The government has published the final draft of the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017. The Regulations are expected to come into force on 6 April 2017, subject to parliamentary approval.

The gender pay gap refers to the fact that average pay for men is greater than that for women. In 2015, the gap was 9.4% for full-time employees and 19.4% for all employees (according to ONS statistics, April - June 2015). The new mandatory reporting measures are intended to help to reduce the pay gap, with a view to ensuring equal pay for men and women.

Which employers will be affected by the new reporting requirements?

Employers with 250 or more ‘relevant employees’ as of 5th April 2017 (or on any anniversary of that date) are caught by the regulations and will have to report on their gender pay gap. Relevant employees are those who are employed on the snapshot date. It includes apprentices, but not partners and LLP members.

If contractors are employed under a contract that obliges them to perform the work personally, under the direction of another person, then they may be relevant employees for the purposes of the Regulations. However, the employer does not have to include these individuals in its report if it does not hold the relevant data about them and it is not reasonably practicable to obtain the information.

‘Employers’ is interpreted widely and includes not only companies, but also LLPs, partnerships, limited partnerships, unincorporated bodies, or any other type of employing entity.

What do we have to report?

Employers affected by the regulations will have to report the following information about their staff:

  1. The difference in mean pay between male and female employees, expressed as a percentage;
  2. The difference in median pay between male and female employees, expressed as a percentage;
  3. The difference in mean bonus pay over the preceding 12 months between male and female employees;
  4. The proportion of male and female employees who received bonus pay during the preceding 12 months; and
  5. The numbers of male and female employees according to the employer’s quartile pay bands. Quartile pay bands are calculated by listing all relevant employees in order of their hourly pay, then dividing that list into four ‘quartiles’ (each containing a quarter of the organisation’s employees). This shows the distribution of pay across the organisation.

Note that employers do not have to make a report in respect of employees who are receiving less than full pay, as a result of leave (e.g. sick pay, maternity pay etc.). Only full-pay relevant employees are taken into account on the snapshot date for the purposes of calculating (1), (2), and (5) above.

For the purposes of calculating the gender bonus gap ((3) and (4) above) all employees are counted, including those who are on reduced pay at the snapshot date as a result of leave.

How is pay calculated?

An employee’s pay is calculated as their hourly rate during the pay period in which 5 April 2017 falls. The Regulations set out a six-step process to calculate the hourly rate of pay. A pay period could be weekly, fortnightly, monthly, etc. depending on how the employer usually pays its staff.

Pay includes: basic pay, fully paid leave, area allowances, shift premium pay, bonus pay, and other pay such as car allowances paid through payroll, on call and standby allowances, and clothing, first aid, or fire warden allowances.

Pay does not include: overtime pay, expenses, any redundancy or termination payment, the value of salary sacrifice schemes, benefits in kind, redundancy pay, arrears of pay, or tax credits.

What counts as bonus pay?

“Bonus” is defined as remuneration in the form of money, vouchers, securities, securities options, or interests in securities, which relates to profit sharing, productivity, performance, incentive, or commission.

The relevant period for bonuses is the 12-month period ending on the snapshot date - so to prepare the first gender pay gap reports, employers will need data relating to bonuses paid between 6 April 2016 and 5 April 2017. This figure will not be pro-rated even if for an example a bonus was paid reflecting performance over a three year period.

Bonus pay may also be included in the headline gender pay gap calculation, if it happens that a bonus is included in the pay period containing the snapshot date. Where bonuses relate to a period longer than the relevant pay period, they should be pro-rated (e.g. if an annual bonus happens to be paid in April, then only 1/12th of the amount should be allocated to the April pay figure).

Do we have to publish anything alongside the figures?

The regulations only require companies to publish the figures themselves. Nonetheless the government has said that it will ‘strongly encourage’ employers to publish an accompanying report to contextualise the information. Government guidance on what to include is expected later this year.

The (optional) report could be used as an opportunity to explain why a pay gap exists, or to give further information about the figures. Companies can also set out details of measures they are taking to address the pay gap going forwards, such as recruitment policies or training and development opportunities for existing staff. This sort of information could help to deal with the potential reputational issues arising out of a significant gender pay gap.

When do we have to publish the figures?

Assuming the regulations come into force on 6 April 2017, the first trigger point for the data snapshot will be 5 April 2017. Companies then have until 4 April 2018 in which to publish the first set of figures.

New data will be captured on 5 April of each year, and in each case companies will have 12 months in which to publish their report.

How and where should the information be published?

The figures must be published on the company’s website and must remain accessible to members of staff and to the public for at least three years. The figures must also be submitted to a government website through which compliance will be monitored.

Are there any penalties for non-compliance?

Not at the moment, no, although the government has said that it will monitor the position closely and may consider imposing penalties in the future.

There is a reputational risk to a company if it does not comply with the new regulations, as there is likely to be a high degree of public interest and press attention, particularly as the first reports are published.

The government has also stated that intends to monitor levels of compliance and publish league tables by sector using the data submitted to its website, potentially ‘naming and shaming’ employers that do not comply. The Equality and Human Rights Commission also has powers under section 20 Equality Act 2006 to conduct investigations into compliance.

What can we do now?

According to the government’s consultation paper, 62% of respondents within scope of the regulations are already able to calculate an overall gender pay gap figure.

If you do not have the ability within your organisation to calculate the necessary reporting figures, you should start looking now for a software solution that would allow you to do so, or consider changing the way in which your data is organised in order to facilitate collection of the necessary information.

For those companies that can calculate the pay gap already, it is advisable to run the calculations and see what the situation would look like if you had to publish the information now. It might be necessary to review pay scales and remuneration of staff, as well as opportunities for career progression, training and development for both men and women within your organisation. Recruitment policies and practices should also be reviewed.