Gender Pay Gap Reporting Regulations

Background

In recent years, a small number of employers began to voluntarily reveal their pay gap ahead of the introduction of the legal requirement. Following the 2015 general election, the Government announced that it intended to fulfil a manifesto commitment by bringing into force section 78 Equality Act 2010.

This note considers the key requirements and analyses the key terms used in the calculations.

Section 78 Equality Act 2010

This section confers powers to make regulations requiring employers in Great Britain with at least 250 employees to publish information showing whether there are differences in pay between their male and female employees. The Gender Pay Gap Reporting Regulations are the first use of the power under s.78.

The regulations form part of an intended range of measures to tackle the drivers of the pay gap.

Public consultations

Since July 2015 the government has conducted two public consultations. The ‘Closing the Gender Pay Gap’ consultation sought views on what could be done to accelerate the rate of progress, including exploring exactly what, when and how often information should be published under Section 78.

The second gender pay gap consultation was launched with draft regulations.

The GPG Reporting Regulations

The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (the GPG regulations)  apply to any relevant employer with 250 or more employees on the snapshot date (5 April in the relevant year). The snapshot date is now 5 April (changed from 30 April in the earlier draft regulations) meaning that the first gender pay gap reports must be published by 4 April 2018, based on hourly pay data as at 5 April 2017 and bonus data from the preceding year. This should assist employers as relevant bonus data can be taken from P60s. The Equality Act 2010 (Specific Duties and Public Authorities) Regulations 2017 (the GPG Public Sector regulations) come into force on 31 March 2017 and are in similar form.

Acas/GEO guidance

Acas and the Government Equalities Office have published guidance on the regulations which is not legally binding. It is unlikely that an employer will be criticised, however, if it follows the guidance. It is pitched at a fairly high level and on some of the more complicated issues that employers were concerned about, it does not shed much light. However, it is likely that the EHRC will have regard to the guidance when considering enforcement action.

The Guidance sets out 5 steps for employers to follow:

1.      Extract the essential information

2.      The calculations

3.      Make a supporting statement

4.      Publish gender pay information

5.      Implement plans to manage the gender pay gap

Step 5 is not a legal requirement but is rather ‘good practice’.

 

What is the gender pay gap?

A gender pay gap is the average difference between men and women’s aggregate hourly pay expressed as a percentage.

Equal pay claims

A gender pay gap does not mean that an equal pay claim can be proven. The equal pay legislation is distinct from the GPG regulations but a GPG may encourage an employee to bring an equal pay claim. It is therefore important to have an explanation for the pay gap and to keep clear records of why there may be any discrepancy.

What is a ‘relevant employer’?

‘Employer’ is not defined but Regulation 14 suggests it would include companies, LLPs, partnerships, limited partnerships, unincorporated bodies or other type of employing entity. Separately, the Guidance encourages employers to comply if they are near the threshold.

Which employees count?

For determining how many employees count towards establishing the 250 threshold, ‘employees’ are defined by reference to the wider definition of employment in s.83 EqA 2010. The threshold is 250 employees not ‘250 relevant employees’ which suggests that LLP members may be included in the threshold. What about casual workers? This will depend on the type of contract the worker is engaged on. A casual worker on an umbrella contract will count towards the threshold even if they have not been given any assignments during the pay period. If however a worker is engaged on a contract where there is no mutuality of obligations and he was not engaged on an assignment on 5 April, he will not count.

Group companies

Each company in a group is to be considered as a separate entity for these purposes. This means that the obligation to prepare a gender pay report will be triggered by having at least 250 employees working for an individual entity. So if there are a lot of smaller companies in a group, the GPG reporting requirements will be avoided. Similarly, large corporate groups may have to produce a number of reports.

Optional narrative

Given the potential media interest and reputational risk where gaps are shown many employers will want to supply additional narrative that provides context, explains any pay gaps and sets out what actions the organisation will take.

When to report

Information must be published within a year from the snap shot date but, within that timeframe, employers should consider when they want to report. The Guidance encourages employers to consider publishing as quickly as possible. However timing will depend on an employer’s own circumstances. Delaying may enable employers to consider the approach of other employers in the same industry have taken with their supporting statements.

The calculations

The Regulations require employers to calculate and to publish the following 6 measures of information based on pay information taken on the snapshot date each year. They must be confirmed by an appropriate person, such as a director or chief executive.

·         Difference between mean and median hourly rate of pay for male and female employees : ‘full pay’ means the employee is not on nil or reduced pay as a result of being on holiday, sick leave, special leave or maternity, paternity, adoption, parental, or shared parental leave.

·         Difference between the mean bonus pay paid to relevant male and female employees: here there is no reference to ‘full pay employees’ so it appears that absent employees are included. However the bonus pay only relates to ‘relevant employees’ so if they are not employed on 5 April the bonus will not be included.

·         Difference between the median bonus pay paid to relevant male and female employees: this is an addition to the original draft which only required the difference in mean bonus pay. Again, absent employees appear to be included but those not employed on 5 April are not

·         The proportions of male and female relevant employees who were paid bonus pay.

·         Proportions of male and female ‘full pay’ employees in quartile pay bands: this has been significantly clarified since the first draft of the regulations and now requires employers to rank all full pay employees in order of lowest to highest paid, divide them into four equal groups and then express the proportion of men in the quartile as a percentage of all employees in that quartile, and the same for women.

The Regulations attempt to prevent skewing of the figures where employees at the same hourly rate fall within more than one quartile. In this case, employers are required to ensure that, when ranking employees from lowest to highest paid, each of those quartiles contains the same proportion of male and female employees with that hourly rate.

The final Regulations clarify that each quartile should contain (as far as possible) the same number of employees. Where employees on the same hourly rate of pay fall within more than one quartile the relative proportion of male and female employees receiving that rate of pay must be the same in each of the relevant quartiles.

Regulation 1(3) states that ordinary and bonus pay should be calculated ‘before deductions made at source (for example deductions in relation to income tax)’. Therefore pay should be calculated before any employee pension contributions are deducted. However employer contributions are not ‘paid’ to the employee for the purposes of calculating the hourly rate of pay. The Guidance clarifies this, noting that since employer pension contributions go directly to a pension fund these do not alter GPG calculations.

Ordinary pay

This does not include ‘remuneration provided otherwise than in money’ and so appears not to address benefits provided in the form of goods or services.

Bonus pay

For the purpose of calculating the GPG this is bonus pay in the form of money, vouchers, shares, options etc. The Regulations specify that remuneration in the form of 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.

Whilst only full pay relevant employees are taken into account on the snapshot date for the calculations relating to mean and median hourly rates of pay or the proportion of male and female employees in each quartile, all relevant employees are included in the calculation of the gender bonus gap.

Calculation of hourly pay

When calculating hourly pay (for the purposes of the mean and median pay gap and quartile proportions) employers should refer only to ‘full pay relevant employees’. This means that employees who are paid at a reduced rate or nil as a result of being on annual leave, sick leave and/or special leave during the pay period within which 5 April falls, are excluded. The pay period is the weekly, fortnightly or monthly period in respect of which the employer pays basic pay.

Regulation 6 sets out 6 steps to enable employers to calculate the ‘hourly rate of pay’. It is based on the pay period in which the snapshot date falls – so if an employee is paid weekly, it will be based on the week in which 5 April falls, or the month in which it falls for monthly paid and so on. It includes bonus pay and the steps include how bonus pay which may relate to a longer period is calculated for this purpose. There are further details on how to determine the number of working hours in a week for each employee.

‘Employees’

The definition of employees has been clarified in the explanatory memorandum. Those working under a contract of employment, a contract of apprenticeship or a contract to personally do work will all be caught for the purposes of determining which employers are in scope. Depending on the nature of the worker’s contract, this could include self-employed contractors who are not on the employer’s payroll system.

Contract personally to do work

Regulation 2(3) provides however that an employer is not required to include pay data relating to an employee working under a contract personally to do work where it does not have, and it is not reasonably practicable for it to obtain, the data. The Guidance provides that this data should be included where the employer has access to the data needed to carry out the calculations, for example if the pay figures are set out in a schedule of fees or a project initiation document. Where the employer does not hold the data in any form, the Guidance advises that the employer should consider whether it is reasonably practicable to obtain it, for example by asking the employee. The Guidance is clear that businesses should try to ensure that when they engage a person under a contract personally to do work they will have access to the relevant data, either by making sure that they store it themselves or by ensuring in the contractual arrangements that the employee is required to provide it to them on request.

‘Relevant Employee’

For the purpose of making the GPG calculations, a ‘relevant employee’ is someone employed on the snapshot date with the exception of partners, including LLP members (Reg. 1(4) and (5)). The Acas Guidance states that partners are excluded from the definition of ‘employment’ but in fact the Regulations only expressly exclude partners and members from the definition of ‘relevant employee’.

 

The Acas guide to managing gender pay gap reporting is found at:

http://www.acas.org.uk/media/pdf/l/6/Gender_Pay_Reporting_GUIDE.pdf.

Emplaw Online has also published a set of FAQs on the regulations