The Gender Pay Gap Information Regulations have now been published in final form for approval by Parliament. Unsurprisingly, given the feedback on the initial draft, there are some fairly significant changes. Below, we consider what these regulations will mean for employers.
Who will be affected by the regulations?
All private sector employers with 250 or more employees on the 'snapshot' date – 5 April each year – will be required to publish gender pay information. Similar regulations covering public sector employers in England are likely to be published early next year.
Points to note
- Smaller employers, beware – the explanatory notes to the regulations make clear that the term 'employee' has been expanded from the original draft and will include not only 'traditional' employees who work under a contract of employment but also workers (i.e. those who have a contract to do work personally) (and so including some self-employed independent contractors) and apprentices. This change means that many more employers are now likely to be covered by the regulations.
- The regulations do not specifically exclude employees who work wholly or partly outside of Great Britain so they may also need to be counted. We hope that non-statutory guidance to be published after the regulations are approved by Parliament will clarify this point.
- There is no requirement for group companies to report on a group-wide basis. This means smaller employers with fewer than 250 employees will not have to report their data even if they are part of a group which has more than 250 employees in total.
When will the regulations come into force?
The regulations are due to come into force on 6 April 2017. Employers will have to publish their first gender pay information report on or before 4 April 2018 and then, annually, on or before 4 April each year.
What information will employers have to publish?
Employers will have to publish:
- Requirement 1: The difference between the mean hourly rate of pay of relevant male and female employees.
- Requirement 2: The difference between the median hourly rate of pay of relevant male and female employees.
- Requirement 3: The difference between the mean bonus pay paid to relevant male and female employees.
- Requirement 4: The difference between the median bonus pay paid to relevant male and female employees.
- Requirement 5: The proportions of relevant male and female employees who were paid bonus pay.
- Requirement 6: The proportions of relevant male and female employees in the lower, lower middle, upper middle and upper quartile pay bands.
Who is a 'relevant employee'?
A 'relevant employee' is defined as a person employed by the employer on the 'snapshot' date (5 April). Partners and LLP members are specifically excluded from the definition. Where an employer does not have, and it is not reasonably practicable for the employer to get, data about relevant employees who are contracted personally to do work (as may be the case, for example, with self-employed independent contractors) their data will not have to be included. This means that whilst employers may have 250 or more employees, they may not be required to report on the pay and bonus of all of those employees.
Points to note
- All 'relevant employees' should be taken into account when identifying the data to be used when compiling the information required relating to bonus payments (Requirements 3, 4 and 5).
- However, relevant employees who are not, during the relevant pay period, receiving full pay because they are on leave (be that annual leave, maternity leave, shared parental leave etc) should be excluded:
- when calculating the mean and median hourly rates of male and female employees (Requirements 1 and 2)
- from the 'quartile' reporting requirement (Requirement 6).
Calculating the hourly rate of pay (warning – deep breath required…)
The method employers should use to calculate hourly rates has changed significantly from the first draft and a set of detailed steps to follow is now included in the regulations. In overview these are as follows:
Step 1: Identify the employee's 'ordinary pay' and any 'bonus pay' paid to the employee during the 'relevant pay period'.
- The 'relevant pay period' is the period in respect of which the employer pays the employee their basic pay – weekly, monthly etc – and within which the snapshot date (5 April) falls.
- Ordinary pay and bonus pay is to be calculated before deductions made at source.
- 'Ordinary pay' is defined and includes:
- basic pay
- allowances (other than payments to reimburse necessary expenses)
- pay for piecework
- holiday pay
- shift premium pay.
- Overtime pay, benefits in kind, redundancy payments or other payments referable to termination (including pay in lieu of accrued leave) are not included.
- 'Bonus pay' is defined as remuneration that:
- is in the form of money, vouchers, securities, securities options or interests in securities
- relates to profit-sharing, productivity, performance, incentive or commission.
Step 2: Deduct any amounts of 'ordinary pay' which would normally be paid in a different pay period.
Step 3: Pro rate any bonus pay if required eg if the bonus covers a longer period than the 'relevant pay period'
Step 4: Add together the adjusted ordinary pay and bonus pay paid in the relevant pay period and multiply that by the appropriate multiplier.
- The appropriate multiplier is 7 divided by the number of days in the relevant pay period – where the relevant pay period is a month, the number of days is 30.44.
Step 5: Divide that number by the number of working hours in the week – for employees with 'normal working hours' this is as specified in the contract of employment. A different approach is prescribed for pieceworkers and employees with no normal working hours.
To calculate the quartiles, employers will need to rank all relevant employees from the lowest paid to the highest paid according to their hourly rate of pay (see above) and divide them into 4 bands each comprising the same number of employees. Where employees receiving the same hourly rate pay span more than one quartile you must ensure that there is an even split of those men and women across both quartiles (ie it is not possible to 'load' the female employees into the higher quartile).
There is no requirement to publish the actual levels of pay that make up the quartile pay bands.
Accuracy of the information
The information which has to be published must be accompanied by a written statement, signed by a director or equivalent, which confirms that the information is accurate.
Where should the information be published?
The information must be published on the employer's website and be accessible to employees and the public. It must be kept there for 3 years from the date of publication. The employer must also publish this information, together with the name of the person who certified its accuracy, on a designated government website. This will facilitate comparison between organisations and/or between sectors. There have also been suggestions that employers who do not comply with the regulations will be named and shamed but the regulations and explanatory notes make no further mention of this.
There is no obligation to publish an accompanying narrative explaining the data but most organisations will want to do so to give some context to the information provided.
Will there be penalties for non-compliance?
- The regulations themselves do not provide for any specific sanctions for non-compliance. However, the explanatory notes provide that a failure to comply with the regulations will constitute an 'unlawful act 'under s. 34 of the Equality Act 2006 which empowers the Equalities and Human Rights Commission to take enforcement action. Enforcement action by the Commission generally takes the form of inquiries and investigations and unlawful act and compliance notices although no specific powers are granted by the regulations.
- The publication of the information is likely to attract the attention of trade unions, employee groups and other interested parties as well as to put the spotlight firmly on pay equality. There have been recent, high-profile, multi-party claims for equal pay in the private sector and it may be that the information reported (or steps taken in preparation for reporting – see below) could be used as evidence to support such claims.
- The ability to compare each company’s annual pay reports over a 3 year period will highlight whether pay disparities are improving over time and is likely to increase the focus on the steps employers are taking to address barriers to female pay progression.
What to do now?
Whilst publication of gender pay information can be delayed until 4 April 2018, there is a significant amount of work for employers to get through before then which may be more or less difficult depending on the make-up of your workforce, your methods of remuneration and the payroll systems in place.
In particular, affected employers should:
- clearly allocate a person/ team to take responsibility for compliance with this new requirement (particularly important bearing in mind that 'sign-off' by a director confirming that the information is accurate will be required)
- identify their 'relevant employees' in light of the expansion of the meaning of 'employee'
- familiarise themselves with the required approach to the calculation of 'hourly pay' to ascertain how these calculations can be undertaken and identify any problems in that process in advance
- consider conducting an initial audit and risk assessment to identify potential problem areas (but take care as, in the absence of privilege, such documents may be disclosable in litigation)
- where the data generated discloses significant pay gaps (5% or more according to the EHRC) consider what steps the organisation can take to address this
- where pay quartile information shows that there are blockages to women’s progression, what steps can be taken to encourage women into areas where they are under-represented and then how to encourage them to progress; and
- prepare an employee communication plan in advance of the publication date.