The final draft version of the gender pay regulations has now been published. A number of the changes to the original draft regulations which appeared in the government consultation on the gender pay reporting for public sector employers over the summer, have been incorporated in the regulations but there are also some new definitions and requirements and the regulations still leave some uncertainties.

Which employers have to provide gender pay gap information?

The regulations still just apply to private and voluntary sector employers with 250+ employees, but not to public sector employers. As to precisely what rules will apply to public sector employers, we now await the government's response to the separate consultation on the reporting obligations for public sector employers.

What are the key changes from the original draft regulations published in February 2016?

  • A new wider definition of employees: covers employees and workers (except where the employer does not have, and it is not reasonably practicable to find, the worker's data) but excludes partners. The definition does not appear to be restricted to employees ordinarily working in Great Britain, nor to the employer being based in the UK, potentially causing problems for international employers. In addition, the definition of employee in the regulation expressly excludes partners in a firm, whether working in a limited liability partnership or otherwise, which will mean that the top earners in the biggest law and accountancy firms will not be included

This is a significant change. Employers who have so far concluded that they might not be caught by the regulations should review now that decision to check that whether they employ 250+ relevant employees which may include, for example, consultants and zero hours workers. Also caught are employees who although not based in Great Britain, have a strong connection with Great Britain – which may need to be assessed on a case by case basis.

We were hoping that the final draft regulations would clarify how group companies would be treated but this has not been addressed. As a result, it appears that if a group of companies employs 500 employees overall but none of the companies forming part of the group employs 250 or more employees individually, then compliance with the new regulations would not be required. It may be that the Government’s guidance will clarify this point once it has been issued.

  • Pay does not include statutory sick pay or statutory maternity pay; bonus pay is included in pay if it is paid in the relevant pay period, but it is pro-rated

This is another significant change affecting how to calculate mean and median pay. Under the new regulations, "Pay" includes paid leave (including annual leave, sick leave, maternity and other family leave pay) only if the employee is paid at their usual rate of pay. The previous inclusion of all forms of paid leave was criticised because it artificially depressed the average woman's pay unfairly e.g. where maternity pay was paid at the statutory rate (£135.58 per week). Not all criticism has been heeded though: the new definition continues to exclude overtime pay – which was criticised since more men work overtime than women, and so may mask the full extent of the gender pay gap.

Bonus pay – The new regulations make it clear that only those bonuses which are paid to an employee during the relevant pay period in which the snapshot date falls, must be included; those awarded but not paid out in the relevant pay period are to be excluded. Furthermore, only the pro-rated amount of the bonus should be included; so for example, in the case of an employer who pays salary on a monthly basis, only 1/12th of an annual bonus paid during the relevant pay period would be taken into account. The relevant pay period is effectively the "snapshot" period referred to below.]

  • The regulations set out steps to identify the "hourly rate of pay" and clarification of what is an employee's working hours in a week.
The aim of the regulations is to use an employee's gross hourly rate of pay to measure the gender pay differences. An hourly figure is more useful to compare male and female pay, as men on average work longer hours than women. The new regulations make clearer the steps which an employer must take to calculate hourly pay. There is also more guidance on how to calculate an employee's weekly working hours pay where hours vary from week to week, such as for casual or shift workers.
  • The definition of bonus pay is wider and includes securities, securities options and interests in securities.
The definition of "bonus pay" previously included "the cash equivalent value of shares" but this has now been extended to a broader range of securities, as used in the tax avoidance legislation, so covers, for example, debentures, warrants, units in collective investment schemes, options etc.
  • Employers must report on:
    • mean and median hourly pay rates
    • mean and median bonus pay (originally this was just mean bonus pay)
    • quartile pay bands (this has changed – see below)
    • proportion of men and women who are paid a bonus.

Bonuses are often said to be the least transparent element of pay and are often blamed as a significant cause of gender pay gap. To re-cap, bonus pay is included twice: firstly with the pro-rated bonus element rolled up with other earnings to calculate the mean and median pay; and secondly bonus payments must be shown as a separate statistic, showing the differences between the mean bonus payments made to men and women. The new regulations add an obligation to publish the median bonus pay gap, on top of the mean.

Mean pay is the total of each worker's pay divided by the total; median pay involves ordering each worker's pay from high to low and taking the middle figure. Median pay (and now median bonus pay) may give a better indication of typical pay because it is less affected by a relatively small number of very high or very low earners.

  • Quartile pay bands must be calculated by dividing the workforce into 4 equal sized groups.
This is a welcome clarification since the original regulations were unclear on this point. It was originally thought that the requirement was to divide the overall pay distribution into 4 equal portions, possibly leaving small numbers of employees in certain quartiles e.g. the CEO's salary may occupy the entire top quartile. Instead, it is now clear that employers must arrange the pay data in order from the lowest paid worker to the highest and divide the total number of workers into four bands, so each band contains 25% of the total workers. This approach will show up more clearly any particular concentrations of gender (e.g. mostly female in bottom quartile, or most male in top quartile). For organisations with few top female earners, this new approach would highlight the issue.
  • The data 'snapshot' date is 5 April 2017 (not 30 April 2017 as originally planned).

To recap, pay is measured in respect of a "snapshot period" rather than as an average over a year. This is the period in respect of which the employer pays the employee basic pay. So for employers who pay their employees on a monthly basis, this would be the month in which the snapshot date falls, but it could be weekly, fortnightly, or any other relevant period. All employers will have to take a snapshot of their gender pay data in April 2017 and annually thereafter in April. Employers then have 12 months to report the data and can choose the best time to do that.

  • The deadline for publishing the information is 4 April of the year after the data was collected, so the first deadline will be 4 April 2018 (not 29 April 2018 as originally planned).
  • In the Explanatory Note (but strangely not in the body of the regulations), it says that failure to comply with an obligation under the regulations constitutes an "unlawful act" within s.34 of the Equality Act 2006 which empowers the Equality and Human Rights Commission (EHRC) to take enforcement action.

Originally it was thought that the "naming and shaming" approach to enforcement would drive change through public pressure. Now, in addition, the EHRC will have power to take enforcement action against an organisation which fails to comply with the regulations. EHRC enforcement powers include investigations, making an unlawful act notice, requiring the employer to prepare an action plan. Failure to prepare an action plan without reasonable excuse is a criminal offence liable on summary conviction to a fine not exceeding level 5 on the standard scale.

It is unclear how the EHRC will monitor compliance. Employers will be required to publish the information on their own websites and a website designated by the Secretary of State. How the EHRC will be able to determine which employers in scope of the regulations have not published the relevant information remains to be understood.

The government has indicated that supporting guidance will be published as soon as Parliament has passed the regulations.

What do you need to do now?

Check whether, in light of the new definition of employees, your organisation will be caught by these rules. If so, take legal advice about the type of information you will need to gather and the consequences of your findings to benefit from legal advice privilege, protecting the confidentiality of the information.

For those organisations which have already carried out a mock pay audit, consider the extent to which the changes to the reporting rules highlighted above will impact on your gender pay gap data.

See our February update for information on the draft gender pay regulations here.

Click here for the new draft regulations.

Click here for the consultation document on mandatory gender pay reporting for public sector employers.

For information on the rules, and support we can provide by taking you through the gender pay audit process and the benefits for your business, click here.

Key dates

Early 2017 - The new gender pay gap regulations for companies with at least 250 employees are expected to be approved by Parliament. Once approved, the government will issue guidance with tailored information on the reporting requirements

From 6 April 2017 - Start collecting and calculating the first tranche of gender pay data for your organisation. Consider whether to provide any additional information or an explanation of the data to put your findings into context, and also consider how to present the information and when would be the best time to publish it

On or before 4 April 2018 - Publish the first gender pay gap report