After a lengthy period of consultation, on 7 December 2016, the UK government published the revised draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2017.
Subject to parliamentary approval, the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (Regulations) are intended to come into force on 6 April 2017. Under the Regulations, businesses (excluding the public sector) with at least 250 employees in the UK will be required to publish information about any gender pay gaps within their organisations.
The previous draft Regulations were published on 12 February 2016. This LawFlash provides an update to our previous summary of the first draft and addresses the aspects of the Regulations that have been materially revised.
The Data Snapshot
Under the previous draft Regulations, the date on which a company was required to take a “snapshot” of gender pay data was 30 April of each year, commencing in 2017. The new draft Regulations bring this date forward to 5 April of each year, commencing in 2017.
The Regulations state that employers must publish their gender pay gap report within 12 months of the snapshot date. Accordingly, the latest date by which employers will be required to publish their first report reflecting 2017 data is 4 April 2018.
Who Is an Employee?
The Regulations clarify what is meant by a “relevant employee” for the purposes of calculating the gender pay gap. The Explanatory Note to the Regulations confirms that the definition of “employee” in section 83 of the Equality Act 2010 will apply, which includes workers. Employees based outside the United Kingdom who are employed by UK employers would also fall within the definition of “relevant employee”. Partners and LLP partners have expressly been excluded from the definition of relevant employee.
Additionally, there is no requirement to include data relating to relevant employees who are employed under contracts personally to do work where the employer does not have (and it is not reasonably practicable to obtain) the payroll data relating to such individual.
Full-Pay Relevant Employees
A significant revision in the updated Regulations is the requirement that relevant employees must be “full-pay” relevant employees for the purposes of calculating gender pay gap data. The Regulations define full-pay relevant employees as those not being paid at a reduced rate or nil as a result of the employee being on leave. Further, leave is defined in the Regulations as including
- annual leave;
- maternity, paternity, adoption, parental, or shared parental leave; and
- sick leave.
The UK government has acknowledged that this change will reduce the risk of data being skewed, particularly in relation to workers on maternity leave receiving statutory maternity pay.
It should be noted that while non full-pay relevant employees are excluded from the gender pay gap calculations and pay quartiles, they are not excluded from the gender pay gap bonus calculations.
The revised Regulations define “ordinary pay” as including basic pay, allowances (for which there is further definition, and which excludes out-of-pocket expenses), pay for piecework, pay for leave, and shift premium pay. Ordinary pay excludes remuneration referable to overtime, redundancy or termination of employment, remuneration in lieu of leave, and remuneration provided otherwise than in money. The definition now include a six-step process for calculating the “hourly rate of pay” (replacing the very brief definition in the previous draft regulations), which includes both “ordinary pay” and “bonus pay” paid during the relevant pay period. Where bonus pay refers to a bonus period that is longer than the relevant pay period (i.e., in the case of an annual bonus), then only a pro rata amount is taken into account in calculating the hourly pay in the pay period.
In the previous draft Regulations, the bonus pay gap had to be reported on a mean basis. This has now changed to both a mean and median basis to provide greater transparency about the employer’s bonus pay practices.
Separately, bonus pay will also have to be reflected in an employee’s gross hourly rate of pay for the purposes of calculating the ordinary pay gap. The revised Regulations state that only a portion of the bonus payment that is proportionate to the relevant pay period should be included in the calculation of an employee’s gross hourly pay.
The new Regulations have also clarified the term “bonus” as including any remuneration in the form of money, vouchers, securities, securities options, or interests in securities that relate to profit sharing, productivity, performance, incentives, or commission. Bonuses in the form of securities are to be deemed paid at the same time the employee incurs a charge to income tax.
A bonus will not include ordinary pay, overtime remuneration, or redundancy or termination payments.
Gross Hourly Rate of Pay
In calculating employees’ gross hourly rates of pay, which are to be used for the mean and median gender pay gap figures, the previous draft of the Regulations did not take into account casual workers who did not have weekly basic paid hours. Accordingly, the new Regulations have sought to remedy this by providing for a 12-week reference period for employees whose working hours vary from week to week. Those who do not fall into this classification will have their hourly rate of pay based on their normal working hours specified in their contract of employment.
Quartile Pay Bands
In the previous draft of the Regulations, there was some ambiguity as to how the quartile bands would be created and populated. It is now clear that employers should put employees in order of their gross hourly pay rate (from lowest to highest) then divide the employees into four equal groups. Employers can then proceed to calculate the percentage of men and women who occupy each group. The pay bands will fall into the following groups: lower, lower middle, upper middle, and upper quartile.
It was originally reported that the only sanction for noncompliance with the Regulations would be a “name and shame” on a UK government endorsed website. Although the newly drafted Regulations remain silent on the issue, the Explanatory Notes state that failure to comply with an obligation imposed by the Regulations will constitute an “unlawful act” within the meaning of section 34 of the Equality Act 2006. This, in principle, permits the Equality and Human Rights Commission to take enforcement action. This should serve as a cautionary reminder for employers to begin reviewing pay practices in anticipation of the first snapshot of gender pay data, which is to be taken in less than four months.