Quick Guide to Gender Pay Gap Reporting
Shepherd and Wedderburn's quick guide explains everything you need to know to get ready for mandatory gender pay gap reporting.
The draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2016 were published in February 2016. The final Regulations are being laid before Parliament in the autumn and are expected to commence in April 2017.
What is the gender pay gap?
The gender pay gap is, put simply, 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, 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 roles.
Who do the Regulations apply to?
Employers with 250 or more relevant employees on a particular date each year, expected to be 5 April, are covered by the Regulations. The employer could be a company, LLP, partnership, limited partnership, unincorporated body or any other employing entity. At present, the Regulations do not cover groups of employers, and there is no requirement to aggregate employee numbers across the group. This might change when the final Regulations are published. Public sector employers are not currently covered by the draft Regulations but the Government has launched a separate consultation for public sector employers and it is expected that similar pay gap reporting obligations will be introduced for the public sector in time for the April 2017 reporting cycle. Relevant employees include permanent and part-time employees who ordinarily work in Great Britain under a contract of employment governed by UK legislation. It can also include casual workers engaged under an umbrella contract or a zero hours contract where there is some degree of mutuality of obligation between assignments. Employees who are off sick or are absent on family leave, for example, will be caught by the definition. It is anticipated that the final Regulations will also make it clear that some workers engaged personally to provide services, agency workers, apprentices and LLP members, could be caught within the definition of relevant employee.
When do they apply?
The Government has stated that final Regulations will come before Parliament in autumn 2016. It is expected that 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 expected to be 4 April 2018.
In general, the report needs to include information about the average gross hourly pay for male and female employees.
What counts as pay?
The non-exhaustive list of what counts as pay includes salary/wages, bonus, commission, shift allowance, on-call allowance, sick pay and maternity pay (we expect that other family leave pay will be included in the final Regulations). Pay excludes overtime, expenses, benefits in kind, salary sacrifice arrangements, redundancy payments, arrears of pay and tax credits. It is not clear how arrangements such as share options and long-term incentive plans are to be treated. Pay is based on gross pay. Average hourly pay is calculated during the normal pay period used by the employer (i.e. weekly, fortnightly, four-weekly, monthly etc.) in which 5 April falls in the relevant year. Therefore, if the employer pays its employees on the last day of each month, then the relevant pay period will be the month of April.
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. If annual bonuses are paid in the pay period covering 5 April then this may have a dramatic impact on the headline average pay figures. The number of men and women within each of four pay bands/quartiles. The UK Government has confirmed that the intention is for the quartiles to be calculated by dividing the workforce into four equal sized groups, ranging from the lowest paid to the highest paid. For example, a workforce of 400 employees would be divided into four groups of 100 people, sorted by pay range. It is not clear whether employers will have to publish the actual range of each pay band (for example 7.20 to 8.99) or whether they can simply state "Pay band A". 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 draft Regulations do not explicitly deliver on the Government's stated intention and we expect the drafting to be clearer in the final Regulations. 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 last 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 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. 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, however, this is not mandatory.
Quick Guide to Gender Pay Gap Reporting
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?
The Regulations do not include any formal sanctions for non-compliance. However, 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. At this stage, the risk of non-compliance appears to be reputational only with the government taking a "name and shame" approach.
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 and identify how many separate gender pay gap reports will need to be produced. Some employers might consider a corporate restructuring but as the final Regulations might be extended to cover associated companies, doing so could be premature. 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. This will be particularly important for partners and LLP members. True equity partners are likely to be excluded from the scope of the Regulations, but the position of salaried and fixed share partners will be less clear. If employees are supplied through a service company, the partnership or LLP might have less than 250 relevant employees and so be outside the scope of the Regulations (but note the comment above about the final Regulations potentially extending the scope of the Regulations to associated companies). Consider the remuneration package offered, all benefits, and any flexible benefits scheme. Analyse which elements would be reportable under 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. 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.
How can we help?
We are advising a number of clients on their obligations under the Regulations. We can offer training to your internal team on the requirements. We can also discuss your individual pay structure to identify which payments are likely to be included and which employees fall within the scope of the regulations. We can assist in the drafting of your report and in particular, any accompanying statement. If you identify any pay issues, we can also advise on strategies to address this.
Neil Maclean Partner and Head of Employment T +44(0)131 473 5181 M +44(0)782 541 3316 E firstname.lastname@example.org
Katie Russell Partner, Employment T +44(0)20 7429 4661 T +44(0)131 473 5266 M +44(0)787 269 9897 E email@example.com
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