish the cause of such gaps. These include:
Proportion of men to women in each grade or department
Because pay gaps are calculated based on the average man and woman, it is important to understand the distribution of each gender. Raw numbers of men and women do not directly reflect gaps. It not uncommon, for example, for an employer with a 90% male population to have little or no gender pay gap (if, for instance, senior management is predominantly female). Identifying the areas of underrepresentation is therefore important.
Percentile pay gaps
This is an extension of the median pay gap, which compares the 50th percentile woman against the 50th percentile man. It is sometimes useful to look beyond this percentile – for example, by examining the gap between the 40th or 60th percentile woman and man. Reviewing these additional gaps can give a greater understanding of the spread of each gender in the workforce and might even show that an employer is very close to having median gender pay gap.
What if gender equality were achieved at certain levels of seniority within a business? What if the CEO were a woman instead of a man? Testing various scenarios like these can help explain gaps and ensure that an employer's initiatives can be targeted at those areas.
Breaking down gaps by seniority and grade
A seniority or grade analysis can also be useful in flagging potential equal pay issues, as distinct from gender pay gap issues.
Employers will also have to explain what measures are being taken to reduce any gaps. There are no penalties in the Irish legislation for having a gender pay gap, so employers would be under no legal obligation to implement any measures. Although it might suffice to simply state that no measures are being taken, employers are unlikely to take that approach given the damage such a statement might do to their reputation.
Potential problems with the act
While the purpose of the implementing regulations will be to explain what employers are required to do and how they are expected to do it, it is hoped that an explanation in the regulations will resolve some potential issues in the act.
Calculating gender pay gaps
The act requires employers to publish a report that includes information on "the difference between the mean hourly remuneration of employees of the male gender and that of employees of the female gender expressed as a percentage". A significant point here is that the calculation of a gender pay gap by reference to the male salaries may produce a different result than doing it the other way around (ie, comparing male salaries to female salaries).
For example, a man who is paid €24 per hour receives 50% more than a woman who is paid €16 per hour, but that does not mean the woman is paid 50% less than the man. This cannot reversed, ie, the woman receives 33.3% less than the man. This is a basic and essential mathematical point, but one that is important to get right.
The act requires employers to calculate the gender pay gaps for part-time workers, but there is currently no definition of a part-time worker. The regulations will need to be clear about this.
If an employer's normal working hours are 37.5 a week, for example, would another employee who leaves half an hour early on Fridays be part-time? The same can be asked of an employee who works 37.5 hours a week, but on a term-time only arrangement.
Employers will have to report the proportion of men and women who receive a benefit-in-kind. Defining this is important as it is potentially very broad. The Revenue(5) state that a benefit in kind is any "non-cash benefit with monetary value", which could include anything from life assurance to a free lunch.
Lawmakers in Ireland have had the benefit of learning from the United Kingdom's gender pay gap reporting regime which has been in place since 2017. This provides an opportunity to create legislation that avoids some of the more common issues impacting UK employers, such as:
Pro-rating of bonuses
The UK rules require employers to calculate hourly rates using all pay and bonuses paid in the period that includes the annual "snapshot" date of 5 April. (The period examined will depend on the employer's payroll.) All pay is used in the calculation but only a pro-rated part of any bonus. Pro-rating involves dividing a bonus by the length of time to which it relates, then multiplying by the length of time for which the employee receives basic pay (typically monthly). So, in addition to the potential for employers to conflate all types of bonus and pro-rate everything equally, another problem is identifying the period to which a bonus relates. Employers often struggle with this and inaccuracies emerge in their statistics. While identifying a bonus period may be easy for bonuses that are expressly monthly, quarterly or annual payments, it can be harder for more nebulous payments such as "spot" bonuses. This may involve a line-by-line examination of the facts behind each bonus – a laborious process, especially if managers have not kept contemporaneous notes of the reasons for any awards.
In the United Kingdom, all gender pay gap calculations are made on the post-salary sacrifice amount of pay and bonus. Because men and women do not tend to sacrifice equal proportions of pay, it is important to factor this into the calculations to ensure that gaps are accurately calculated in accordance with the legislation. However, salary sacrifice is more limited in scope in Ireland, so this may be less of an issue. (It is limited to travel passes, shares and cycle-to-work schemes – pension contributions are not covered.)
Unlike pay gaps, bonus gaps do not take account of the fact that part-time workers receive smaller bonuses because of their reduced hours. Employers will typically award bonuses depending upon the proportion of full-time equivalence (FTE) and the proportion of the year that the employee has worked. Since women are more likely to work part-time, this can have an impact on the gap.
Definition of employee
The regulations will need to be clear about who should be included when calculating pay gap statistics. In the United Kingdom, gender pay gap reporting uses a broad definition of employee that covers workers (a hybrid status not legally recognised in Ireland) and self-employed contractors. It does not, however, include partners or LLP members. For UK employers, such as law firms and accountants, this can mean that some of the highest paid individuals in the business (typically male) are outside the scope of the analysis. While many employers voluntarily produce and publish additional figures to include that category in their gender pay gap reports, many do not. A more sensible approach for Ireland might be to expressly include partners and LLP members within the definition of employee (as is the case in the Employment Equality Acts).
Hourly paid staff
When calculating the hourly rates of those employees who do not work regular hours, UK legislation requires employers to look back over 12 weeks and use an average figure for their weekly hours, but still rely on just their April pay for the purposes of the calculations. Because this average might be much higher or lower than the number of hours worked in April, the resulting hourly rate calculation might be wildly different from the hourly rate that employees are actually paid.
Pending a more precise idea of what the regulations will say, it is difficult for employers to fully prepare at the present time. Without knowing the definition of "pay" and "bonus" (and even "employee"), it is impossible to attempt a trial report that will yield comparable results.
Until draft regulations are published, employers with group companies should focus on ensuring they know which of their entities may have to report and when. Employers should also check and monitor the headcount of all such entities.
Employers should also consider who the key stakeholders in the business are likely to be. To be done properly, gender pay gap reporting normally requires the involvement of a team of people from across the business. These include: payroll (to obtain the pay data), HR analysts (to collect the people data); more senior level HR/ER (to understand the initiatives that can be created, or which may already exist to reduce any gaps); and PR/comms (to assist with writing the report).
For further information on this topic please contact Síobhra Rush or Tom Heys at Lewis Silkin Ireland by telephone (+01 566 9874) or email ([email protected] or [email protected]). The Lewis Silkin Ireland website can be accessed at www.lewissilkin.com/en/ireland.
(1) Further information is available here.
(2) Further information is available here.
(3) Further information is available here.
(4) Further information is available here.
(5) Further information is available here.