A revised, final version of the non-statutory guidance by Acas and the Government Equalities Office was published on 3 April 2017, available here. Although the GEO had indicated that no substantive changes were expected to the original draft published a few days before formal approval of the final regulations, in fact there are a few significant changes helpfully addressing some of the grey areas highlighted by commentators. Employers currently preparing for the first data capture covering the pay reference period including 5 April 2017 should review the guidance urgently.
Perhaps the most significant change relates to bonuses for recruitment and retention. The regulations define 'ordinary pay' as including allowances, which include any sum paid with respect to the recruitment and retention of an employee. Any payment which is 'ordinary pay' is excluded from 'bonus pay'. The required hourly pay data is calculated using ordinary and bonus pay if it is paid in the April pay reference period; bonus pay is also disclosed in the data for bonuses paid in the 12 months to April. This seemed to suggest that sign-on bonuses and recruitment bounties would fall within ordinary pay, and so be included in the calculation of hourly pay if paid in the April pay reference period but, as 'ordinary pay', they would not be included in the figure for bonus pay paid in the 12 months to April. Thankfully the final version of the guidance endorses a clearer, more sensible approach. Page 24 of the guidance states: "where payments for recruitment and retention are 'one off' incentive payments made at the start of employment, or are more in the nature of a bonus than on ongoing allowance, they should be treated as incentive payments falling within bonus pay, rather than as allowances falling within ordinary pay". Page 26 also notes that long service awards with a monetary value (cash, vouchers or securities) will be included in bonus pay (although any non-monetary award such as extra holiday is a benefit in kind and therefore excluded).
A second important change relates to atypical workers such as zero hours workers. Because hourly pay is calculated using actual pay received during the reference period and the average working hours averaged over 12 weeks, this can significantly distort the figures where individuals receive an unusually low or nil amount of pay during the reference period due to irregular work patterns. Average hours have to be used unless the employer is not reasonably able to make the calculation "for some other reason". Only employees who do not receive full pay during the reference period due to leave are excluded from the data, and it is not obvious that irregular hours workers could be viewed as on 'leave' when not working. Nevertheless, page 28 of the guidance states that "employees who receive no pay at all during the relevant pay period, whether or not due to being on leave, should be excluded from the gender pay gap calculations" (presumably this means only the hourly pay calculations, as non-full-pay employees are included in the bonus figures). For those who earn some pay during the reference period, the example at page 31 suggests that employers can use the "some other reason" provision and divide actual pay during the relevant pay period by actual hours during that period, to give a more representative hourly rate.
Other changes include:
- Page 7 includes new text on group companies. The guidance emphasises that each separate legal entity with at least 250 employees must publish separate reports, but that they may also wish to indicate the figure for the gap within the overall group. It also notes that larger employers may find it useful to provide additional breakdowns of the data, for example where they operate in a number of completely different employment sectors or where the jobs and levels of pay and bonuses are not obviously comparable. The guidance states that "provided that the legally required calculations are clearly provided, employers can enhance their reports as they wish on a voluntary basis where they consider this informative and appropriate."
- Changes have been made throughout the guidance to make it applicable to both private and public sector employers, given the slight differences between the two regimes set out at pages 7 to 8.
- The guidance now clearly sets out that partners are to be included in the headcount for threshold purposes if they are s83 Equality Act employees, but are excluded from the data which must be published (pages 7, 29).
- The guidance notes that where an employee of an overseas entity is seconded to work for an organisation in GB, the GB organisation will need to include that person's data if they can be considered their employee within s83 Equality Act (page 8).
- Where individuals covered by the reporting requirement are paid in a foreign currency, the guidance states that employers should generally use the exchange rate that applied at the date of payment to convert it (page 9).
- The text setting out the exception to providing data for individuals with a contract personally to do work (where the employer does not have and it is not reasonably practicable for the employer to obtain their data) has been relocated (to page 10), to make clearer that they are included in the headcount for the threshold but not the data.
- The reference to the appropriate multiplier at page 11 has been corrected.
- The guidance now notes that although the publication of the data and written statement should not in itself raise any data protection issues, data protection principles will be relevant throughout the reporting process including data gathering.
- Pay referable to overtime is excluded from the definition of both 'ordinary pay' and 'bonus pay'. The guidance now states that "payments such as allowances earned during paid overtime hours (to the extent that employers can clearly identify them) should be excluded from ordinary pay" (page 24). In relation to bonus pay, it states that "it may be difficult to distinguish whether a bonus (or part of a bonus) relates to overtime hours. In cases where it is unclear that an element of bonus pay relates to overtime, it should be included in bonus pay" (page 26).
- The guidance includes a further example of an allowance that would be included in ordinary pay: extra amounts for being on call (page 24).
- The regulations state that pay received in the reference period that would "normally fall to be paid in a different period" are excluded from the hourly pay rate calculation. The guidance clarifies that this applies to pay awards received in the reference period but which represent backdated pay for earlier periods (page 25).
- The data must capture pay before deductions at source, which would include deductions for employee pension contributions. The guidance includes a new note that the position is different where the employee contributes to pension by means of a salary sacrifice scheme, where the employee's gross salary after the salary sacrifice reduction is used (page 26).
- Page 26 includes an additional sentence confirming that where securities do not give rise to an income tax charge at all, they are not included in the disclosures.
- Page 28 makes clear that, when determining if an individual is 'full-pay' (and therefore included in the hourly pay data), what matters is whether their pay during the relevant pay period is reduced due to leave, not whether the leave was actually taken during the reference period.
- Where an individual's normal working hours differ from week to week or over a longer period, weekly working hours are calculated using a 12 week average. Page 30 states that employees are to be treated as having normal weekly working hours if they have the same contractual hours each week (ie as specified in their contract of employment on the snapshot date), even if they often work additional unpaid hours. Where contracted hours vary, hours are to be averaged but excluding any hours worked as paid or unpaid overtime.
We are updating our detailed briefing on the new duty and this will be available shortly.