At last the final form of the Equality Act 2010 (Gender Pay Gap Information) Regulations have been published and, subject to parliamentary approval, are expected to come into force on 6 April 2017. We consider what has changed and what questions remain.
Which employers are in scope?
Under the Regulations private and voluntary sector employers in Great Britain with 250 or more employees on the snapshot date will be required to publish an annual report on their gender pay gap. Separate Regulations, still to be published, will apply to public sector employers operating in England although it is expected that the reporting regimes will be the same.
Some clarity provided
The government has clearly attempted to address some of the problem areas identified in the draft version of the Regulations published back in February 2016. The key areas it has addressed include:
- Clarification around the definition of a 'relevant employee'. This is 'a person who is employed by the employer on the relevant snapshot date'. The Explanatory Notes to the Regulations confirm this will include both workers and employees, including those working under a contract of employment, a contract of apprenticeship and a contract to personally perform work. The government have also helpfully acknowledged the practical issues facing employers gathering payroll data for workers, as the final form Regulations provide for an exception from the reporting duty in relation to workers employed under a contract personally to do work, where the employer does not have, or could not reasonably obtain, payroll data for them.
- Changing the requirements for calculating the mean and median gender pay gaps and their pay quartiles. Employers are only required to base their calculations on 'full-pay relevant employees'. So employees being paid at a reduced rate, or indeed those being paid nothing due to annual, maternity, adoption, shared parental, sick or special leave are excluded from the calculation. Permitting employers to exclude such employees prevents gender pay gap figures from being skewed where an employer has a number of employees absent on maternity leave and receiving statutory maternity pay at the snapshot date.
- Providing detailed rules around the method by which employers should calculate employees' 'gross hourly pay'. Employers should use either an employee's 'normal working hours' where they exist or, where there are no such set hours, employer's should adopt a 12-week reference period. This clarity is helpful for organisations who employ significant numbers of atypical workers or workers with unusual working patterns.
- The definition of 'bonus pay' has also been amended, to make clear that elements of bonus that are awarded as shares or share options are to be treated as paid at the point in time when they would give rise to taxable earnings, and that the value to be taken into account for calculating the bonus pay figures is the taxable amount.
- Clarifying how to structure pay quartile information. The Regulations confirm that once employers have calculated the hourly rate of pay for all full-pay relevant employees, they should be ranked in order of their pay, from lowest to highest, and then divided into four equal groups. The proportion of male or female employees in each quartile can then be calculated by dividing the number of male or female employees in the quartile by the total number of employees in the quartile, and multiplying by 100.
Other key points to note
The final form Regulations also make clear that the 'snapshot date' has moved from 30 April to 5 April each year. Employers are required to publish the gender pay gap information within 12 months of this date, which means that employers will need to publish their first gender pay gap reports by 4 April 2018 at the latest.
One of the previous criticisms of the draft Regulations was the lack of a penalty for non-compliance. The Explanatory Notes to the Regulations now suggest that failure to comply with the Regulations will constitute an 'unlawful act' over which the Equality and Human Rights Commission (EHRC) could potentially take enforcement action, although, the extent to which the EHRC will have the time or money to take such action remains to be seen.
The unanswered questions
After such a long period of uncertainty around what the final Regulations would look like, and with the first snapshot date looming, the information should be welcomed by employers who can now get their houses in order ready for next April.
However, there are still areas of uncertainty which remain, in particular:
- The reference to relevant employees ordinarily working in Great Britain has been removed from the final Regulations. This leaves the position unclear as to whether international employers should be including employees working outside of Great Britain when preparing their reports
- The issue of whether group companies should aggregate numbers across their different subsidiaries rather than producing separate reports for each distinct employing entity does not appear have been addressed
- The value of salary sacrifice schemes was previously excluded from the definition of pay. That express exclusion has been removed so it is not clear whether that means such schemes should or should not be included in the definition of pay
It is hoped that the guidance promised by the government to accompany these Regulations will shed further light on these matters. The government has said it will not publish such guidance until after parliament has approved the Regulations.