On 6 December 2016 the Government published the final draft of The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (Regulations), together with an Explanatory Memorandum. At the time of writing, the Government's response to the consultation on the draft rules has not been published. Supporting non-statutory guidance for employers will be published after the Regulations have been approved by Parliament. The intention is that the Regulations will come into force on 6 April 2017.
For background about the gender pay gap reporting proposals, you can read our report here.
We highlight below the key points of change between the first and final drafts of the Regulations. Our detailed Guide for Employers on the gender pay gap reporting regime will be circulated to you shortly.
Date the Regulations come into force
The original intention was that the rules would come into force on 1 October 2016. However, the Regulations are now due to come into force on 6 April 2017.
The original intention was that employers would gather the relevant gender pay data by reference to a snapshot date of 30 April each year. This has been brought forward to 5 April each year. The first snapshot date will be 5 April 2017. The rationale for the change is that this date will reduce the extent to which employers are required to collate data from more than one tax year.
The original intention was that employers would publish their gender pay information within 12 months of the 30 April snapshot date each year i.e. by no later than 29 April each year. As the snapshot date has been brought forward, the reporting date has also been brought forward. This means that employers must report within 12 months of 5 April each year i.e. by 4 April each year. The first reporting date will be on (or before) 4 April 2018.
Definition of "employee"
There was some uncertainty about who counted as an "employee" for the purposes of gender pay gap reporting. Prior to the publication of the Regulations, the Government had clarified that the wider definition of employment found in section 83 of the Equality Act 2010 was intended to apply. This would mean that "employees" are those employed under a contract of employment or apprenticeship or a "contract personally to do work". This could cover workers (including, for example, LLP members) and some self-employed contractors.
The Explanatory Notes to the Regulations provide that the wider section 83 Equality Act 2010 definition of employment applies for the purposes of determining whether an employer is a "relevant employer" covered by the Regulations. A "relevant employer" is defined as an employer who has 250 or more "employees" on the snapshot date. Once in scope, relevant employers must produce and report gender pay information for their "relevant employees" only. A "relevant employee" is defined in the Regulations as someone who is employed by a "relevant employer" on the snapshot date, with two important caveats:
- Partners and LLP members are expressly excluded from the definition "relevant employee" (but may count as employees for the purposes of triggering the application of the Regulations in the first place).
- There is no requirement to include data relating to relevant employees who are employed under contracts personally to do work where the employer does not have (and it is not reasonably practicable to obtain) the data relating to that individual. This exception is welcome as many employers do not hold sufficient pay data for independent contractors who work variable hours and are not paid via payroll. However, the exception will only apply where the employer does not have the data or it is not "reasonably practicable" to obtain it – no guidance is given on what this means.
The Regulations do not address whether an employee who works wholly or mainly outside Great Britain should be included in the calculations. The Government guidance has yet to be published and it is hoped that the position will be clarified.
What is to be reported – the gender bonus gap
The overall bonus gap must be reported on both a mean and median basis. This represents a change to the original position which was that the bonus gap had to be reported on a mean basis only. The rationale for this change is that reporting both the mean and median figures will provide greater transparency around the distribution of bonuses within the organisation.
Overall pay gap calculations – exclusion of relevant employees who are paid reduced rates of pay when absent on certain types of leave
One concern employers had with the proposed definition of "pay" was that it included statutory family and sick leave payments within the calculations. It was considered this could unfairly skew the results.
The Government has taken on board these concerns and stipulated that, for the purposes of calculating the overall mean and median pay gaps, the employer only needs to include data for "full-pay relevant employees". This is defined as a relevant employee who is not, during the relevant pay period, being paid at a reduced rate or nil as a result of being on leave. The types of "leave" covered are:
- annual leave;
- maternity, paternity, adoption, parental or shared parental leave;
- sick leave; and
- special leave (which is not defined).
However, employers should note that non-full pay relevant employees are only excluded from the overall gender pay gap calculations and the pay quartile tables. They must still be included in the gender bonus gap calculations and the reporting of the proportion of male and female employees who have received a bonus (although this will only be relevant where they have received a bonus payment within the relevant 12 month period).
Meaning of "ordinary pay"
A number of clarifications have been provided on what counts as ordinary pay for the purposes of the overall gender pay gap calculations.
- A non-exhaustive list of allowances which are included has been provided. This includes allowances paid in respect of ancillary duties (e.g. fire warden), location allowance, car allowance, recruitment and retention allowances, and allowances in respect of the purchase, lease or maintenance of an item.
- Termination payments are excluded. The original position had stipulated that "redundancy payments" were excluded from the calculations, however, it was not clear whether other types of termination payments should be included or not. The Regulations confirm that these are also out of scope.
- Payments in lieu of leave are excluded. This had not been specified in the previous draft of the Regulations.
Calculating the hourly rate of pay
In order to carry out the comparison exercise, employers must work out the employee's hourly rate of pay. It was not clear whether this was to be done using the employee's actual hours of work, or their contractual hours.
The Regulations clarify that different rules apply depending on the employee's circumstances.
- Where an employee has normal working hours each week then the hours of work will be those specified in the employee's contract of employment.
- Where an employee has no normal working hours, or the number of working hours differs each week, then the hours of work will be calculated by working out the average working hours calculated over a 12-week period ending with the last complete week of the relevant pay period.
The hourly rate of pay is then calculated by reference to a six-step process set out in the Regulations.
Meaning of bonus
The Regulations provide that bonus pay means any remuneration that:
- is in the form of money, vouchers, securities, securities options, or interests in securities; and
- relates to profit sharing, productivity, performance, incentive or commission.
The Regulations provide remuneration in the form of securities, securities options and interests in securities are to be treated as "paid" to the employee at the time they are charged to tax (or would be charged to tax if the relevant employee was an employee for the purposes of tax legislation).
Men and women working across pay quartiles
There had been a lack of clarity about how employers should create and populate the pay quartile information. The Regulations clarify that the employer should take the highest and lowest hourly pay rates and divide these into four equal quartiles. They must then calculate what percentage of men and women occupy each quartile. For example, if 15 men and 5 women sat in the top hourly pay quartile, this would be represented as 75% of men and 25% of women occupying that band.
Support for employers
The supporting non-statutory guidance is to be published after Parliament has approved the Regulations.