An Update on Gender Pay Gap Reporting [Video]Posted in : Back to Basics on 24 March 2017
When does gender pay gap reporting come into force?
Gender pay gap reporting legislation comes into force in April 2017 in GB. These reporting obligations do not come into force in Northern Ireland from this time, and it remains to be seen how similar they will be to those in GB.
In terms of timing here, the Northern Irish Employment Act 2016 introduces a gender pay gap information reporting obligation and has said that enabling regulations should be in place by the 30th of June 2017. With recent events at Stormont, it remains to be seen whether that timetable will hold firm.
As yet, we don't have the Northern Irish regulations so we don't know a huge amount about what they will entail. We do know, however, two key differences that are likely to apply in Northern Ireland.
The first is the information that will need to be collated includes statistics in each pay band in relation to ethnicity and disability. This is not something required under the GB regulations and there's an additional layer of reporting for Northern Irish companies.
Secondly, the GB regulations do not contain any penalty for non-compliance with the reporting obligation. However, the Northern Irish Employment Act 2016 has indicated that the Northern Irish regulations should make provision for a fine of up to £5000 per employee. As you would appreciate, this is a very significant sanction. So for a company with 250 employees, which is the threshold for companies to be caught under the GB reporting regulations, the penalty bill would be £1.25 million. Even if the Northern Irish threshold was reduced to, say, 100 employees, a failure to comply with the regulations would lead to a £500,000 penalty bill. Understandably, employers in Northern Ireland will need to start gearing up where they can for the regulations coming into force.
As we don't yet have the Northern Irish regulations, the remainder of this session refers to the GB regulations, on the assumption that many of the other principles will be similar.
How long do employers have to publish gender pay gap reporting results?
The regulations that employers in GB will be required to deal with are complex and will require significant preparatory work for affected employers. In GB, employers will only have 12 months to publish the first set of results. This time limit is likely to be similar in Northern Ireland. For that reason, many Northern Irish employers are already starting to think about what they will need to do in order to be ready.
So why is gender pay gap reporting considered necessary?
The Institute for Fiscal Studies has reported that there is, on average, a pay gap of over 10%, even before the arrival of a woman's first child. This gap remains fairly stable until the child arrives. There is then a gradual but continual rise in the wage gap. And by the time the first child is age 12, women's hourly wages are a third below men's.
The causes of gender pay gap are varied. Factors include fewer women working in more highly-paid professions or areas involving STEM subjects, unsupportive corporate cultures, discrimination in the workplace, or unconscious bias against working mothers.
Gender pay gaps are reported across most sectors. It tends to vary by occupation, age group, and working patterns. The gap tends to be higher in industry sectors such as finance, energy, and construction, and lower in sectors such as public administration, support services, and health and social work.
Promoting transparency of pay
The gender pay gap regulations seek to address the discrepancies in pay by first promoting transparency of pay. The anticipation is that the greater transparency will increase the likelihood that action will be taken to rectify it.
Gender pay gap reporting legislation in GB requires private and voluntary sector employers with 250 or more employees, as at the 5th of April each year, to publish statutory calculations every year showing how large the pay gap is between their male and female employees. As I mentioned earlier, it's not yet clear whether this threshold will apply in Northern Ireland. There's been some discussion that it could be much lower. However, it is anticipated that employers in Northern Ireland will only be required to report once in a 36-month period.
Gender pay gap reporting is not the same as carrying out an equal pay audit.
Equal pay deals with the differences between men and women who carry out the same jobs, similar jobs, or work of equal value. The gender pay gap shows the difference in average pay between all men and women in the workforce. If the workforce has a particularly high gender pay gap, this can indicate that there may be a number of issues that an employer needs to deal with.
For companies with a group structure, each legal entity needs to report its data. There's no legal requirement on smaller companies to report data, but they will be encouraged to do so. Employers who have a headcount that fluctuates significantly will have to report in any year in which the head count is 250 or more.
Where must gender pay gap reports be published?
The results of the gender pay calculations must be published on the employer's own website and on a government website. Consequently, the gender pay gap will be publicly available, including to your customers, employees, and to future customers and employees who may take a view, based on the information provided or withheld, as to whether they want to do business with your organisation or to work for it. In Northern Ireland, a copy of the calculations will also have to be sent to any recognised trade union.
So, who is included within the figure of 250? In GB, the regulations adopt the definition of employee as under the Equality Act 2010. As the Equality Act does not apply in Northern Ireland, it remains to be seen what category of employees or workers will be included here. The broad definition under the Equality Act includes employees in the traditional sense, mainly those with a contract of employment, zero-hour workers, apprentices, and some self-employed people, that is people who have to personally perform the work.
Part-time workers will count as one employee. In relation to job shares, every employee within the job share will count as one employee each. So if two people job share, they will count as two people for the purposes of the gender pay reporting obligation.
Agency workers are included, but it is the agency that provides them that is responsible for reporting on their pay.
Employers are not required to include data relating to an employee employed under a contract personally to do work.
Partners in traditional partnerships and limited liability partnerships are not included.
Special consideration will need to be given to employees that work abroad, as some or all of these employees may need to be included depending on the nature of their work.
Only employees that are on full pay have to be included. Employees on reduced rates of pay, whilst on maternity leave or sick leave, are excluded.
The calculations required in gender pay gap reporting
So what calculations must be done? There are six calculations that must be carried out. These must show:
- first the average gender pay gap as a mean average;
- secondly, the average gender pay gap as a median average;
- thirdly, the average bonus gender pay gap as a mean average;
- fourthly, the average bonus gender pay gap as a median average;
- fifthly, the proportion of males receiving a bonus payment and proportion of females receiving a bonus payment;
- and finally, the proportion of males and females, when divided into four groups, ordered from the lowest to highest pay. The four groups are the lower, lower middle, upper middle, and upper quartile pay bands.
Calculations for the pay gap metrics are based on a single pay period around the 5th of April, whereas bonus pay gap metrics cover the whole year to the 5th of April.
So what's included within pay? Ordinary pay means basic pay, allowances, pay for piecework, pay for leave, and shift premium pay. It does not include overtime pay, redundancy pay, pay in lieu of leave, salary sacrifice schemes, or non-monetary remuneration, for example, private medical insurance.
‘Bonus pay’ means pay in the form of money, vouchers, securities, securities options, or interests in securities, and pay that relates to profit sharing, productivity, performance incentive, or commission. Non-consolidated bonus are also included.
The complexities of calculating pay
As you will no doubt appreciate, the calculations that need to be done are very complex, particularly so in organisations in which employees have variable-hours contracts or situations where employees change jobs through the year, or on-call situations, or where bonuses are paid through securities, etc. You quickly get the picture as to why there will be a lot of work required in carrying out the calculations. The calculations must be confirmed as being accurate by an appropriate person, such as a director or a chief executive.
Employers can provide a narrative with their calculations, which can explain the reasons for the results and give details about what the company is doing to try to reduce or eliminate the gender pay gap. The narrative can explain why the results may show challenges. The example given in the Acas guidance is of an employer that says that their executives get the highest bonuses and most of them are men. This will, therefore, have highlighted a potential issue around why women are not being promoted or recruited into the more senior positions.
The narrative can also say why the results show successes. Again, Acas provides an example of an employer that may be able to show that it has recently changed its bonus structure, which has resulted in a lower bonus gender pay gap.
Finally, the narrative can be issued to show plans for long-term results. The Acas example is of science and engineering companies that may have put in place a recruitment campaign for junior roles that particularly encourage women to apply. Whilst in the short term, this may make the gender pay gap look higher, in the longer term, it should reduce under-representation.
So what are the sanctions for non-compliance with gender pay gap reporting?
There are no penalties as such in GB, but the intention is for this to be reviewed if levels of compliance are not satisfactory. In GB, non-compliance would amount to an unlawful act falling within the existing enforcement powers of the Equality and Human Rights Commission.
The position is very different in Northern Ireland. As I mentioned earlier, the current intention is that a fine of up to £5000 per employee will be enforced for a failure to comply with the regulations. Added to this will be the reputational risk associated with non-compliance. The media has already shown that it is prepared to name and shame organisations that don't meet the national minimum wage requirements. It is anticipated that similar press attention could be given to failures to adhere to the gender pay gap reporting obligations.
The lack of apparent teeth in the GB regulations is similar to the situation with the Modern Slavery Act. However, organisations are increasingly finding that, whilst there may be no express penalty contained within those regulations themselves, their customers and potential customers are increasingly specifically asking organisations to state in tenders for work how they have complied with Modern Slavery Regulations. Many commentators consider that clients of customers will similarly want to see that their suppliers are giving due adherence to their gender pay gap reporting obligations.
So what about public sector organisations? In GB, draft regulations requiring public sector employers to report on their gender pay gap were published on the 20th of January, 2017. The requirements for the public sector essentially mirror those for the private sector, but with two key differences. First, the public sector requirements are to be introduced as part of the existing public sector equality duty, rather than as a standalone requirement. Secondly, the annual date on which the pay information is to be collected is the 31st of March, as opposed to the 5th of April.
The public sector already has specific duties on equality which the regulations have to reflect. There are differences between the public sector equality duties in Wales and Scotland as compared to England. Scotland has already said that it will require all public authorities with more than 20 employees to publish their pay gap every 2 years and an equal pay statement every 4 years.
As I mentioned above, it is currently envisaged that the reporting requirements in Northern Ireland will not be less than every 36 months. We will have to wait to see if that is the case for the public sector here too.
The biggest concern that employers in GB have raised in relation to the forthcoming gender pay gap regulations are that, first, there is a huge amount of work that will need to be done in collating the data and, secondly, that you will need to be a maths genius to understand it all.
As ever, key to all of this will be in the preparation stages, and in Northern Ireland we do have the benefit of having at least some time to start thinking about how we will train up staff, collate and report this information now before the clock has started to tick. That said, the deadline, of June, 2017, is fast approaching, and a prudent employer will use that time wisely, particularly given the huge potential cost of getting it wrong in Northern Ireland.This article is correct at 24/03/2017
The information in this article is provided as part of Legal-Island's Employment Law Hub. We regret we are not able to respond to requests for specific legal or HR queries and recommend that professional advice is obtained before relying on information supplied anywhere within this article.