Strategy & Operations » Financial Reporting » Gender pay gap reporting: Do you know the facts?

Kate Hodgkiss, a partner at leading law firm, DLA Piper, explains what the new gender pay gap legislation means for companies

April 2017 marked the beginning of a new era in gender pay transparency, as new legislation was implemented that requires companies of a certain size report their gender pay gaps.

The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 mean  employers with 250 or more employees have to to publish their gender pay gaps within the year, and annually thereafter.

The task of managing this process, and the accuracy of the information published, falls squarely upon senior management, with a director required to sign off the information and confirm it is accurate.

The information must not only be published on the organisation’s own website, but also uploaded onto a specially designated Government website, set up to capture the pay gaps for all affected employers.

With the 4 April 2018 deadline fast approaching, it is the responsibility of senior management to ensure that their organisation is prepared.

Which employees are in scope?

This is not as straight-forward as it may first seem. One of the key issues for employers will actually be unpicking precisely which workers are in scope, firstly with regard to meeting the 250 threshold, and then to undertaking the relevant calculations.

The legislation uses a wide definition of employment, which encompasses employees, apprentices and anyone with a contract personally to do work. This will clearly cover zero hours employees and casual workers, plus other workers who provide personal services, including some independent contractors.

But there are some grey areas where it will be unclear as to whether the individual is in scope. It will also be necessary to carefully consider employees who work outside the UK. Their inclusion, or otherwise, is likely to depend on the strength of their connection to the UK.

One critical factor for many businesses will be to ensure that the way workers are categorised for reporting purposes is consistent with, and does not undermine, their employment status strategy in other areas.

What information must be published?

Employers will need to publish the following information.  For this first year of reporting, they must use data taken on the snapshot date of 5 April 2017:

  • The difference in the mean and median pay of male and female employees;
  • The difference in mean and median bonus pay of male and female employees;
  • The proportions of male and female employees who were paid a bonus in the previous year; and
  • The proportions of male and female employees employed in quartile pay bands.

The calculations required to produce accurate figures for each of these obligations are complex and there are anomalies around the information that needs to be taken into account.  For example, the definition of pay excludes overtime pay, which may lead to a distorted reflection of the gender pay gap, particularly if overtime is predominantly done by male employees.

Employers will need to ensure that they are fully on-top of the requirements and that, where there are grey areas, there is a reasoned basis for any decisions they make about the pay data they include, or exclude.

It is important that consistency is carried through year-on-year to ensure that any pay gaps can be tracked, and presented, in a meaningful way.  It is not mandatory to include any narrative to accompany the figures, but some employers may feel it is useful to do so.

What guidance is available to assist employers?

ACAS and the Government Equalities Office has published guidance on ‘Managing the gender pay reporting obligations’.  Employers should ensure they fully familiarise themselves with the guidance, but it is worth noting that it is not exhaustive, and some assistance may be needed to understand fully what needs to be included in the complex calculations and the extent of any narrative provided.

Should employers worry about revealing a gender pay gap?

The publication of a gender pay gap potentially presents reputational issues for employers and may stand out negatively against smaller gaps disclosed by competitors in the marketplace.

This may potentially affect recruitment and tendering processes, amongst others.  However, the Government has taken the view that these market pressures will actually encourage employer compliance with the pay reporting obligations, without the need for further sanctions (although the guidance does suggest that the Equality and Human Rights Commission has the power to take enforcement action in case of complete failure to report).

It is important to be aware, however, that the existence of a gap is by no means a perfect measure of equality within an organisation.  By comparing the pay of all women and all men, the required calculations obscure the fact that there may be significant differences in the characteristics of the workforce and the jobs they do, and conflates positive choices which women make about work-life balance, education and career path with constrained career decisions due to caring responsibilities, and sex discrimination.

The existence of a pay gap does not prove unlawful pay discrimination and considered use of narrative alongside the published figures may be useful to explain any issues which an organisation believes have affected the size of its gender pay gap.

In general, it is also likely to be prudent for employers to look closely at their pay policies, as a positive step towards achieving pay equality, and to increase workplace transparency about pay structures, including using performance review processes to be clear to employees about the basis for any pay awards.

 

Kate Hodgkiss is a partner at leading global law firm, DLA Piper.