14 September 2016

Gender pay gap reporting: Are you ready?

This article was written by Cerys Williams, Counsel

Gender Pay Gap reporting has been a very long time in gestation. It was first provided for in the Equality Act 2010 but despite this six year lead time, it appears that implementation will end up being quite a rush. The legislative process began in earnest in Autumn last year when preliminary consultations were held and subsequently draft regulations were published this February, with a planned implementation date of October.

This was already a tight deadline given that the first reports were to cover the period from April 2017, giving employers very little time to get their houses in order beforehand. The short notice is particularly problematic given that the initial draft regulations left a number of important questions on the operation of the regulations to be clarified unclear.

Unfortunately, this already challenging timetable has now become even more difficult as a result of the hiatus caused by the Brexit referendum and cabinet reshuffle. The process was restarted in August, when the Government formally brought into force the relevant empowering sections of the Equality Act. It is now expected that the final regulations will be published later this month and informal comments from Government have indicated that the final regulations will be laid before Parliament this Autumn, and will commence in April 2017. If this is the case, it is likely that the first "relevant date" under the regulations would remain at 30 April 2017 as previously announced, meaning that the first gender pay gap reports will be due by the end of April 2018.

Employers should not lose any further time in preparing. While the final version of the regulations cannot be predicted with certainty, there are indications that they may bite more broadly than the initial draft suggested, in that:

  • the 250 employee threshold may be counted across corporate groups not individual employers; and 

  • workers, not just employees, will need to be included.

  • employers caught by the regulations will need to publish on their website, and submit to the Government, specified information about the gender pay gap in their organisation, including the mean and median pay gaps for men and women, using a notional base hourly rate; 

  • the report will also require a breakdown of gender by employee quartile (i.e. how many men and women are in the top 25% of earners, then by the next 25% down and so so) as well as specific reporting of the bonus pay gap and the proportion of men and women who received a bonus;  

  • the definition of bonuses is broad and could potentially capture LTIPs, share plans and carried interest plans too, although this may be clarified in the final legislation. Deferred pay is also likely to be caught. 

Figures will have to be left on the company website for three years and will link to a government site where gender pay gap league tables by sector will also be published.

Statistics about the overall gender pay gap in the UK tell us that most employers’ reports will disclose a significant gender pay gap in their organisation. While there may be perfectly valid reasons for this, employers should expect that, as well as the proposed Government aggregated rankings by sector, there may be significant media scrutiny and compilation and coverage of “name and shame” rankings. Clearly, an employer’s report is likely to impact on recruitment and may prompt employees to raise direct complaints and pressure in connection with the reported gender pay gap. In fact, this scrutiny and pressure could be said to be the precise purpose of the new legislation. The reported information obviously will also have evidential value in any relevant bonus disputes, discrimination or equal pay claims. 

As such, employers would be well advised to act now and use the short available window to get their house in order by assessing their gender pay gap now under cloak of legal privilege by involving their lawyers. This will allow them to resolve or at least mitigate issues and prepare to justify – and if necessary defend - their position. There may be scope pro-actively to make use of exceptions under the regulations and to correct outliers that disproportionately distort the statistics in some cases. In some cases, there is (at least based on the initial draft) the potential for alternative approaches to compilation of the data. Once we are in the reporting period post-April 2017, draft interim reports should be calculated well in advance so that appropriate explanations can be developed and to avoid nasty surprises at year end. 

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