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Mind the gap - the Implications of the Gender Pay Gap Regulations

on Tuesday, 17 May 2016.

The gap between male and female pay remains stubbornly around 20% despite the existence of legislation introduced in the 1970s outlawing unequal pay as between the sexes.

Recognising the inequity in pay, the government in July 2015 announced ambitiously that it would seek to 'end the gender pay gap in a generation'.

The government published a consultation paper Closing the Gender Pay Gap on proposals to introduce a mandatory gender pay reporting requirement for the private sector sector and published its response to the consultation earlier this year.

The draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2016 were appended to a further consultation paper. The Regulations are expected to come into force on 1 October 2016.

Which organisations will the Regulations apply to?

The Regulations will initially apply to private sector employers (including charities) with 250 or more employees.

An important and interesting aspect for businesses is which staff fall within the definition of 'relevant employees'. In the first draft of the Regulations, this was defined narrowly and would only cover staff engaged under a contract of employment.

However, in response to the consultation it is likely that a broader definition will be adopted which may then include casual staff and other workers. This may result in higher numbers of staff falling under the definition of relevant employees, which could be critical in determining whether staff numbers are above 250.

It is important that businesses review the structure of their group and any associated organisations. Any businesses that are part of a group with the same 'employer' will need to amalgamate all the staff across the group for these purposes. However, in a structure involving various and separate group companies, there is no requirement to aggregate the number of relevant employees.

A business close to the qualifying number of 250 may need to err on the side of caution to avoid failing to comply with the requirements should staff numbers increase over the threshold. Particular attention will also be required where a business is in a process where TUPE applies and may result in an influx of additional staff.

Even businesses with less than 250 staff may elect to comply with the Regulations to demonstrate best practice, or may find themselves under pressure to do so.

What information needs to be published?

Businesses will be required to report on a range of different data:

  • the difference in mean pay between genders (expressed as a %)
  • the difference in median pay between genders (expressed as a %)
  • the number of men and women in each quartile of the pay range
  • the difference in mean bonus payments between genders (expressed as a %)
  • the proportion of men and women in the workforce that received a bonus

How will the hourly pay rate be calculated?

It will be necessary to calculate a gross hourly pay rate for each member of staff, which is determined by reference to weekly pay and basic paid hours. Determining the appropriate hourly rate may well present practical difficulties for businesses that often have staff working a wide range of working patterns. However, is it is not completely clear if it will be necessary to calculate the actual hours worked. Further guidance is anticipated.

Pay will include basic pay, bonuses, maternity pay, sick pay, shift premiums and other allowances. It will not include overtime, the value of salary sacrifice schemes or benefits in kind. This has the potential to skew the figures for businesses that use salary sacrifice arrangements or other benefits such as childcare vouchers.

The omission of benefits in kind, which would include the provision of staff accommodation for example, is likely to be helpful for some businesses but may also mean that the information does not reflect the true value of remuneration packages provided to some members staff.

Businesses will have to establish their full pay range based on gross hourly pay rates and then divide this into four quartiles for the purpose of publishing the information showing the fall of genders within it.

What is the timeframe?

Pay data will be based on 30 April pay roll each year. The information will need to be based on the usual pay period which includes 30 April, for example, the month of April.

Businesses will need to be prepared to capture the relevant data in April 2017, with the first reports required by April 2018. The reports will need to be signed off by a Director or equivalent before publication.

The reports must be published on the businesses' website every year, and remain there for at least three years. The information must also be uploaded to a government website.

What are the potential implications for businesses?

The requirement to publish the mean pay gap is intended to identify whether women are over represented at the low earnings end of the spectrum and under represented at the high earning end. It will also be necessary to publish the median difference, in order to represent the 'typical' difference, so this will not be skewed perhaps by a couple of high earners amongst the senior team.

The objective of reporting on the gender breakdown across the quartiles is to identify where women are concentrated across the pay range and, if there is not an even spread, prompt scrutiny as to whether there are any obstacles to their progression. The quartiles will identify the lowest and the highest pay rate, which may also identify or cause speculation as to the levels of pay of the highest earners in the business.

The government's initial intention is for employers who do not comply to be 'named and shamed'. They will also produce 'sector league' tables to compare the gender pay gaps between different type of sector organisation. Whilst it may be anticipated that financial and professional services will feature at the top of such lists, it will be interesting to see the results.

The government has also committed to review whether civil or criminal penalties for non-compliance should be introduced in due course.

The information could also be used by employees and their trade unions to challenge pay, with the threat of equal pay litigation where differences in pay are identified. The greatest risk of equal pay claims (at least initially) is by individuals of different genders who are undertaking similar work, or work of 'equal value' but are paid differently, perhaps for historical reasons.

The large multiple equal pay claims in the public sector also arose from a comparison of jobs which attracted a gender bias, for example maintenance staff and catering staff, where there were inconsistencies in pay rates or other financial terms.

Businesses also need to be alert to the reputational risks if the reported information identifies pay differentials between men and women which is likely to undermine the values and ethos they aim to promote.

Managing the potential risks

Businesses have until April 2017 to analyse their gender pay gap and whether the gender pay report is likely to create any legal or reputational risks.

We would urge businesses not to delay in getting to grips with this but ensure that systems are in place as soon as possible to capture the necessary data so that a practice run can be carried out. If this identifies potential risks, then businesses can consider strategies to manage this ahead of time.

It may be helpful for businesses to undertake this preparatory work with the support of their legal advisers to ensure this can be assessed within the protection of legal professional privilege. Businesses will otherwise need to be exercise some caution and be aware that any 'practice' data or preparatory reports have the potential to be disclosable in any future litigation or as part of a data subject access request.

It may be necessary to take steps to identify and address any pay differentials. Alternatively, if there is a good (non-discriminatory) reason to explain any differentials steps can be taken to evidence this. We anticipate that employers will be encouraged to submit a 'narrative' alongside the gender pay report and this may be a critical tool to explain results or promote positive aspects. It will definitely be worth spending some time working on this and even taking PR advice where appropriate.

Businesses may also want to consider whether it is actually helpful to publish more data if this would create a more accurate picture, for example comparing 'like' employees rather than teachers with hourly paid teaching staff, who may not undertake a full range of duties and responsibilities.

What steps should businesses be taking now?

We would recommend that businesses use the time before April 2017 to ensure that they are fully prepared for the regulations:

  • Ensure that your business has appropriate systems in place to capture the relevant data.
  • Take the opportunity to review your pay policy to ensure this is transparent and legally compliant.
  • Ensure that the business has an up to date Equality policy and that staff have had training on this (particularly those involved in recruitment, promotion and pay decisions).
  • Ascertain the gender pay gap - do a practice run.
  • Analyse the legal, organisational and reputational risks of the gender pay gap, and consider a strategy to address these.
  • Take steps to ascertain the cause of any gap and the options around how it can be closed.
  • Consider the presentation of the gender pay report and the appropriate narrative.

For further information, please do not hesitate to contact our Employment Law specialist Allison Cook.

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