Mind the [gender pay] gap

The Equality Act 2010 (Gender Pay Gap Information) Regulations ('the regulations') have been published, together with a draft Explanatory Memorandum. Public sector organisations are outside the scope of the regulations for the time being, but the government has announced that it intends to introduce an equivalent scheme for the public sector, mirroring the same requirements and timescales - so it is worth public sector employers getting to grips with these draft regulations and the changes now. Employers now have certainty over what the final scheme looks like. Any employer caught by the regulations (i.e. with over 250 employees) needs to start preparing now for pay reporting.

Gender pay gap reporting – in brief

• All organisations with over 250 employees will be required to report on the difference between men and women's average earnings (even if the analysis shows no average pay difference).
• The first data analysis 'snapshot' must be captured on 5 April 2017, with the first gender pay gap reports published by 4 April 2018.
• Employers must report on:

- median and mean gender pay gap figures (including bonuses);

- the percentage of men and the percentage of women who received bonuses;

- the number of men and the number of women in each 'pay quartile'.

• Reports must be undertaken annually.
• Gender pay reports must be published on the employing organisation's website and provided to a portal maintained by the Secretary of State.
• The figures in the report must be signed off as accurate by a director, partner or equivalent.
• Employers may provide a narrative alongside the statistics (this is optional).

What has changed under the revised regulations published this month?

Broadly, the final draft regulations follow the same requirements as the original scheme, but there are a number of important changes to note.

• The 'snapshot' date has changed from 30 April to 5 April each year.  
• It has now been clarified that an 'employee' for the purposes of the regulations is defined in the wider sense under section 83 of the Equality Act 2010: anyone engaged to undertake work personally, will be in scope – including workers (but not sub-contractors) as well as employees.
• A concern raised during the consultation process was that figures may be skewed by employees whose pay is temporarily reduced – for example, employees on maternity leave, sabbaticals and long-term sick leave. This has been addressed by an amendment which clarifies that statistics are only required in respect of the hourly pay of "full pay relevant employees".
• The meaning of 'bonus pay' has been clarified and includes vouchers, securities and options, incentive payments and commission, as well as conventional cash bonuses. It does not include overtime pay or remuneration referable to redundancy or termination of employment. The relevant period for bonus pay reporting is the 12 month period ending on the snapshot date. So, for the first gender pay gap report, employers will need to take account of bonuses paid between 6 April 2016 and 5 April 2017 to all relevant employees (not just 'full pay relevant employees').
• There is no need to provide data for employees if the relevant data is not available and it is not 'reasonably practicable' to obtain that data. However, although data in relation to these employees need not be published, they will still 'count' towards the 250 employee threshold.
• The new draft regulations also provide welcome clarification of what is meant by 'quartile pay bands': employees must be split into four equal-sized groups - lower, lower middle, upper middle and upper quartile - organised according to their hourly pay rate, from the lowest to the highest paid. The number of men and women in each pay quartile must then be shown. Regulation 13 sets out how the calculation is to be made.

What if you don't comply?

There are no financial penalties for failing to report, but non-compliance may be investigated by the Equality and Human Rights Commission (EHRC). 

What if you find that you have gender pay gap?

If an organisation's report shows a gender pay gap, there is no specific fine or other penalty, or any specific power for the EHRC to investigate.  However, this information may be utilised by employees seeking to bring equal pay or sex discrimination claims. Remember that any internal discussions regarding a pay gap would be disclosable in any subsequent proceedings, so it may be wise to include your internal or external legal advisors in any communications and meetings in order to take advantage of legal professional privilege.

Another point to remember is that it is possible to provide a narrative alongside the statistics, which may explain any differentials – for example, if a high proportion of female employees were on maternity leave that year and their bonuses were lower as a result (reduced bonuses must still be included in figures; the 'full pay' requirement does not apply to bonuses).

Next steps

Although the regulations are still in draft and will not come into force until they have been subject to Parliamentary scrutiny, it is highly unlikely that there will be any further changes. Therefore, preparations can commence on the basis of the current draft. Prudent employers will be gathering data in advance of the 'snapshot' date, to ensure the data can be obtained and to consider how to deal with any early indication of a significant pay gap.

Further information and guidance

Supporting non-statutory guidance has been promised after Parliament has approved the regulations. Acas has also indicated that it will be producing guidance early in 2017.

Bevan Brittan has contributed to the government's consultation on the draft regulations and has been advising clients on preparing for reporting and dealing with any issues. Please do contact me, or your usual Bevan Brittan contact if you would like a quote for a detailed briefing on this topic or advice on specific gender pay issues.