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The Rules: Government introduces mandatory gender pay reporting

IN JULY, the government launched its consultation on new equal pay regulations. Due in early 2016, these will require businesses with 250 or more employees to carry out an equal pay review and publish information about their gender pay gap.

Section 78 of the Equality Act 2010 (the “Act”) contains a power for the government to make regulations requiring mandatory gender pay gap reporting. Until now, these powers had not been put into effect and a voluntary approach to reporting had been favoured (unless a company has an equal pay finding against it).

However, as only five companies, including PwC, have published their gender pay gaps to date, the government confirmed on 6 March 2015 that it would bring section 78 of the Act into effect and require mandatory gender pay reporting. On 14 July 2015, consultation on the government’s proposals was launched.
This means new regulations will be enacted in the first half of 2016, requiring employers with at least 250 employees to publish information about their gender pay gap. The details of these regulations are the subject of the current consultation, which is due to conclude on 6 September 2015.

There is a suggestion in the government’s consultation paper that the reporting obligations under the new regulations will not take effect immediately, in order to give employers opportunity to prepare. In addition, implementation of these obligations may be phased by company size (similar to pensions auto-enrolment), which may mean that companies employing more than 500 individuals would be expected to disclose their pay gap earlier than those with 250-500 employees, thereby giving additional preparation time to smaller employers.

One of the key issues for consideration during the consultation is the specific pay data that companies will be required to disclose. Options include the disclosure of a single overall gender pay gap, or alternatively a more detailed breakdown across an organisation, eg, by grade/job or full-time/part-time roles. Either way, it appears that employers will likely be able to provide additional context to the figures in supporting commentary.

The consultation also seeks views on how employers should publish their pay data, giving the example of a company’s website. However, alternative publication options may include reporting pay gaps in annual accounts or submitting a gender pay report to a centrally appointed organisation. It is currently anticipated that publication will be required on an annual or two-yearly basis.

Gender pay gap graphPositive steps

The introduction of mandatory gender pay reporting is a positive step for diversity, will likely lead to increased transparency, and will be a welcome development in addressing the gender pay gap. It will highlight those employers with robust and fair pay structures and may lead to wider benefits for those organisations, such as recruitment and procurement advantages.

However, carrying out a disclosable equal pay review and publishing sensitive gender pay data could have significant and harmful implications for companies with equal pay issues. For such organisations, there may be serious reputational implications and negative publicity, which in turn could have a significant impact on the procurement process and employee attraction, engagement and retention. In addition, publication of negative pay information could give rise to equal pay claims from current and previous employees and result in significant financial damage.

The consultation anticipates that, as a minimum, employers will need to disclose the overall single figure gender pay gap for their organisation. As this figure would not take into account the distribution of men and women across grades, there is a risk that it may be misleading and not reflective of an organisation’s pay issues. Therefore, it is vital that employers fully understand their pay figures and underlying employee population in order to provide vital context to any information published.

The proposed penalty for non-compliance with the new measures is a fine of up to £5,000. However, the associated negative publicity and employment relations risks would likely be far more damaging.

The new regulations are due to be introduced in early 2016. Therefore, companies currently have a limited window in which to investigate and improve any gender pay gaps before disclosure is required. This means that proactive employers have an opportunity to significantly improve their position and reduce legal and commercial risks.

It is therefore advised that employers commission a legally privileged equal pay review, which will identify gender pay gaps across an organisation while allowing businesses to retain control of highly sensitive pay data. This will enable businesses to analyse any pay gaps, test these against potential objective justifications and identify any high-risk areas. Following this, an action plan can be designed and implemented to address and remedy any issues and minimise risks before the new changes come into effect. PwC has taken this approach and has found that its annual equal pay review by PwC Legal has enabled it to reduce its pay gap year on year. ?

Ed Stacey is an employment partner at PwC Legal

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