The Government has recently published draft legislation which seeks to impose obligations on larger employers to publish certain minimum information each year relating to gender pay gap in the workforce.
The Government has recently published draft legislation which seeks to impose obligations on larger employers to publish certain minimum information each year relating to gender pay gap in the workforce. Subject to Parliamentary approval, the new regulations are expected to come into force in April 2017.
The gender pay gap reporting regime is complex, placing onerous obligations on employers to collate large amounts of pay and other data, before performing various calculations to produce the relevant statistics. Our quick Q&A guide below gives a brief introduction to the main requirements.
What duties will the new gender pay gap legislation impose?
In simple terms, there will be a duty on a relevant employer to publish certain gender pay gap information in relation to its employees for 2017 and each subsequent year.
What is a ‘relevant employer’?
The duty applies to private sector and voluntary sector organisations with 250 or more employees on 5 April (known as the ‘snapshot date’) in the relevant year. Each corporate group entity should be treated as a separate ‘employer’. This means that for large corporate groups, the duty may apply to more than one subsidiary, each of which must report on the specific gender pay gap within its own workforce.
Similar regulations will also be introduced in relation to public sector employers. The obligations will be broadly the same in the public sector, save that the legislation also reflects the wider public sector equality duty enshrined in the Equality Act 2010, and the snapshot date is slightly earlier (31 March).
Does the obligation cover only employees on the payroll, or is it wider than that?
‘Employee’ is a widely defined term for these purposes and will include anyone who works under a contract of employment, contract of apprenticeship or a contract personally to do work. This means that, in practice, it is likely to include consultants or other types of ‘worker’, who would not normally be considered ‘employees’ in the normal sense. It may also include employees who work overseas, but who are employed by a UK-based organisation.
This is likely to give rise to a number of grey areas, depending on the types of arrangement used by businesses to engage individuals to perform work.
There is no requirement to include data relating to someone under a contract personally to do work, where the employer does not have (and it is not reasonably practicable to obtain) pay data. However, we anticipate that this exception will be construed narrowly.
What gender pay gap information must be published?
The employer must prepare two sets of statistics each year
1. In relation to all employees:
a. the difference in mean bonus pay for male and female employees in the previous 12 months;
b. the difference in median bonus pay for male and female employees in the previous 12 months; and
c. the proportion of male and female employees receiving bonus pay in the previous 12 month
2. In relation to ‘full-pay employees’ only:
a. the difference in mean hourly pay for male and female employees;
b. the difference in median hourly pay for male and female employees; and
c. the proportion of male and female employees in each quartile hourly pay band.
What is a ‘full-pay’ employee?
The definition of a ‘full pay employee’ includes all employees, except those who are paid at a reduced rate or nil pay during the relevant pay period in which the snapshot date falls, as a result of certain types of leave. This includes: (a) annual leave; (b) maternity, paternity, adoption, parental or shared parental leave; (iii) sick leave; or (iv) special leave.
What counts as ‘bonus pay’?
Bonus pay is any payment that relates to profit sharing, productivity, performance, incentive or commission. In addition to cash and vouchers, it also covers securities, securities options and interests in securities. There is a mechanism for valuing these forms of incentive, based on their tax treatment.
Bonus pay does not include ‘ordinary pay’ (such as basic salary, allowances, piecework pay, holiday pay and shift premiums), overtime or termination payments. Again, there are some potential grey areas which are likely to cause headaches for employers.
How does the employer calculate ‘hourly pay’ for ‘full-pay employees’?
This is a particularly complex element of the process. As a very brief overview, the employer must, for each full-pay employee:
1. Calculate any ‘ordinary pay’ plus ‘bonus pay’ paid in the relevant pay period in which the snapshot date falls;
2. Apply certain ‘adjustments’ to ordinary pay and bonus pay where necessary to ensure that it accurately reflects the amount of pay referable to the relevant pay period;
3. Apply an ‘appropriate multiplier’ (being the number of days in the relevant pay period, divided by 7); and
4. Divide by the number of weekly working hours (the calculation of which will differ, depending on whether the employee’s working hours are fixed or variable each week).
When and where does the information need to be published?
The employer must publish the gender pay gap information within 12 months of the snapshot date. Therefore, to give an example, a private sector employer must publish information relating to 2017 by no later than 4 April 2018.
The information must be published on the employer’s website (for a minimum of three years), as well as a specially designated Government website. It must be accompanied by a written statement confirming the accuracy of the information, signed by an authorised person (which will vary, depending on the type of organisation).
Employers will also be able to include an accompanying narrative to the data, although this is not compulsory. This is likely to be used as an opportunity to provide some context, to ensure that data is presented in a positive light and not misinterpreted (for example, by explaining any gender pay gap and what action is being taken to address it).
What happens if an employer fails to comply?
There are currently no penalties or sanctions for non-compliance. The Government has suggested that it will create a database of compliant employers, which may in turn lead to ‘naming and shaming’ of employers who are absent from the list (and therefore deemed to be non-compliant).
Therefore, the main commercial risk for employers who do not publish gender pay gap information is likely to be reputational, rather than financial.
Where can I find out more?
The Government is currently working with ACAS to produce non-statutory guidance for employers, to assist them in complying with the new regulations. This has yet to be published.
For a more detailed guide on how to navigate the regulations and manage the associated legal and commercial risks, please sign up for our free HR Forum event, being held in London on Tuesday 28 February and Cambridge on Thursday 2 March 2017. For more details, please click here.