17 Mar 2017

With new gender pay gap reporting obligations set to come into force next month, employers are turning their attention to how they will comply with the new regime.

From 2017 and each subsequent year, an employing entity with 250 or more employees as at 5 April must publish certain statistics relating to bonus pay and hourly pay, to highlight any gender pay gap in relation to its employees. Slightly different rules apply to public sector employers, where the relevant date is 31 March.

If this sounds deceptively simple, it is. In reality, the obligations are likely to prove much more complex and onerous.  Here’s what you need to consider.

Use the accompanying guidance

The Government Equalities Office and ACAS have jointly produced a guidance note to assist employers in complying with the new regulations.

This includes some useful examples and will be a good starting point when approaching the reporting exercise for the first time. Once you have good systems in place to collate and analyse pay data, the task may become easier in future years.

In particular, employers will need to take care when calculating each individual’s bonus pay and hourly pay – the two important numbers for gender pay gap reporting.

For bonus pay, consider what’s in and what’s out. Bonus includes non-cash incentives such as shares and share options, which are treated as paid when they give rise to taxable earnings. Retention and recruitment payments do not count, even though they are often seen as one-off “bonuses” to incentivise an employee to join or stay.

Remember that the requirement to report on bonus pay is retrospective. It looks at bonuses paid during the previous 12 months ending on 5 April and focuses on when bonus is actually paid, rather than when it is earned.

In contrast, the hourly pay analysis looks at pay during the normal pay period which includes 5 April. It excludes employees who receive reduced or nil pay due to absence in that period (for example, maternity or sick leave). Adjustments may need to be made to reflect that some employees work part-time or variable hours from week to week, some may be paid weekly rather than monthly and some may have received a bonus that needs to be pro-rated.  There is a step-by-step calculation that should be approached methodically for each employee.

Don’t forget “employees” who may not be employees

“Employees” include not only those who work under a contract of employment or apprenticeship, but also anyone else who works under a “contract personally to do work”.  This will be important in determining whether an employer has 250 or more “employees” (and is therefore obliged to report) and, if so, which individuals should be included in the calculations.

They might be, for example, consultants who provide services to you, even if they are not on the payroll and classed as “self-employed” for tax purposes. The guidance suggests that individuals who provide services through their own service company will not be caught.  However, be aware that there is scope for courts and tribunals to look behind the arrangements and identify a direct employment relationship between an individual and the end-user of their services, if that reflects the reality of the situation.

“Employees” may also include workers based overseas, if they have a closer connection with Great Britain than any other jurisdiction. Their pay data may potentially skew the analysis if they are paid in foreign currency or work in a country where labour costs are traditionally higher or lower than the UK.

They may also include workers on zero-hours contracts, although not individuals who are supplied through an agency.

Include a voluntary narrative

Statistics are always open to interpretation and will rarely tell the full story. When producing your gender pay gap report, there is an opportunity to include an explanatory narrative.

This can be really useful in providing some context around what appear to be a basic set of numbers. It is very unlikely that, across a large organisation, the gender pay gap will be zero – however, this does not necessarily mean that there is an inherent problem.

There may be several reasons for a gender pay gap, which will differ between organisations.  The narrative can be used to explain why the figures are the way they are, both in the context of your own organisation and the sector as a whole. You might also consider publishing some additional statistics, which you consider more accurately reflect the make-up of your workforce.

Address any gender pay gap issues

The causes of the current gender pay gap are varied, but one contributory factor is that women are more likely to be responsible for childcare. Aside from maternity leave, they may take extended career breaks to bring up children, or return to work part-time, which may impact on career progression.

Adopting family-friendly policies and being open to flexible working arrangements may help in attracting and retaining talented female employees.  Encouraging open dialogue on gender pay issues between those who make pay decisions (and providing appropriate training) could also assist.

Again, you can use the narrative to explain what steps have been (or are being) taken to reduce the gap. You can wait up to 12 months before publishing the data, which gives you an opportunity to get the analysis done early and put in place any necessary remedial steps, before the report is published.

Reasons to comply

Although there are currently no financial penalties for non-compliance, the Government will keep this under review and may still “name and shame”. Aside from this, there is real external and internal value in producing a report.

Externally, there is an opportunity to use the voluntary narrative to deliver a positive message to the market, to competitors and to potential future recruits.

Internally, it may give you a stronger insight into the gender pay dynamic within the workforce, perhaps highlighting a disparity you did not know you had. It could be purely inadvertent but potentially holding back certain talented individuals. This can then be used to shape future HR strategy.

This article was first published on EmploymentSolicitor.com.