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Is there a gender pay gap anywhere in your organisation?

Not sure? Then you are not alone, but from next year, 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. Estimates vary, but it is accepted, that some 45 years after the introduction of the Equal Pay Act 1970 women are still paid significantly less than men. A study by the UK Commission for Employment Skills found that women earn less than men in 90% of industries. The highest gaps are in skilled roles including finance and insurance.

The Equalities and Human Rights Commission reviewed 50 financial services organisations and found evidence of a gender pay gap in the same job grade in 95% of cases.

What information has to be provided?

The Government has not yet formally responded to the brief consultation it published in the summer, but it is expected that businesses which employ 250 or more staff will have to provide information about the gender pay gap in their organisations.

We don’t yet know if this will be limited to the statistical difference between the pay of men and women in the whole organisation or if more detail will be required (such as providing data for full and part time staff or within different functions of the business). If the information is limited to the whole workforce it might reveal embarrassingly large gaps in those organisations which have more men holding the most senior roles (which will pretty much cover the majority of UK businesses). In these circumstances businesses may prefer to put the raw data into context and demonstrate that this does not mean that women are paid less than men for carrying out the same work.

Will it just relate to basic pay, or do we need to factor in other elements such as discretionary bonuses, overtime rates and other perks?

The Prime Minister recently announced that the information will need to include bonuses, but no additional details have been provided. In higher paid jobs bonuses can be significant and including this information may ‘skew’ the results.

How do we find out if there are any gender pay gaps in our organisation?

You need to start by finding out if your systems can already generate this information (or be adapted to do so). Then you will need to collate the information relating to pay, grading, job evaluation and seniority of your workforce. We strongly suggest that the analysis of this information is done in conjunction with Irwin Mitchell, to ensure the results of the analysis are protected by legal privilege (and are therefore not discloseable in the event of subsequent equal pay litigation). You can then, with legal advice, conduct a risk assessment exercise and formulate an appropriate plan of action. This could include for example, implementing measures to address any gender pay imbalance or conducting further qualification of the data (for example, considering other reasons unrelated to gender such as pay protection, performance related pay and allowances).

This sounds like a lot of work. 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 proposed penalty for failing to publish equal pay information is £5,000 but this may change, particularly if many businesses do not comply. The Fawcett Society (an influential organisation which campaigns to eliminate inequality between men and women) in its response to the Government’s consultation said that this is too low and suggested that it is more appropriate for the penalty to be based on a percentage of the business’s turn-over or alternatively be set at £5,000 per employee (to reflect the approach to fining firms who violate national minimum wage legislation). Trade unions and other organisations representing women are likely to have made similar representations.

Your business may also face reputational damage if it fails to comply. Plus no-win/no fee claimant solicitors may take the view that the reason you have not provided the information is because there is a significant pay difference between men and women in your organisation and may start to dig a little deeper! 

Please note, Employment Tribunals can only compel an organisation to provide a pay audit, if it loses an Equal Pay claim and so far, there have been very few of these audits, probably because employers often prefer to settle claims rather than run the risk of having to undertake an audit and potentially expose other areas of the business to scrutiny.

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 but it will depend on how much detail is required (or revealed). For example, if you are simply required to compare the pay between men and women in the whole organisation, the reason for the differential may be due to the fact that more men hold the most senior roles, or more women work part time. 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 6 months from the end of the employment contract) or in the County Court (within 6 years).

Claims can be brought for the 6 years’ back pay (5 years in Scotland).

When will we have to start to provide information about the gender pay gaps in our organisation?

Under the Small Business, Enterprise and Employment Act 2015, the Government is required to introduce private sector equal pay reporting regulations no later than 26 March 2016. It is not likely to be able to meet this deadline and announced (at the same time as it launched the consultation) that it will delay implementation for an appropriate period to give businesses time to prepare. However, we expect it to take effect in 2016.

The Government is also considering staggering implementation so that larger employers have to comply before smaller businesses.

Are the public sector exempted?

The Prime Minister recently announced that these provisions will be rolled out to the public sector. However, large public sector employers have had many more years of Equal Pay litigation. They will therefore generally be much better placed to comply with gender pay reporting than private sector employers.

What should we do now?

Gender pay reporting is coming in one form or another, and you need to start planning now. If you have to take steps to address a pay imbalance you will be in a much better position if you have identified this early. This allows you to:

  • budget for increased staff costs;
  • implement any increase as part of your normal pay-review cycle (potentially accompanied by a reissued contract of employment for time limitation reasons);
  • avoid having to report a gender pay imbalance (with the reputational damage this would bring); and
  • reduce (if not eliminate) the prospect of litigation from staff.

We strongly recommend you obtain legal advice to ensure that any sensitive material produced can be covered by legal privilege and would not have to be disclosed.

Employment Law Update - November 2015