The Gender Pay Gap and the New Duty to Report
You’ve probably heard about the gender pay gap. You may have even heard that regulations likely to come into force this October will seek to deal with (and by deal, we mean, try to eliminate) it.
Sounds simple. But as we all know, sometimes, things aren’t as simple in practice as the legal requirements might suggest.
Here’s the simple view of things for starters.
In a nutshell
- These are currently just draft regulations. But whilst the detail may change, the bigger picture is unlikely to.
- If you’re an employer outside of the public sector and have 250 or more employees you’ll be caught.
- You’ll have to publish certain gender pay gap information from April 2018 onwards covering the preceding year, which means you’ll have to start gathering data from April 2017.
- The employees whose data must be included will be those who ordinarily work in Great Britain and whose contract is governed by UK law.
- You’ll have to publish 5 things in respect of these employees (see the gender pay gap report, below). The information you’ll have to publish is designed to highlight discrepancies in pay and bonus pay between male and female employees, and to identify any ‘glass ceilings’.
- People at the top of your organisation (e.g. a director if you’re a company) will have to verify via a statement that the gender information is true. You’ll then have to publish it on your website and upload it to a government website.
- There’s no fine or criminal sanction for not complying: instead the current plan is to ‘name and shame’.
- There’s also no ‘official’ punishment for having huge gender pay gaps, but there is likely to be an impact on your reputation and on recruitment and talent retention.
Here’s where things may get more interesting.
The draft Regulations assume that gender comes in two categories. We know that that’s an outdated starting point and an over-simplification.
A significant recommendation of the recent report, “Transgender Equality” by the Women and Equalities Select Committee, was that the process by which trans-people could legally change their gender should be overhauled and replaced with a much more straightforward system.
The law as it currently stands (Gender Recognition Act 2004) means that in order to be granted a Gender Recognition Certificate (GRC) and have the sex on their birth certificate and other identifying documents changed, a transgender person must apply to the Gender Recognition Panel, providing, amongst other things, proof of a medical diagnosis of gender dysphoria, and evidence that they have lived fully for the last two years in the acquired gender role and intend to live in it permanently.
This process, the committee found, is outdated, medicalised, “pathologises trans identities”, and should be replaced with an administrative process “in line with the principles of gender self-declaration… centred on the wishes of the individual applicant, rather than on intensive analysis by doctors and lawyers”.
The report also recommended that the Government should look into the need to “create a legal category for people with a gender identity outside that which is binary and the full implications of this.”
Enlightened employers and HR professionals have been alive to the issues surrounding gender identity for some time. Since the Equality Act 2010 made “gender reassignment” a protected characteristic (with the potential for discrimination claims), other employers have started to sit up and take notice.
Under current plans, certain employers will have to report on the differences in pay between male and female employees. Where an employee’s gender isn’t clear-cut, reporting may give rise to some careful considerations. Should you need help with this, or with any other sensitive or difficult HR decisions, do please give us a call.
Under the current draft regulations, ‘pay’:
- includes basic pay, paid leave, maternity and sick pay, shift premiums, bonuses, car allowances and other allowances paid through the payroll;
- doesn’t include overtime, expenses, benefits in kind, the value of salary sacrifice schemes, redundancy or arrears of pay and tax credits;
- is to be calculated using gross figures (i.e. before deductions for PAYE, national insurance, pension schemes, student loan repayments and voluntary deductions).
- As salary sacrifice schemes in their current (employer-led) form are being phased out, it’s perhaps not surprising that these are excluded. However, including maternity pay, and excluding overtime will impact on the overall figures. If you’re an affected employer, it’s worth looking at your figures sooner rather than later and considering whether you might need to include an accompanying narrative to explain any discrepancies.
Bonus pay, as well as being part of ‘pay’ is singled out as a category on its own. This is presumably due to a concern that the mean bonus paid to those men who receive a bonus is larger than that paid to those women who receive one, and the desire to avoid a “clever timing” of bonuses to fit in/around the “snap shot” view (see point 3 below) each April.
The pay period is defined depending on how often the relevant employees are paid (e.g. a month for monthly paid employees; a week for weekly paid ones). Employers will need to calculate a “gross hourly rate of pay”- weekly pay divided by weekly basic paid hours -for each relevant employee.
The Gender Pay Gap Report
As things stand from April 2018:
Employers with 250 or more relevant employees must publish annually, in respect of all such employees:
the difference between the mean pay of the men and of the women during the pay period expressed as a percentage of the mean pay of the men.
as above, but replace ‘mean’ with ‘median’.
The above 2 data sets will be snap-shots, based on a relevant pay period on 30 April each year. The draft regulations explain how to work out each figure (including, for those who’ve not done averages in a while, what ‘mean’ and ‘median’ mean!) A negative percentage figure will mean that the average pay of men is lower than the average pay for women.
the difference (as a percentage) in mean bonus pay during the twelve months preceding 30 April using a similar formula to that above. (Using the whole 12 month-period, as opposed to a snap-shot here, ensures that employers can’t cleverly time their bonus payments).
the proportion of male and female employees who received bonus pay during that 12 month period (as a percentage of the total number of male or female employees respectively); and
the number of men and women in each quartile of their pay distribution in the workforce.
Employers will have to list all relevant employees in order of their gross hourly rate of pay and then divide that list into four quartiles, each containing a quarter of the organisation’s employees. One of the aims of this is to highlight any barriers to progression (e.g. if most of your women employees are in your bottom quartile and most of your males employees are in your top one, people –you included – might ask why.)
The full pay report information must be published on the employer’s website every year, and left there for at least three years. The regulations set out who (within the employer organisation) must sign off on the pay gap information and confirm that it is true. The employer must also upload the information to a “government sponsored website”. As we discuss below, this is another “incentive” for employers to look at the data carefully.
Employers will therefore have to add up their employees and, if they’ll (likely) have more than 250 on 30 April 2017, start keeping track of pay data from that point.
The government’s initial intention is for employers who do not comply to be ‘named and shamed’. They may review whether civil or criminal penalties for non-compliance should be introduced in due course.
There’s still time to get your house in order. Use this time wisely to:
- Consider whether you have or are likely to have 250 or more employees in 2017 and consider their gender if it’s not clear-cut.
- Consider pay and bonus structures and gather information to assist you in understanding and identifying pay gaps.
- Consider whether you have the systems and processes in place to collect and collate the relevant data. If April is your financial year end (and a busy time anyway), make sure you resource for this additional task.
- Analyse data to determine the causes of pay gaps and develop an action plan to deal with any identified issues – whether via explanatory notes, or by making more fundamental changes.
Watch out for…
Employers’ gender pay gap data will become available via a government sponsored website, allowing easy comparison by potential and existing employees. Employers will need and want to ensure that their data is correct, and that anything which ‘looks bad’ is – if it’s possible to do so – fully explained or remedied.
The public perception angle is something we seem to be seeing more and more of in the employment arena as Government increasingly pushes additional responsibilities onto companies, relying chiefly on the media and public pressure to ensure ‘enforcement’. (A case in point is the need for large companies to publish an annual slavery and human trafficking statement under the Modern Slavery Act). Bad PR about your company’s HR – whether on gender or modern slavery grounds – is best avoided.
There’s also the possibility of a dribble-down effect (similar to that we’ve seen with Modern Slavery Statements) with smaller companies feeling a need to report in order to compete in talent attraction. Voluntary gender pay gap reporting didn’t have many takers; but now that it’s mandatory for bigger employers, there may be a wider uptake amongst those that though not technically caught, want to show how good they are!
Which brings us neatly back to the beginning. As we said there, sometimes, things aren’t as simple in practice as the legal requirements might suggest. Don’t assume that this is simply a number crunching exercise that you can leave until the last minute (and then push onto your accountants). Have a trial run soon. See what questions this throws up.
This Bulletin contains general overview information only. It does not constitute, and should not be relied upon, as legal advice.
Please contact HRC Law for further information or advice on this subject.