PAYnotes on Gender Pay Reporting – What employers need to know
Last week finally saw the government publishing draft regulations for employers on mandatory gender pay gap reporting. From the 1st October, the regulations will come into force, requiring employers with over 250 employees to publish information about the pay and bonus gap between their male and female employees.
As an organisation with over 10 years’ experience of conducting Equal Pay Audits, I thought it would be useful to summarise how this latest legislation affects employers.
Employers will not be required to publish their information for the first time until April 2018, covering the 12 preceding months and then for three consecutive years, on the anniversary of the 30th April. For many employers, this means that their 2016 pay review represents their first opportunity to reduce their pay gap figure. The 2018 publication will no doubt generate a lot of (potentially negative) publicity as the inevitable comparisons between employers and sectors are made. From 2019 onwards the focus will turn to whether employers have started to reduce their pay gap or not.
Who is affected by the legislation?
Whilst employers with 250 or more employees working in Great Britain are obviously directly affected; a wide range of stakeholders (such as employees, competitors, unions, and the general public) will be especially interested in the published figures.
What information is published?
Pay and bonus information is to be analysed and published separately. Publishing the “gross hourly rate of pay” ensures the figures are not affected by the number of hours worked. Interestingly the pay figure includes bonuses and car allowances. This increases the potential for pay gaps as, for bonuses in particular, the amounts received are often individually-determined. Likewise, the inclusion of LTI and shares may particularly affect pay gaps at senior levels.
How are males and females compared?
Employers are required to publish four different pieces of information:
- Pay – The Mean and Median differences between males and females
- Pay – The number of male and female employees paid in each of the four quartiles, for example first band is the lowest-paid employee to the 1st quartile employee (25th percentile)
- Bonus – The Mean difference between males and females, excluding those employees who did not receive a bonus
- Bonus – The proportion of male and female employees (% of total) who received a bonus
To calculate the mean or median differences, employers must subtract the Female figure from the Male figure, then divide by the Male figure, and finally multiply by 100.
The inclusion of both mean and median figures is welcome as they are affected differently by the distribution of the sample population. Including the quartile pay figures also provides further detail on the pay distribution across male and female employees. Including bonus figures places greater emphasis on the potential gaps in total package. However, some employers may find it more difficult to collate the bonus information as, unlike pay, it is not always stored on payroll.
Furthermore, the latest legislation is focused on top-level gaps in gender pay progression, as opposed to gaps in like-for-like work. From their discussions with employers and HR experts, the government have cleared recognised the difficulties in making like-for-like comparisons given that employers use different job evaluation systems or have no grading at all.
Where is the information published?
The legislation states that employers must publish their information in English on their UK website, which is accessible by both their employees and the public; and is available for 3 years. The figures must also be submitted to the government through another designated website.
What will the government publish – League tables?
The government state that they will periodically publish a review of the information collected before the 1st October 2021 and at least once every five years thereafter.
There has been much discussion in the media about the government publishing “league tables” to name and shame offending specific employers. In reality the government has currently only proposed to publish league tables of industry sectors. However, given that employers are required to submit their information directly to the government, it would be unsurprising if, insufficient progress is not made towards closing the pay gap; offending employers are eventually named. Given that it will not be until 2019 that the government can test this, it may be some time before employers need to feel concerned. Having said this though, there is nothing to stop a third party from collating and comparing information directly from different employer websites. It is also interesting that the government have left the door open to updating or removing legislation in future if it proves too much of a burden to employers.
Although the government are collecting comments on these draft regulations until mid-March, it appears likely that legislation will come into force by the 1st October.
Whilst many employers will generally not find it too time consuming or and resource-heavy to fulfil this new legislation, publishing imprecise figures could potentially result in negative publicity. The legislation forces employers to publish potentially alarming pay gap figures that do not exist when examined in more detail and on a like-for-like basis.
Regardless of Gender Pay Reporting, it remains illegal for employers to operate unequal pay practices and the risks of ignoring equality are significant. The dangers of ignoring equal pay are: potentially significant financial damage from tribunals, disclosure of sensitive data, adverse impact on employee engagement and therefore retention, and most importantly the reputational damage / negative PR for employers who are exposed as unequal payers.
This latest legislation is another step from the government in forcing employers to address pay equality within their organisations. Indeed as a result, since July we have found pay equality moving higher up employers’ agendas, with more wanting to be pro-active on the issue.