09 December 2016

Gender Pay Gap Reporting arrives early - but questions remain

This article was written by Chloe Scott, Associate, and Tamsin Rickard, Professional Support Lawyer.

The government has published the revised draft Equality Act 2010 (Gender Pay Gap Information) Regulations, which are expected to come into force on 6 April 2017.

In summary, the Regulations oblige larger employees (with 250+ employees) to publish on their website, and submit to the Government, specified information about the gender pay gap in their organisation.

And in a change from the previous draft regulations, this information must relate to a "snapshot" of the workforce as at 5 April (rather than the previously trailed date of 30 April) each year - and must be published within 12 months of that date. As such, employers will have until 4 April 2018 to publish their first gender pay statistics.

A recap of the headline points:

  • employers with 250 or more employees must comply. It is unclear whether this threshold must take into account employees based outside the UK, which could introduce uncertainty for international employers. It also appears from the Regulations that employers do not need to aggregate employee numbers across corporate groups in determining whether the 250+ threshold is met. Government guidance will be published in due course, which may shed light upon this and other points that remain unclear at this stage;
  • 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 according to quartile pay bands (i.e. how many men and women are in the top 25% of earners, then by the next 25% down and so on) as well as specific reporting of the bonus pay gap (which under the revised Regulations will now include the difference in median bonus pay in addition to the difference in mean bonus pay) and the proportion of men and women who received a bonus;
  • the definition of bonuses is broad and could potentially capture LTIPs and share plans, although this may be clarified in the Government guidance. 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.

Notable changes from the previous draft regulations include:

Workers not just employees

The category of “relevant employees” whose pay data must be reported on covers not only conventional employees but a wider group including workers, following the definition in the Equality Act 2010. It expressly does not include partners or LLP members however, which is a welcome clarification for many employers.

Workers on reduced pay excluded

Pay data relating to employees who, during the relevant pay period, are paid at a reduced rate or nil as a result of being on leave (to include annual leave, family-friendly leave, sick leave and special leave) will now be excluded from the reporting requirement. While this will allay concerns that the gender pay gap could appear greater if a significant number of employees are on maternity leave and receiving reduced pay during the relevant pay period, the question remains as to whether data will be skewed in other ways if women on maternity leave are removed from the data entirely.

Exemption where data not obtainable

The revised Regulations include a specific exemption from the reporting duty for workers where the employer does not have or can't reasonably obtain the relevant data - which could prove useful where a business relies on staff whom they do not employ or engage directly, and so may not have access to the relevant data.

Calculations clarified

The Regulations include clarification of the mechanics for calculating the notional hourly rate of pay (for the purpose of calculating mean and median pay data).

What does this mean for employers?

Employers caught by the regulations should be taking preparatory steps to comply as soon as possible, particularly in light of the earlier than expected "snapshot date” triggering the obligation. And employers must take note: the new regime had previously been criticised for the lack of penalties for non-compliance. Now, the explanatory note to the Regulations states that failure to comply will constitute an "unlawful act" under the Equality Act, empowering the Equality and Human Rights Commission to take enforcement action. This is an indication that failure to comply could bite employers hard, in the form of high profile and very public exposure of their pay practices.

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