Author: Colin Leckey (Lewis Silkin LLP)

The final version of the regulations setting out how employers in the United Kingdom should calculate and report on the gender pay gap within their organisation from April 2017 have been published.

The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (“the Regulations”) contain important clarity on topics such as who is in scope (self-employed workers mostly yes, but partners in firms no), and how to calculate hourly pay, as well as introducing a new obligation to report on median bonus data. The UK Government has also announced plans to extend the mandatory gender pay gap reporting regime to the public sector and we are awaiting further developments following publication of a consultation paper last year.

The key obligations introduced by the Regulations can be summarised as follows:

  • The reporting regime applies to all private sector employers with 250 or more employees.
  • Employers must publish the mean and median hourly pay gap between men and women, based on the pay period containing a specific date in April each year (the “snapshot date”). “Pay” for this purpose includes any bonuses paid in that pay period.
  • Employers must also report the annual bonus gap between men and women, again using a specific date in April, together with the proportion of male and female employees who received a bonus that year. “Bonus” is defined widely to include commission and securities.
  • There is an additional obligation to publish the numbers of men and women in each of four quartile pay bands.
  • The first calculation date is April 2017. The data must be published on the employer’s website by April 2018, remaining there for three years.

There is no specific enforcement mechanism, but the data must also be submitted to the Secretary of State and league tables for specific industries may be created. The final Regulations contain a number of changes from the original draft, many of which seem to have been prompted by the responses to the consultation process. There is some useful clarification, but also some unexpected new additions. The key points to note are as follows:

  • The snapshot date. As was suggested by the public sector consultation paper, the snapshot date has been changed from 30 April to 5 April. This will not make a difference for monthly-paid employees, as the relevant pay period will still be the whole of April each year. It may, however, make a difference for employers who pay their workers weekly or fortnightly, particularly if annual bonuses are paid at the start of April and would previously have been excluded from a weekly period containing 30 April.
  • The definition of “employee”. This was unclear in the original draft, but the Regulations now use the broad definition of employee from the Equality Act 2010 (as clarified in the Explanatory Notes). This is significant as it potentially covers many self-employed workers who are engaged directly by employers as consultants, independent contractors and so on. As a result, many more employers are likely to come within scope as these workers will count towards the 250-employee threshold. It may also make gathering together pay data much more difficult as such individuals will not ordinarily be payrolled (although to some extent this is mitigated by the change described in the next paragraph).
  • New exception to pay data. This appears to be designed to help where it would be difficult to obtain pay data for some workers, as may be the case with independent contractors who do not work fixed hours and are not paid through the payroll. There is no need to include data relating to an employee who has a contract personally to do work, if the employer does not have such data and it is not reasonably practicable to obtain it. It seems that all employees within the broad definition will count towards the 250-employee threshold, but actual data may not need to be included for some of those employees. There is clearly scope for argument about what “reasonably practicable” means in this context, particularly if an employer is keen to exclude male-dominated and/or highly-paid contractors from its statistics.
  • Are partners included? The Regulations now specifically exclude partners, including LLP members, so there is no need to provide pay or bonus data for them.
  • What is included within “pay”? There was a potential problem with pay statistics being skewed by employees who received a lower rate of pay during the snapshot period, particularly women on maternity leave. The Regulations now say that only “full-pay” relevant employees should be included in calculating mean and median hourly pay rates. This means that employees on reduced pay during the snapshot period will not be included. For example, if a woman is on maternity leave on 5 April, she will only be included in the hourly pay data if she is receiving full pay during April rather than reduced maternity pay. Although this will help with the hourly pay data, the same adjustment has not been made for calculating annual bonus data or pay quartiles, so these may still be skewed by employees on temporarily lower rates of pay.
  • Calculating the “hourly rate of pay”. The Regulations out six steps to assist with this calculation, and specifies that a month and a year are to be treated as having a specific number of days.
  • What is included within “bonus”? Securities, securities options and interests in securities are included within the definition of bonus, but it was previously unclear how these would be calculated. The Regulations provide some clarification on this by specifying that remuneration in the form of such securities, options and interests is to be treated as paid to the employee at the time, and in the amount in respect of which, they give rise to taxable earnings or income. What this will mean in practice will vary depending on the type of security. For example, unapproved options are subject to income tax on the exercise gain when an employee exercises the option and acquires the shares. For free awards of unrestricted shares, the employee is subject to income tax on the market value of the shares on the date of award. The rules should be relatively simple to operate in listed companies for whom the market value of shares can be readily determined, and private companies whose shares are readily convertible. They may be less straightforward for other private companies, although the number of such companies offering securities and meeting the 250-employee threshold is likely to be small.
  • Bonus data. There is a new requirement to publish the difference in the median bonus pay figure in addition to the mean figure (bringing this into line with the position for the hourly pay gap).
  • The approach to pay quartiles. One of the reporting obligations is to show the numbers of men and women who fall within each of four pay quartiles. It was previously unclear what was meant by “quartiles”. The Regulations clarify that this involves splitting the workforce into four equal-sized groups that are organised according to the hourly pay rate, from the lowest to the highest paid. Four steps to assist with the calculation are set out (in regulation 14). In addition, if a number of employees receive the same hourly rate of pay and so fall within more than one quartile pay band, the employer should so far as possible ensure the relative proportion of men and women is the same in each pay band. This prevents an employer in this situation from moving the men and women into separate pay bands in order to improve its statistics.
  • When the first report is due. As the new snapshot date is 5 April, the last date for reporting the first set of gender pay gap statistics will be 4 April 2018.
  • What happens to the data? As well as publication on the employer’s website, there is to be a website designated by the Secretary of State to which all gender pay reports must be uploaded (including the name and job title of the person who signed the accompanying statement). It remains unclear whether the Government will use this to create sector-by-sector league tables as previously suggested, but this is a possibility.

This is an ideal time for employers to carry out a dry run of their gender pay report in advance of the real thing, to identify any problem areas and decide what additional analysis they may want to do in order to present their report in the best light.