Our quick guide explains everything you need to know to get ready for gender pay gap reporting

The finalised Gender Pay Gap Information Regulations were published on 6 December 2016 and will come into force on 6 April 2017.

What is the gender pay gap?

Put simply, the gender pay gap is the difference between the average pay for men and women. In August 2016, the Institute for Fiscal Studies reported that the current gap was 18%. There are a number of explanations for this difference that go beyond men simply being paid more for the same work, including: fewer women in senior roles, women being promoted later and less frequently, and more women working part-time and in low-paying sectors such as cleaning, catering and care.

The gender pay gap should not be confused with equal pay which relates to the requirement to pay the same pay for the same/like work (or work of equal value). A gender pay gap does not necessarily mean that there is a breach of equal pay law. Instead, it could mean that there are barriers to promotion for women, or that women are not accessing more skilled and better paid roles within an organisation.

Who do the Regulations apply to?

Employers with 250 or more relevant employees on 5 April each year are covered by the Regulations. The employer could be a company, LLP, partnership, unincorporated body or any other employing entity. The Regulations do not cover groups of employers, and there is no requirement to aggregate employee numbers across a group. Public sector employers are not covered by the Regulations but the Government has launched a separate consultation for English public sector employers and it is expected that similar pay gap reporting obligations will be introduced for the English public sector in time for the April 2017 reporting cycle. Scottish public sector employers are already covered by a separate reporting obligation.

Relevant employees include full-time and part-time employees who are employed by the employer on the snapshot date. This definition reflects the definition in the Equality Act 2010, and extends to all people employed by the employer on the relevant snapshot date including apprentices, workers, and some self-employed contractors where they are engaged under a contract personally to do work. However, the final Regulations now specifically exclude partners of an LLP.

When do they apply?

Organisations will need to publish their first report in respect of the `snapshot' pay period for 5 April 2017. The deadline for publishing the report is 4 April 2018.

The Report

In general, the report needs to compare the average gross hourly pay for male and female employees.

What counts as pay?

Only the wages of "full-pay" relevant employees need to be taken into account. This will exclude cases where, for example, an employee is receiving payments for family leave or sickness absence at a reduced rate, which could have exaggerated a gender pay gap in circumstances where a significant number of female employees absent on maternity leave were paid at the statutory rate.

The non-exhaustive list of what counts as pay includes salary/wages, pro rota bonus (including shares and share options), commission, shift allowance, on-call allowance, sick pay and all types of family leave pay (where this is paid at full normal salary).

Pay excludes overtime, expenses, benefits in kind, salary sacrifice arrangements, redundancy payments, arrears of pay and tax credits.

Pay is based on gross hourly pay. The Regulations set out a detailed method for calculating the hourly rate of pay, using an employee's normal working hours where applicable, and adopting a 12-week reference period for employees with variable hours. Where a bonus is paid in the relevant pay period, it will only be taken into account on a pro-rata basis for example, if it is an annual bonus and the relevant pay period is monthly, 1/12 will be included in the average pay calculation.

What does the report need to include?

In short, the report must include:

  • Overall gender pay gap figures for the snapshot period (in which 5 April falls). This is calculated using the average hourly pay. The average needs to be shown in two ways: (1) the mean (all the pay figures added up and divided by the total number); and (2) the median (all the pay figures lined up and the middle one selected). The mean figure could be skewed by individual high/low earners especially if the organisation employs far more people of one gender. The median is considered a more helpful guide to any pay gap.
  • The number of men and women within each of four pay bands/quartiles. The quartiles are to be calculated based on the number of employees (i.e. by putting employees in order of their pay from low to high and then dividing the workforce into four equal sized groups). For example, a workforce of 400 employees would be divided into four groups of 100 people, sorted by pay range. The organisation will have to disclose how many men and how many women are in each quartile. This demonstrates whether there is a disparity in terms of seniority within the business and can help to expose the nature of any gender pay gap.
  • The gender pay gap for annual bonuses. The difference between men and women's mean and median bonus pay over the previous 12-month period (i.e. from 6 April in the previous year to 5 April in the current year). A variety of different bonus structures, especially with regards to when bonuses are paid, may make tracking the exact bonus figure difficult. The Regulations confirm that elements of bonus that are awarded as securities, securities options and interests in securities are to be treated as paid at the point in time when they would give rise to taxable earnings or taxable specific income.
  • The proportion of male and female employees who received a bonus. The percentage of men and women in receipt of any bonus in the same 12 month period. Information about those eligible to receive a bonus is not relevant to calculating this.

Employers can choose to include in the report an explanation of any existing pay gaps and set out what action they plan to take to resolve such a gap. Although this is not required, it is expected that most employers will want to explain the steps they are taking to reduce any gap, as has been seen in the reports already published by certain businesses wishing to emphasise their proactive approach.

Where do you need to publish the report?

The report must be published on the employer's website and must remain available online for three years. The information must also be uploaded to a government-sponsored website. A director, LLP designated member, partner or the most senior employee (as applicable) must also provide a written statement of accuracy to accompany the report.

What are the penalties for non-compliance?

According to the Explanatory Notes to the Regulations, failure to comply with the Regulations will constitute an `unlawful act' under the Equality Act 2006, and the Equality and Human Rights Commission (EHRC) will be able to take enforcement action. We understand that the government is proposing to run periodic checks to assess for non-compliance; produce tables by sector of employers' reported gender pay gaps; highlight and identify employers publishing particularly full reports and explanatory information; and possibly publicise the identity of employers known not to have complied.

In the absence of an increased budget for EHRC, we anticipate that the Government will find sector-reporting an effective means of exerting pressure on businesses, as this will directly expose businesses with larger gender pay gaps than their direct competitors.

What steps should you be taking now?

Identify if your organisation (or any entity within its corporate group) is likely to be a relevant employer. For corporate groups, consider which employing entities will be relevant employers for the purposes of the Regulations.

Identify responsibilities. Decide who will be responsible for collecting and compiling the relevant information, and identify an internal reporting structure to consider any issues. Also identify who will sign the written statement confirming the accuracy of the published information, and ensure that this person understands the Regulations and has been involved in reviewing this information.

Identify any areas of uncertainty over who is in scope. Consider the employment status of those who may be regarded as relevant employees under the Regulations.

Consider the remuneration package offered, all benefits, and any flexible benefits scheme. Analyse which elements would be reportable under the Regulations.

Consider carrying out a "dummy run" producing a draft report using a snapshot from April 2016. This will help to identify any problem areas and give you time to correct these. For most organisations, the main problems will be logistical issues in respect of gathering the data, identifying which employees and which payments are in scope, and reporting on it in the manner required by the Regulations.

Keep the information legally privileged. Organisations should consider whether to liaise with their internal legal team or external advisers preparing their report (and working on any dummy run) to ensure that the information gathered, and any analysis of issues identified, is covered by legal privilege and is not disclosable in any proceedings.

Further consideration of any pay gap identified. If a pay gap or any potential equal pay issues are uncovered, you may wish to investigate the underlying reasons and consider strategies to address and reduce any pay gap or equal pay issues. If helpful, information about this could form part of an explanatory statement accompanying the published report in 2018.