Prior to the Election, the Government agreed to introduce regulations obliging employers with 250 or more employees to report on the gender pay gap within their businesses. The Government has now published a principles-based consultation seeking views on the key points of detail of the new regime. We understand that a further consultation covering the finer detail of the regime is likely to be published later this year. The consultation closes on 6 September 2015 and the regulations are to be introduced by the end of March 2016.
What is the gender pay gap and what are the causes?
The gender pay gap shows the difference between the average earnings of men and women as a percentage of men's earnings. Currently, the overall gender pay gap in the UK stands at 19.1%. Although this represents a reduction of 8% since 1997 (when the pay gap was 27.5%), the consultation notes that progress has been too slow and the gap must be narrowed "further and faster". In addition, the average gap varies considerably by sector, with the largest gaps seen in the financial and insurance sector (35.2%) and the electricity/gas/steam and air conditioning supply sector (28.5%) and the lowest gaps seen in the transportation and storage sector (-2.2%) and the mining and quarrying sector (-4.2%).
The consultation stresses that the gender pay gap is not simply a result of unequal pay practices. It identifies a number of causes which have a "significant cumulative impact" on a woman's earning potential during her lifetime, including:
- The concentration of women in lower paid sectors (e.g. health and social work) and occupations (e.g. secretarial and childcare).
- The negative effect on wages of having worked part-time or taken time out to look after children.
- Unconscious stereotyping against mothers as not wanting / being able to take on more senior roles.
- The need to reduce hours to accommodate caring responsibilities (e.g. for ageing parents).
- That women are less willing than men to negotiate pay rises.
How will gender pay transparency help?
The consultation points to a recent survey which investigated the extent to which employers are already gathering and reporting on their gender pay gap. Although two fifths of respondents had taken steps to analyse their gender pay data, less than a third had conducted a formal pay gap review or audit. Very few respondents had taken the step of publishing the results, although those that had done so testified that it was a positive experience. For example, Friends Life saw an increase in the percentage of women employees at senior grades and PwC saw a reduction in its overall gender pay gap as a result of actions taken following analysis of its pay gap.
The consultation highlights that increased transparency around gender pay differences will:
- Enable the impact of policies and practices to be monitored and discussed.
- Allow good practices to be recognised and disseminated.
- Encourage employers to establish an effective talent pipeline that helps women fulfil their earning potential.
- Increase employee confidence in the remuneration process.
- Enhance an employer's corporate reputation.
- Drive employers to take action to tackle any inequalities identified.
- Here, the consultation seeks views on whether the publication of gender pay information will, in fact, encourage employers to take steps to close the pay gap and what other positive impacts might be seen.
Who will be covered by the new pay transparency regulations?
The new pay transparency regulations will be made under section 78 of the Equality Act 2010 and will apply to employers in the private and voluntary sector with at least 250 "employees" in Great Britain. Views are sought on whether this threshold is considered appropriate.
The consultation confirms that for the purposes of the regulations, "employee" will mean someone employed under a contract of employment or apprenticeship or a contract personally to do work. In other words, this will cover employees, workers and self-employed individuals provided that their contract obliges them to perform the work personally (i.e. they cannot subcontract or employ their own staff to do it).
What should the new pay transparency regulations look like?
The consultation seeks views on key points of detail before the new regulations are produced:
- What form of metric reporting should be adopted? The consultation recognises that the calculation of an overall gender pay gap is relatively simple but does not necessarily offer the granularity needed to explain pay differences. Views are sought on whether figures should also be broken down by: (i) full-time and part-time status; and/or (ii) grade or job types. As to the latter option, the consultation recognises that safeguards would be needed to preserve individual and commercial confidentiality.
- Should employers be required to provide a "contextual narrative"? The consultation recognises that many employers will want to accompany the metrics with an additional narrative to explain the gender pay gap and what remedial actions are proposed. Views are sought on whether the provision of an additional contextual narrative should be: on an entirely voluntary basis; on a voluntary basis but covered in non-statutory guidance; or compulsory.
- How often should employers have to publish their pay gap information? Views are sought on whether employers should report on an annual basis, every 2 or 3 years or some other level of frequency. Interestingly, the consultation profiles similar pay transparency regimes in Austria and Finland which require publication of pay gap information every 2 years, whilst in Sweden it is every 3 years.
- What are the likely implementation costs for employers? Views are sought from employers on the likely costs of conducting gender pay analysis and publication, covering areas such as: infrastructure (e.g. software); training requirements; publication; and the likely amount of time taken by the person leading the exercise. Prior to the General Election the former Minister for Women and Equalities, Jo Swinson, announced that the Government intended to provide employers with software to conduct their pay gap analysis.
- Commencement and the proposed calculation date? Although the Government is obliged to introduce the new pay transparency regulations by the end of March 2016, the consultation proposes that commencement of the regulations: "be delayed for an appropriate period to give businesses an opportunity to prepare for implementation". It is also possible that they will be introduced on a phased basis, with very large employers (i.e. those with at least 500 employees) being affected first. Views are also sought on the "cut-off period" for the calculation of the gender pay gap - the options are: 1 January; 6 April; 1 October; the year-end date for each business; or another date.
- What support should the Government provide to employers? Views are sought on what measures would help support employers implement the new regulations. Suggested measures include: help to understand the regime (e.g. through training); help to calculate the pay (e.g. through software); help with other types of supporting analysis (e.g. representation on women at different levels in the workforce); and help to address issues identified by a pay gap analysis. The consultation also asks whether there are alternative ways to increase gender pay transparency which would limit the cost to employers.
- Compliance: The consultation confirms that the Government is consulting with the Equality and Human Rights Commission on options for compliance with the new regime. Views are sought on whether the introduction of civil enforcement procedures (e.g. the issue of an enforcement notice) would help ensure compliance with the proposed regulations.
- Implementation risks: Views are sought on any unidentified risks or unintended consequences of the new pay transparency regulations. Where such risks are identified, views are sought on whether this warrants "dropping or modifying" the new regime.
What other steps can be taken to close the gender pay gap?
The consultation also seeks to address the wider steps that can be taken to close the gender pay gap at the beginning, middle and end of a woman's working life. Views are sought on how the Government can:
- Encourage young girls to consider the broadest range of careers.
- Work with businesses to support women to return to work and progress in their career after having children.
- Make sure that older working women are able to fulfil their career potential.
The key issues for employers affected by the new regime are likely to be the level of granularity required by the reporting metrics and how frequently they will be obliged to report. The more detailed and frequent the reporting requirement, the more onerous and costly for the employer. Many employers will be relieved to see that the consultation envisages a delayed commencement process to allow time for businesses to prepare. Nonetheless, large employers should consider now how they will approach gathering the relevant data and who will have ownership of the process within the business. If you would like any advice on this area please contact Amanda Steadman or your usual AG contact.