Government reforms (3): Gender Pay Gap – ACAS final guidance

What do we already know?

We have been keeping you up to date on the Government’s proposals to introduce new gender pay reporting requirements and how our Gender Pay Gap Audit service can help you with this. For an overview of the reporting requirements see our February 2016 Newsletter Government reforms (2): Gender pay – mend the gap!

Private and voluntary sector employers will be required to publish their first Gender Pay Gap (GPG) data based on their April 2017 payroll (for those employed on 5 April 2017), while public sector employers will be required to publish their GPG data based on their March 2017 payroll (for those employed on 31 March 2017).

We updated you in our February 2017 Newsflash Acas publishes draft GPG guidance that ACAS had published non-statutory guidance on Gender Pay Gap reporting in draft form.

What’s new?

ACAS and the Government Equalities Office (GEO) has now published a revised, final version of the non-statutory guidance on GPG reporting, available here.

Although the GEO had indicated that no substantive changes were expected to the original draft, in fact there are a few significant changes which helpfully address some of the areas of uncertainty in the draft guidance, in particular in relation to salaried partners and LLP members, casual workers and contractors, pension contributions and bonuses:

  • Bonuses:  The section of the guidance dealing with bonuses has been expanded to include the following:
    • Long service awards with a monetary value (cash, vouchers or securities) are included in the definition of bonus pay, but any other type of non-monetary award under this category, such as extra annual leave, is instead to be treated as a benefit in kind and excluded;
    • While bonus pay does not include pay related to overtime, it may be difficult to distinguish whether a bonus, or part of a bonus, relates to overtime hours. In cases where it is unclear whether an element of bonus pay relates to overtime, it should be included in bonus pay; and
    • On the valuation of bonuses paid in securities, the guidance states that where the securities provided to employees do not give rise to a charge to income tax at all (for example, as part of a share incentive plan where shares are kept for a certain period of time), they will not be included in bonus pay e.g. share options and awards under tax-advantaged share plans will generally be excluded.
  • Bonuses for recruitment and retention: Previous guidance seemed to suggest that sign-on bonuses and recruitment bounties would fall within ‘ordinary pay’, and so be included in the calculation of hourly pay.  However, the final guidance states: “where payments for recruitment and retention are ‘one off’ incentive payments made at the start of employment, or are more in the nature of a bonus than on ongoing allowance, they should be treated as incentive payments falling within bonus pay, rather than as allowances falling within ordinary pay“.
  • Atypical workers (e.g. zero hours workers): The final guidance confirms that employees who receive no pay at all during the relevant pay period should be excluded from the GPG calculations (although they would be included in the headcount). Therefore employers are allowed to exclude employees on reduced or nil rates of pay as a result of being “on leave”, but not where pay is reduced due to working patterns.
  • Group companies: The final guidance emphasises that each separate legal entity with at least 250 employees must publish separate reports, but that they may also wish to indicate the figure for the gap within the overall group. It also notes that larger employers may find it useful to provide additional breakdowns of the data, for example where they operate in a number of completely different employment sectors or where the jobs and levels of pay and bonuses are not obviously comparable. The guidance states that “provided that the legally required calculations are clearly provided, employers can enhance their reports as they wish on a voluntary basis where they consider this informative and appropriate“.
  • Partners and LLP members:  The final guidance states that partners, where they would usually also be considered employees, should be used to establish the employee headcount, but not be used as part of the calculations. The draft guidance stated that partners were excluded from the definition of “employment”, but the GPG Regulations in fact only expressly exclude partners and LLP members from the definition of “relevant employee”. This means that firms and LLPs will not have to include the earnings of their partners or members (including salaried partners and members) in their gender pay gap or gender bonus gap calculations.
  • Overseas employees:  where an employee of an overseas entity is seconded to work for an organisation in GB, the GB organisation will need to include that person’s data if they can be considered their employee within s83 Equality Act.
  • Overtime:  this is excluded from the definition of both ‘ordinary pay’ and ‘bonus pay’. The final guidance now states that “payments such as allowances earned during paid overtime hours (to the extent that employers can clearly identify them) should be excluded from ordinary pay“. In relation to bonus pay it states that “it may be difficult to distinguish whether a bonus (or part of a bonus) relates to overtime hours. In cases where it is unclear that an element of bonus pay relates to overtime, it should be included in bonus pay“.
  • Calculating weekly working hours:  The guidance has been amended to state that for the purposes of GPG reporting, employees should be treated as having normal weekly working hours if they have the same contractual hours each week, even if they often work additional unpaid hours. For this type of employee, weekly working hours will be the contractual hours, not the actual hours worked. If an employee is not contracted to work the same number of hours every week, their weekly working hours will be the average number of hours worked (over a 12-week reference period), excluding any hours worked as paid or unpaid overtime.  If an employee is not contracted to work the same number of hours every week, and they have not been employed for 12 weeks by the end of the relevant pay period, or there is some other reason the calculation cannot reasonably be made, the employer must use a number that fairly represents the number of working hours in a week.
  • Backdated pay:   The GPG regulations state that any ordinary pay received in the relevant pay period that would normally be received in a different pay period should be excluded from the GPG calculations. The guidance now clarifies that if an employee receives a pay award or allowance in the relevant pay period which is backdated, only the amount attributable to the relevant pay period should be included.
  • Pension contributions:  The section dealing with pension contributions has been expanded to deal with salary sacrifice arrangements. Where an employer contributes to a pension by means of a salary sacrifice scheme, the guidance states that the employee’s gross salary after the reduction should be used. This means that pension contributions are excluded from the GPG calculations where they are paid by salary sacrifice.

We will continue to monitor all developments in this ACAS guidance and all other aspects of the GPG reporting duty and will keep you up-to-date.  If you have any questions, please do get in touch with us.  We’d be very happy to help.

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