Shoosmiths

Time to mind the gender pay gap

Question

What will the regulations on gender pay gap reporting mean for employers in 2018?

Answer

The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 came into force on 6 April 2017. The regulations mean that large private and voluntary sector employers in the United Kingdom (with the exception of Northern Ireland) are now required to publish a report by 4 April 2018 specifying what their gender pay gaps were on 5 April 2017, known as the “snapshot date”. Thereafter, employers must continue to publish an annual report specifying the gender pay gap on 5 April each year for every year that the regulations continue to apply. Public sector organisations are also required to publish a report, but by the earlier deadline of 30 March 2018 (with an initial snapshot date of 31 March 2017).

Equality groups have hailed this policy of mandatory gender pay gap reporting as a way to end gender inequality and narrow a pay gap that was evident long before records from the Office of National Statistics (ONS) began. However, when you examine the regulations in closer detail, numerous questions arise regarding their implementation, enforcement and overall success: these are especially pressing now that the deadline is less than three months away.

What is the gender pay gap?

The gender pay gap is the difference in average pay between men and women. It is important to note that this shouldn’t be confused with the concept of equal pay. Equal pay requires companies to pay its male and female employees equally if they are in the same or similar positions.

Instead, the gender pay gap is usually expressed as a percentage of what men earn. For example, it was reported on 6 January 2018 that Easyjet, Ladbrokes and Virgin Money had, in terms of mean hourly pay, gender pay gaps of more than 15% in favour of their male employees. At Easyjet, women’s average hourly rates were a noticeable 52% lower than men’s.

For the country as a whole, the ONS has monitored the difference between men and women’s pay for the last 20 years. In 2016 it was reported that the gap was at a record low of 9.4% for full-time employees – in 1997, it stood at 27.5%. The statistics are more interesting when you consider the differences in pay for full-time employees in different age groups. Up until the age of 39, the gender pay gap is very small. In fact, women between the ages of 22 and 29 are, on average, actually paid slightly more than men. However, the gap begins to grow when people reach 40. The reasons behind this widening are incredibly complex, although women taking time out to have and take care of children may go some way to explain why. In addition, women are also more likely to work part time, and both male and female part-time workers on average earn less per hour than those who work full-time.

How many employers have been affected by the regulations?

The regulations apply to private and voluntary sector employers that have “250 or more employees on the snapshot date” (there are separate regulations that apply to public sector employers which are similar but not identical, but which are outside the scope of this article). ‘Employees’ is not defined in the regulations, but its explanatory note confirms that the wider definition of employees in Section 83 of the Equality Act 2010 applies. This means that an employee could be a full or part-time worker, a casual worker on a zero hours contract or a consultant engaged under a contract personally to do work. Partners and members of limited liability partnerships are excluded, as are agency workers (unless the employer in question is a recruitment business).

The regulations state that the report should only be for “relevant employees” and this is simply an employee who is employed on the snapshot date. The confusion over this concept is focused around whether employees based overseas but working for an international company based in Great Britain would be included in this definition. Relevant employees were designated in a previous draft of the regulations as employees who “ordinarily work in Great Britain”. This definition, however, was dropped from the final version and it could mean that international employers discover that their overseas employees are also caught.

On top of this, each subsidiary within a group of companies must compile a report if it is over the 250 employees threshold. This could mean a group structure has a separate report for every single one of its subsidiaries or none at all.

What must be published in the pay gap report?

The report must contain:

  1. the difference in mean hourly pay between male and female full-pay relevant employees;
  2. the difference in median hourly pay between male and female full-pay relevant employees;
  3. the hourly rates of employees divided into four quartiles and the proportion of male and female full-pay relevant employees in each quartile;
  4. the difference in mean bonus pay between male and female relevant employees;
  5. the difference in median bonus pay between male and female relevant employees; and
  6. the proportion of male and female relevant employees who received bonus pay.

It is important to note the distinction between full-pay relevant employees and relevant employees. Full-pay relevant employees are those who, during the pay period, are not being paid at a reduced rate, or nothing, due to being on leave. So, for example, an employee on unpaid maternity leave during the pay period would not need to be included in the calculations for points 1-3 above, but would need to be included for points 4-5.

The calculations needed to ascertain the percentage gap in pay and bonuses are found in the regulations – it is a formulaic and wordy process. When calculating the gender pay gap, only “ordinary” pay must be taken into account. This includes, for example, basic pay, allowances and pay for leave, but excludes pay for overtime or for any redundancy/termination.

For private and voluntary sector employers, a written statement confirming the information is accurate must accompany the report and be signed by a senior official. In a company, this would be a director.

Employers are able to provide a voluntary narrative to accompany their report. An employer would be able to use such a narrative to explain any large pay gap and what it is doing to combat it in the future. This could be of particular importance to businesses that operate in traditionally male-dominated sectors such as construction or technology.

Both the report and the written statement must be published on the employer’s website for three years, and the report along with the name and job title of the person signing the statement must be uploaded onto a specific government site.

Are the regulations enforceable?

One of the main criticisms surrounding the regulations is whether they are actually enforceable. The government decided, after consultation, that there should be no enforcement mechanism in the regulations and there are no sanctions for publishing false reports or for missing the April deadline altogether. The government seems more interested in naming and shaming firms that fail to publish a report by the deadline. Apart from this, the onus appears to be on prospective employees to conduct research into the pay gap of an employer if they so wish.

The view that the regulations are toothless is especially worrying when, as of early January 2018, just 527 employers out of the estimated 9,000 potentially caught had published a report on the government’s gender pay gap website. With that said, the regulations’ explanatory note states that the Equality and Human Rights Commission (EHRC) can take action under Section 20 of the Equality Act 2010. Earlier this month, the chief executive of the EHRC Rebecca Hilsenrath issued a warning that employers who fail to produce reports will be met with “unlimited” fines and even convictions. However, employment law specialists have responded by stating that the EHRC does not have the power to do this since a breach of the regulations is not a breach of the Equality Act and a change in the law would be needed to reflect this. It remains to be seen, therefore, whether this is simply sabre rattling by the EHRC and if action can be taken when the deadline is reached.

What will be the impact of the regulations?

The future of the regulations remains unclear. With the absence of a definite civil enforcement procedure for non-compliance, the government appears to be relying on possible negative press and brand damage as being enough to motivate employers to publish reports. One of the most positive impacts of the regulations could be the transparency it may bring to workplaces. There is often an unspoken taboo in offices over discussing your salary with fellow employees, so a more transparent culture could be encouraged.

In addition to an annual report, employers should consider adopting measures to close their gender pay gap. These can include ensuring there is no unconscious bias in their recruitment process, identifying and removing barriers to progression within the organization and developing reward/diversity action plans.

The secretary of state for education and minister for women and equalities must review the regulations within five years of their commencement. The government is likely at this point to decide whether they have been a success in ending discrimination or have become too great a burden on employers. In January, Germany joined 10 other EU member states by requiring its larger private and public sector employers to reveal their gender pay gap: whatever happens to the regulations in Britain, it is likely that this will remain an important issue across Europe for years to come.

James Gallimore is a trainee solicitor in the corporate department of Shoosmiths’ Nottingham office.

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