The Government has today published the revised draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, which are intended to come into force on 6 April 2017. Under the regulations, employers employing 250 or more employees will be required to publish information about the gender pay gap in their organisation.
The original draft regulations contained a number of problem areas (Se our Be Aware of 15 February 2016). Whilst some of those problems have been addressed in the new draft, some remain and there are some new problem areas to grapple with.
‘Employees’ are not defined in the draft regulations; however, the explanatory notes state that the definition of employment is the section 83 of the Equality Act 2010 definition which includes employment under a contract of employment, a contract of apprenticeship and a contract personally to do work. This would include many independent contractors. However, the impact of using the wide definition of employee is softened slightly by a new provision which says that the employer is not required to include data relating to an employee who is employed under a contract personally to do work if the employer does not have the data and it is not reasonably practicable to obtain it.
Partners, including partners in an LLP, count towards the 250 employee threshold but do not have to be included in the calculation of the pay gap. It is not clear why this exclusion has been made.
The data snapshot
The requirement is to publish data captured at a snapshot date. This has changed from 30 April 2017 to 5 April 2017. The obligation to report is within a year of the snapshot date.
Pay is gross pay calculated before deductions at source. The definition of pay has been tweaked in the new regulations but has not changed substantially. Pay will include basic pay, paid leave, allowances, shift premium pay, and pay for piecework. Pay will not include overtime pay, expenses, benefits in kind, redundancy or other termination pay, payment in lieu of leave. Bonus pay is included but has a separate definition in the new regulations. Commission is treated as bonus pay.
The duty to publish annual information relating to pay
The basic obligations on employers who are caught by the regulations remain the same. They will need to publish:
- The difference in the mean and median pay of male and female employees;
- The difference in mean bonus pay of male and female employees;
- The proportions of male and female employees who were paid a bonus in the previous year; and
- The numbers of male and female employees employed in quartile pay bands.
However, the detail of what must be published has changed.
In calculating the mean and median pay gap, employees who are not on full pay due to being on leave are excluded. If an employee is being paid at a reduced rate or nil as a result of being on leave during the pay period which includes 5 April they are not included. Leave includes maternity, paternity, adoption, parental and shared parental leave, sick leave, annual leave and special leave. This could mean that many employees who are on annual leave on 5 April should be excluded; even without the impact of the holiday pay litigation, many employers perfectly lawfully pay employees less during annual leave than they would receive if they were not on leave; arguably, this is pay at a reduced rate. This could have a significant impact on some employers, particularly as the snapshot date will often fall in the Easter holiday period.
Employees on leave are also excluded from the quartiles information but are not excluded from the calculation of mean and median bonus or proportions of employees paid a bonus.
The definition of bonus has been clarified and now makes it clear that pay in the form of securities, securities options and interests in securities is treated as paid at the time when and in the amounts in respect of which it gives rise to taxable earnings.
Calculation of the hourly rate of pay
The new regulations set out in detail the steps involved in calculation of the hourly rate of pay of relevant employees, presumably intended to mitigate the impact of unusual work patterns and achieve a more accurate comparison. The steps are as follows:
- Identify the pay period – generally speaking, the period in respect of which the employer pays basic pay (weekly, fortnightly, monthly etc);
- Identify all amounts of pay and bonus pay paid during the pay period which includes 5 April;
- Exclude any ordinary pay which would normally be paid in another pay period;
- If bonus (which includes commission) is calculated over a different period, pro-rata it in respect of the pay period;
- Add together the ordinary and bonus pay as adjusted;
- Multiply by (7 divided by the number of days in the pay period); and
- Divide by the number of working hours in a week.
There is a new provision which determines how to calculate working hours is either normal working hours or an average over a 12 week period if the employee has no normal working hours.
The new regulations set out in detail how the quartile pay bands should be calculated. This was unclear under the old regulations. Once the hourly rate of pay for all full-pay relevant employees (ie not those receiving reduced or nil rate due to being on leave) has been calculated, those employees should be ranked from lowest hourly rate to highest hourly rate. The list should then be divided into 4 sections each containing (so far as possible) an equal number of employees. The employer must publish the proportion of male and female employees in each quartile as a percentage.
In recognition of the fact that this method is potentially open to manipulation, as employers can decide which quartile employees on the same hourly rate of pay are assigned to, the regulations require employers to assign relative proportions of male and female employees to each quartile – so if there are 20 employees who could legitimately be put in either of 2 adjacent quartiles and 10 are male and 10 female, 5 of each should be assigned to each of the 2 quartiles.
Form and manner of publication
Here there has been no change. The information must be published on the employer’s website in a manner which is accessible to its employees and the public, for a period of at least 3 years, and it must be accompanied by a statement signed by a director (or similar for non-companies) which confirms that the information is accurate.
Whilst the new regulations, like the old regulations, do not expressly contain any sanctions for failure to comply, the explanatory notes state that a failure to comply with an obligation imposed by the regulations will constitute an ‘unlawful act’ within the meaning of section 34 Equality Act 2006 which empowers the Equality and Human Rights Commission to take enforcement action. Such enforcement action is, in practice, unlikely due to the EHRC’s limited resources but does mean that the regulations are theoretically not completely toothless.