Government reforms (3): Gender pay gap – mend the gap!

What do we already know?

We have been keeping you up to date over the past year 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!

In summary, the reporting requirements will require employers to publish the difference between the median and mean average hourly rate of pay paid to male and female employees; the difference between the median and mean average bonus paid to male and female employees; the proportions of male and of female employees who receive bonuses; and the relative proportions of male and female employees in each quartile pay band of the workforce.

We updated you in our August 2016 Newsletter Government reforms (2): Gender pay gap – Mend the gap! that the Government Equalities Office (GEO) had confirmed that publication of the final Equality Act 2010 (Gender Pay Gap Information) Regulations 2016 has been delayed and it instead expected that the Regulations would be laid before Parliament in the Autumn and commence in April 2017 (rather than 1 October 2016 as previously planned).

We also updated you that the GEO had launched a new consultation on how it intends the gender pay reporting requirements to apply to public bodies (with more than 250 employees) and that the consultation closed on 30 September 2016.

Similar regulations covering public sector employers operating in England are to be published early next year, followed by guidance from ACAS and the GEO when the regulations have been approved by Parliament.

What’s new?

The Government has now published, in final draft form, the Equality Act 2010 (Gender Pay Gap Information) Regulations 2016 regulations that will, as expected, take effect from April 2017 and oblige larger employers in the private sector to report on their gender pay gap. Employers’ first gender pay reports will have to be published no later than 4 April 2018, based on hourly pay rates as at 5 April 2017 and bonuses paid between 6 April 2016 and 5 April 2017.

The final Regulations contain a number of changes from the original draft, many of which seem to have been prompted by the responses to the consultation process. There is some useful clarification, but also some unexpected new additions. The key points to note are as follows:

  • The snapshot date: As was suggested by the public sector consultation paper, the snapshot date has been changed from 30 April to 5 April. This will not make a difference for monthly-paid employees, as the relevant pay period will still be the whole of April each year. It may, however, make a difference for employers who pay their workers weekly or fortnightly, particularly if annual bonuses are paid at the start of April and would previously have been excluded from a weekly period containing 30 April.
  • Reporting date: The original intention was that employers would publish their gender pay information within 12 months of the 30 April snapshot date each year i.e. by no later than 29 April each year. As the snapshot date has been brought forward, the reporting date has also been brought forward. This means that employers must report within 12 months of 5 April each year i.e. by 4 April each year. The first reporting date will be on (or before) 4 April 2018.
  • The definition of “employee”: There was some uncertainty about who counted as an “employee” for the purposes of gender pay gap reporting. Prior to the publication of the Regulations, the Government had clarified that the wider definition of employment found in section 83 of the Equality Act 2010 was intended to apply. This would mean that “employees” are those employed under a contract of employment or apprenticeship or a “contract personally to do work”. This could cover workers (including, for example, LLP members) and some self-employed contractors.The Explanatory Notes to the Regulations provide that the wider section 83 Equality Act 2010 definition of employment applies for the purposes of determining whether an employer is a “relevant employer” covered by the Regulations. A “relevant employer” is defined as an employer who has 250 or more “employees” on the snapshot date. Once in scope, relevant employers must produce and report gender pay information for their “relevant employees” only. A “relevant employee” is defined in the Regulations as someone who is employed by a “relevant employer” on the snapshot date, with two important caveats:
    • Partners and LLP members are expressly excluded from the definition “relevant employee” (but may count as employees for the purposes of triggering the application of the Regulations in the first place);
    • There is no requirement to include data relating to relevant employees who are employed under contracts personally to do work where the employer does not have (and it is not reasonably practicable to obtain) the data relating to that individual. This exception is welcome as many employers do not hold sufficient pay data for independent contractors who work variable hours and are not paid via payroll. However, the exception will only apply where the employer does not have the data or it is not “reasonably practicable” to obtain it – no guidance is given on what this means.

    The Regulations do not address whether an employee who works wholly or mainly outside Great Britain should be included in the calculations. The Government guidance has yet to be published and it is hoped that the position will be clarified.

  • New exception to pay data: This appears to be designed to help where it would be difficult to obtain pay data for some workers, as may be the case with independent contractors who do not work fixed hours and are not paid through the payroll. There is no need to include data relating to an employee who has a contract personally to do work, if the employer does not have such data and it is not reasonably practicable to obtain it. It seems that all employees within the broad definition will count towards the 250-employee threshold, but actual data may not need to be included for some of those employees. There is clearly scope for argument about what “reasonably practicable” means in this context, particularly if an employer is keen to exclude male-dominated and/or highly-paid contractors from its statistics.
  • What is included within “pay”? One concern employers had with the proposed definition of “pay” was that it included statutory family and sick leave payments within the calculations. It was considered this could unfairly skew the results.
    The Government has taken on board these concerns and stipulated that, for the purposes of calculating the overall mean and median pay gaps, the employer only needs to include data for “full-pay relevant employees”. This is defined as a relevant employee who is not, during the relevant pay period, being paid at a reduced rate or nil as a result of being on leave. The types of “leave” covered are:

    • annual leave;
    • maternity, paternity, adoption, parental or shared parental leave;
    • sick leave; and
    • special leave (which is not defined).

    However, employers should note that non-full pay relevant employees are only excluded from the overall gender pay gap calculations and the pay quartile tables. They must still be included in the gender bonus gap calculations and the reporting of the proportion of male and female employees who have received a bonus (although this will only be relevant where they have received a bonus payment within the relevant 12 month period).

  • Calculating the “hourly rate of pay”: The Regulations set out six steps to assist with this calculation, and specifies that a month and a year are to be treated as having a specific number of days.
  • What is included within “bonus”? Securities, securities options and interests in securities are included within the definition of bonus, but it was previously unclear how these would be calculated. The Regulations provide some clarification on this by specifying that remuneration in the form of such securities, options and interests is to be treated as paid to the employee at the time, and in the amount in respect of which, they give rise to taxable earnings or income.
    What this will mean in practice will vary depending on the type of security. For example, unapproved options are subject to income tax on the exercise gain when an employee exercises the option and acquires the shares. For free awards of unrestricted shares, the employee is subject to income tax on the market value of the shares on the date of award. The rules should be relatively simple to operate in listed companies for whom the market value of shares can be readily determined, and private companies whose shares are readily convertible. They may be less straightforward for other private companies, although the number of such companies offering securities and meeting the 250-employee threshold is likely to be small.
  • Bonus data: There is a new requirement to publish the difference in the median bonus pay figure in addition to the mean figure (bringing this into line with the position for the hourly pay gap).
  • The approach to pay quartiles: One of the reporting obligations is to show the numbers of men and women who fall within each of four pay quartiles. It was previously unclear what was meant by “quartiles”. The Regulations clarify that this involves splitting the workforce into four equal-sized groups that are organised according to the hourly pay rate, from the lowest to the highest paid. Four steps to assist with the calculation are set out (in regulation 14). In addition, if a number of employees receive the same hourly rate of pay and so fall within more than one quartile pay band, the employer should so far as possible ensure the relative proportion of men and women is the same in each pay band. This prevents an employer in this situation from moving the men and women into separate pay bands in order to improve its statistics!
  • What happens to the data? As well as publication on the employer’s website, there is to be a website designated by the Secretary of State to which all gender pay reports must be uploaded (including the name and job title of the person who signed the accompanying statement). It remains unclear whether the Government will use this to create sector-by-sector league tables as previously suggested, but this is a possibility.

The Government has also published a tool entitled Find the Gender Pay Gap for Your Job. Of interest to HR Professionals – women hold 68% of HR jobs, and on average women are paid 1.9% more than men.