The draft Gender Pay Gap Information Regulations were published on 12 February 2016. They are now subject to a short consultation which closes on 11 March 2016.
To whom will the Regulations apply?
The regulations will apply to private sector employers that have 250 or more employees on 30 April 2017. On the face of the draft regulations, smaller companies will not have to report their data even if they are part of a group which has more than 250 employees in total. The Government has said guidance to be published later this year will explain how groups of companies should report.
The regulations will not apply to the public sector but the Government has confirmed that it intends to impose similar requirements on it.
Employers will only be required to publish data about employees. Other workers, like contractors, members of an LLP, partners in a partnership or agency staff will not be covered. That does not conform with other UK equality legislation which generally also extends to workers.
When will they come into force?
The final regulations are due to come into force on 1 October 2016. Pay data will have to be collected as at 30 April 2017 but employers will then have a further 12 months to publish the data. Data will then have to be published annually. Bonus pay data will be required for the period April 2016 – April 2017.
What will have to be published?
The Government has decided against significant details in terms of what must be reported, and employers will not have to publish the detail of pay by grade or job description. They will have to publish:
- mean difference in pay between men and women as a percentage
- median difference in pay between men and women as a percentage
- the number of men and women in each quartile of their pay distribution – with the objective of highlighting any blockages to the progression of women
- the mean difference in bonus between men and women shown as a percentage
- the proportion of male and female employees who receive a bonus as a percentage.
Burges Salmon will host a 30 minute webinar on Tuesday 8 March at 12:00 focusing on the implications for employers of the draft regulations. If you want to attend the webinar please register here
The median figure will highlight whether the mean figure has been distorted by very high or low paid outliers. Bonus payments are to be shown separately because research undertaken by the Equality and Human Rights Commission in the financial services sector has shown that bonus is a significant contributing factor to the gender pay gap, with women generally receiving substantially lower bonuses than men.
There is a lack of clarity as to how pay quartiles are to be calculated. If they are based on employees’ individual pay (as opposed to the overall pay range within an organisation) the data may not disclose much useful information and the calculation itself may be quite onerous.
What counts as pay?
It is the gross hourly rate of pay determined by dividing weekly pay by weekly basic hours in the relevant payment period which is to be compared. The relevant payment period will be the period that includes 30 April. The period will depend, for example, on whether employees are paid monthly or weekly.
This means the published data will provide a snapshot of the relevant details and there does not appear to be any mechanism in the regulations for averaging out the gross rate of pay where the employee works variable hours.
This reflects the approach used by the Office of National Statistics in its annual labour force survey. This is to facilitate cross-sector comparisons.
However, what is included and excluded in pay for reporting purposes may significantly affect the gender pay gap shown by the data. Key points are as follows:
- Overtime is not included. According to the Government this is to avoid creating a perverse incentive for employers to require women, who generally undertake less overtime than men, to be forced to undertake overtime.
- Benefits in kind, such as a company car, more usually associated with senior managerial roles, are not included but allowances, which may include a car allowance, will be.
- Salary sacrifice, including pension schemes, does not count towards pay. On the other hand, pay is to be calculated before deductions to pension schemes. That means that the way the payment is made into the pension scheme may affect whether it counts as pay.
- Maternity pay is to be included and this inevitably means that, where an employer has a significant number of women on maternity leave at 30 April and does not pay maternity pay based on full pay, its gender pay gap will be larger than otherwise.
- Only bonus which is earned and received will be included in the reported data. Presumably, if a bonus is sacrificed into a pension scheme before it is received, it will not have to be included.
Where will the data have to be published?
The data is to be published on the employer’s website which must be searchable. It must be kept there for three years to facilitate comparison and allow progress to be tracked. It must also be uploaded to a Government sponsored website so that compliance and non-compliance can be tracked. The Government has indicated that it intends to publish league tables of the pay gap by sector in 2018.
There is no obligation to publish an accompanying narrative explaining the data but most organisations will want to do so, to highlight the steps they are taking to address the gender pay gaps in their organisations.
Will there be penalties for non-compliance?
The data will have to be accompanied by a statement that it is accurate signed by an officer of the organisation.
While Section 78 of the Equality Act 2010 did give the Secretary of State the power to implement criminal and civil sanctions for non-compliance, the Government has chosen not to do so. It has taken the view the risk of reputational damage for non-compliance will be sufficient but has said it will keep this under review.
There is no mechanism for individuals or organisations to challenge the accuracy of the data published or to force organisations which choose not to publish data to do so.
The Secretary of State is to review the regulations within five years and publish a report on whether the policy objectives have been met.
What to do now?
On the face of it employer organisations have a long lead in time before the data must be published. However, whilst publication of the data can be delayed until April 2018, the data to be published relates to bonuses paid between April 2016 and April 2017 and pay in the relevant pay period that includes 30 April 2017.
Employers should consider:
- reviewing pay practices to identify areas of concern and, if possible, address them in advance of April 2017. Reviews could include full pay audits or snapshot reviews of areas of particular concern;
- conducting a data gathering sample to establish if you have the ability to calculate the required data;
- when conducting reviews and data gathering exercises taking care to avoid creating documents which might subsequently be used in litigation by disgruntled employees. Information gathered for the purposes of obtaining legal advice can be subject to legal advice privilege and cannot generally be used in subsequent litigation, so employers should consider involving in-house lawyers or external legal advisers in audits or reviews;
- where the data generated discloses significant pay gaps (5% or more according to the EHRC) what steps the organisation can take to address this.
- where pay quartile information shows that there are blockages to women’s progression, what steps it can take to encourage women into areas where they are under- represented and then how to encourage them to progress; and
- employers will want to prepare an employee communication plan in advance of the publication date. Whilst the regulations do not require employers to provide a narrative to accompany the data, most will want to provide some explanation of their figures and to publicise any steps that are being taken to address any issues disclosed. Further guidance on what should be included in any narrative will be published later this year.
It is important to note that the draft regulations are subject to consultation and so changes may be made before the final regulations are issued.