Impact of New Gender Pay Gap Reporting in the UK

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Last month saw the coming into force of important new employment legislation in the UK, the Gender Pay Gap Regulations 2017 (“the Regulations”).

In this article, we explain the reason for this new legislation and what it is designed to achieve, how it works (including crucially, which UK employers will be caught) and the likely practical impact of the Regulations for employers going forward.

Background

The Gender Pay Gap
The Regulations are a response to a continuing gender pay gap in the UK.  Most recent UK government statistics show the gender pay gap (the difference between average hourly earnings of men and women) at 9.4% for full time employees in 2016.  Whilst the trend has been for the gap to reduce since the Government started to survey the gap in 1997, there has been little change over the last six years.

Significantly, there are also major variations in the size of the gap within different industry sectors; the gap being largest in the financial and insurance sector where it is 33.6%. 

Within the financial services sector, there has, for many years, been a particular issue about the impact of variable compensation; i.e. discretionary bonuses and, as a result, many UK financial institutions already, as part of their annual remuneration processes, carry out careful reviews of proposed variable pay to seek to ensure there is no evidence of gender bias in order to mitigate against the risk of sex discrimination claims. 

Existing UK Legislation
There has been UK legislation designed to lead to equal pay; by making it unlawful to pay men and women performing the same job, a similar job or a job of equal value differently, for many years, initially through the Equal Pay Act 1970, the provisions of which are now contained within the Equality Act 2010.  In practice, however, equal pay claims are difficult to pursue and have been unusual outside of the public sector.

More recently in October 2014, the Compulsory Equal Pay Audit Regulations were introduced, requiring UK employment tribunals to order a compulsory equal pay audit to be published on an employer’s website where an employer has been found to be in breach of equal pay legislation.

Genesis of the Regulations
The Equality Act contains express power allowing the UK Government to make regulations requiring employers to publish gender pay gap information.  Initially, rather than using this power, UK Government had instead in 2011 introduced a voluntary scheme for employers to report as part of its, Think, Act, Report scheme. The view, however, is that this voluntary scheme has not been successful in reducing the gender pay gap, hence, the Regulations.  

Objective of the Regulations
The idea behind the Regulations is straightforward; that requiring employers to identify the gap and analyse the reasons behind it, will also lead to them taking action to reduce the gap going forward. In short, that greater transparency will increase the likelihood of action being taken.

Which Employers will be Caught?
The Regulations apply to employers with 250 or more employees.  This is reviewed annually on a particular date, the “snapshot date” which is 5th April, and each company within a group is considered separately.  In other words, it is not the number of employees within the group that count, it is rather only particular subsidiaries with 250 or more employees which are caught. “Employees” for this purpose has a wider definition than used in some UK employment legislation and includes those with worker status.  It could also include employees posted abroad by UK employers.

How the Regulations Work
The obligation is on employers who are caught to publish on their website, in a place where the information can be reasonably expected to be found, and on a designated government website, specified gender pay gap data within 12 months of the 5th April snapshot date.  As a result, therefore, employers within scope, as explained above, have until 4th April 2018 to report.
There are six metrics regarding the gender pay gap which must be reported.

  • Metric 1 – the mean gender pay gap -  the percentage difference in mean hourly pay.
  • Metric 2 – the median gender pay gap - the percentage difference in median hourly pay.
  • Metric 3 –  the mean gender bonus gap - the percentage difference in mean bonus pay over a 12 month period ending with the snapshot date.
  • Metric 4 – the median gender bonus gap - the percentage difference in median bonus pay over a 12 month period ending with the snapshot date;
  • Metric 5 – the proportion of male and female employees who receive bonus pay during the 12 month period ending with the snapshot date;
  • Metric 6 – the proportion of male and female employees in each of four quartile pay bands (lower, lower middle, upper middle and upper), calculated according to hourly pay.  

The Regulations contain detail regarding what amounts to “pay” and “bonus” for these purposes and regarding exactly how calculations should be carried out.  

Some Issues

Hours of Senior Employees
In calculating the metrics, employers will need to make a number of decisions.  One issue is what hours to use for senior employees; i.e. minimum contractual hours or hours actually worked.  The Regulations indicate that where an employee has, “normal working hours that do not differ from week to week or over a longer period,” normal hours under the contract in place should be used.  The Regulations also, however, indicate that, “where the employee has no normal working hours, or the number of the normal working hours differ from week to week or over a longer period,” hours should be calculated on the basis of an average of 12 weeks prior to the snapshot date.  Interestingly, the ACAS/Government Equalities Office Guidance on the Regulations (“the Guidance”) does not seem entirely consistent with the Regulations on this point.  It states, “employees should be treated as having normal weekly hours if they have the same contractual hours each week, even if they often work additional unpaid hours.” It may well be that different employers will take different positions on this.  How to approach; i.e. merely, using contractual minimum or calculating the average hours worked, could have a material impact.  For example, if minimum contractual hours is used rather than much higher actual hours then, if women are underrepresented at the most senior levels, calculating in this way could serve to increase the gender pay gap.

Whether to Provide a Narrative
Another key decision for employers will be whether to provide an explanatory narrative regarding the data.  The Regulations do not require that this is provided, however, the Guidance encourages it and, no doubt, many employers will wish to include a narrative to try and explain the gap and to detail their particular initiatives designed to address it.  The Guidance points out, “a gender pay gap does not necessarily mean [employers] have acted inappropriately or discriminatorily but this will need explaining.”  Another example, gender bonus gap could be skewed by part-time employees receiving lower bonus payments as a result of pro-rating.  An employer whose part-time work force is predominately made up of women may want to use a narrative to explain this. 

Practical Implications

Timing of Reporting 
It may well be that many employers will not first report until shortly before the 4th April 2018 deadline. Whilst the Guidance tries to encourage employers to publish as soon after the snapshot date as is reasonable, for them and suggests that, “those who publish earliest/can be seen as leaders/exemplar in their sector and gain from brand and reputation enhancement,” in practice, many employers may be unconvinced of the merits of going early.

Calculating the data against the metrics will not be straightforward, many employers may want to consider very carefully whether the data disclosed might reveal/lead to an equal pay risk and will want to consider how to mitigate any such risk through reporting internally to staff, workers, representatives etc.

In particularly competitive sectors, employers may also delay in the hope that they can see and consider how their competitors report,  prior to doing so themselves. 

Impact on the Gender Pay Gap and Equal Pay Claims
Over the medium/long term, clearly, the key issue will be to what extent the Regulations achieve, the objective of reducing the gender pay gap.  

It will also be interesting to see whether gender pay reporting and the, no doubt, inevitable publicity regarding gender pay reporting as a result of the public accessibility of data reported, will lead to an increase in equal pay cases.   A gender pay gap, showing a difference in average pay of men and women, does not necessarily indicate a breach of equal pay legislation, requiring a pay difference between men and women carrying out the same job or a similar job or work of equal value. It does, however, highlight that this could be an issue.

A further factor which may have an impact on this is the current high profile equal pay claim being pursued against Asda. This case, which is currently waiting a hearing date, involves multiple applicants (reports suggest as many as 700) arguing that predominantly female supermarket staff should receive equal pay to predominately  male staff working in distribution depots.  It is reported that the sums at stake, if the case succeeded, could be as much as £100m.  If this case does succeed, it will generate very significant publicity and could lead to an increase in equal pay claims in the private sector.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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