Irwin Mitchell | Focus on Employment | Gender Pay Gap

Is there a gender pay gap anywhere in your organisation?
Not sure? Then you are not alone but if you employ 250 employees or more you will be expected to know the answer to this and publish it.

What is a gender pay gap?

This is a term used to describe any difference in the average pay of all women and men. Since 1997, the gap between men and women’s average pay has been monitored by the Office for National Statistics. In 2015, the gap was 9.4% for full time employees and 19.2% for all employees (owing to the fact that more women work part time than men and part time workers of both sexes earn less per hour, on average, then their full time counterparts).

Which employers are affected?

Both private and voluntary sector employers with a workforce of 250 or more are required to comply with the duty. Public sector employers are excluded, but the Government announced last year that it will introduce separate legislation to ensure that these are subject to the same obligations.

The requirement to have at least 250 employees is judged on 30 April each year so a company that in April 2017 only has 245 employees will not have to comply with the duty even if on 1 May 2017 it employs further 5 individuals, but would have to do so the following year (assuming its employment figures remained static or increased). One issue of concern to many of our clients was whether group companies have to aggregate employees across different subsidiaries. The Regulations, as currently drafted, do not require this.

Are all employees counted?

Only “relevant employees” are counted. These are defined as someone who normally works in the UK and whose contract of employment is governed by UK legislation. This is likely to exclude employees of contractors and temporary agency workers regularly used by the employer. This is a narrower definition than the one included in the Equality Act, and may, therefore be subject to change when the final Regulations are published.

What information has to be provided?

The government has published draft Regulations. At present, employers must publish:

  • Overall gender pay gap figures calculated using both the mean and median average hourly pay. (The median is thought to be the best indicator as it is not distorted by the small number of very high earners).
  • The numbers of men and women working across each of four pay bands.
  • The ‘gender bonus gap’ for their organisation and details of the proportion of men and women who received a bonus in the same 12 month period.

What counts as pay?

Pay includes basic pay, paid leave, maternity pay, sick pay, area allowances, shift premium pay, bonus pay and other pay (including care allowances paid through the payroll, on-call and standby allowances, clothing, first-aider or fire warden allowances).

The issue of including bonus information throws up some interesting issues. Bonuses that are paid in the pay period ending 30 April will be reported twice; in the employers headline gender pay gap figures and in their gender bonus gap figures. This may skew the headline figure and, to avoid confusion, may result in businesses paying bonuses at a different time in the year.

Pay does not include overtime pay, expenses, the value of salary sacrifice schemes, benefits in kind, redundancy pay, arrears of pay and tax credits.

Pay period

Pay is to be calculated over a specific reference period according to how often the employee is usually paid, but ending on 30 April each year.

How is the pay gap calculated?

To generate average earnings figures unaffected by the number of hours worked, employers will need to calculate an hourly rate of pay for each relevant employee. The gross weekly pay is determined using weekly pay divided by weekly basic paid hours for each relevant employee. However, it is not yet clear whether the reference to basic paid hours refers to contractual hours or the actual hours worked (the later would give a much clearer representation).

Employers must identify quartiles for the overall pay range. This is likely to require:

  1. Listing all relevant employees in order of increasing pay rates.
  2. Dividing that list from top to bottom into four groups containing equal numbers of employees (made up of men and women).
  3. Determining the parameters of each pay band by reference to the lowest earning employee and the highest earning employee in the pay band.

Where do we have to publish this information?

On a searchable UK website that is accessible to the public as well as your employees. The information must be retained for three years. In addition, employers will also have to upload the information to a government sponsored website (which is likely to display the information in some sort of league table).

Can we opt out?

The current proposals will require all businesses with employees over the 250 threshold to comply. There are no opt-outs. However, the government has decided against imposing penalties for non compliance. Instead it will run “periodic checks”, produce sector based tables and it is also considering “naming and shaming” those organisations that do not comply.

It is possible that businesses may also face reputational damage if they do not provide the information.

What are the risks to our business if our report shows disparity between the pay of men and women?

There might be perfectly good reasons for this including the fact that more men hold the most senior roles or more women work part time in your organisation. This is not unlawful.

However, if you discover that there is a difference between pay within specific roles and grades, you will need to undertake further work to ascertain the reasons for it. If these relate to gender, then your organisation will be vulnerable to a claim. Claims for Equal Pay can be brought in the Employment Tribunal (generally within six months from the end of the employment contract) or in the County Court (within six years). Trade unions are likely to scrutinise the information provided to try and find out if any claims can be brought. Claims can be brought for six years’ back pay (five years in Scotland).

When will the final Regulations be published?

The government has indicated that it will publish final Regulations in the summer.

When will this duty take effect?

The government has said that the Regulations will come into force on 1 October 2016, but employers will have until April 2018 to publish the required information for the first time and will then be required to publish each year.

However, the first data snapshot will be 30 April 2017. This is the date on which employers will be required to calculate their gender pay gap even though they have until 29 April 2018 to publish the actual report. The requirement to publish information on bonuses asks businesses to revaluate the preceding 12 months, which means that decisions that you make now will be subject to scrutiny.

Spring 2016