Gender pay gap reporting is now in force; do you know your duties?
Among the ever-changing landscape of the UK’s labour market, one constant element has transcended the decades – the problem of the gender pay gap. This ‘gap’ refers to the difference between women’s and men’s average weekly full-time earnings, expressed as a percentage. It is a global problem that demonstrates the disparity between the earnings of both genders.
For example, it is estimated in the Asia Pacific region that women will earn 41.2% less than men by 2030. In China alone, women earned 40.7% less than their male counterparts in 2016. In the USA, it was recorded that females earned an average of 20% less than their male colleagues in 2016. Meanwhile, in Australia, the gap is currently estimated at 16.0%. Closer to home, the gender pay gap varies across the EU Member States from 5.5% in Italy and Luxembourg to 26.9% in Estonia.
In April 2016, the UK’s gender pay gap for full-time employees was 9.4%, down from 9.6% in 2015. However, when part-time employees are included, recent figures show that the gap is currently 18.1%.
Why is there a pay gap?
The causes of the international gender pay gap are varied and complex. Undoubtedly, it is partly attributed to stereotypical representations of suitable careers for both genders and society’s expectations and assumptions. Statistically, women are more likely to be part-time and take on the majority of childcare duties. In turn, this affects their career prospects, which has an adverse effect on promotion and remuneration.
Businesses also inadvertently contribute towards the inequality. Contributing factors include:
- restrictive corporate cultures within certain industries;
- an absence of well-paid part-time/flexible work;
- incorrect assumptions about mothers not wanting, or not being in a position to accept, promotion;
- a lack of other senior female role models in management and board directors; and
- insufficient mentoring and networking opportunities within industries.
Various UK Parliaments have attempted to address the issue over the generations. The Equal Pay Act 1970 introduced an 'implied equality clause' into all employees' contracts, which prohibited employers from setting specifically lower rates of pay for women.
However, the problem has recently received media and political attention, which has highlighted the appetite to address gender inequality in 21st century Britain.
There are a variety of steps that employers can take to tackle and reduce the gender pay gap. Firstly, the UK Government has identified a need for greater transparency about gender pay difference by obliging large employers to scrutinise their payroll and publish their results.
Effective on 6 April 2017, the UK Government hopes the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 will help employers understand the gender pay gap and encourage businesses to consider steps they can take to further reduce any gap and inequality. These provide that large employers must annually calculate and publish certain gender pay information.
The payroll statistics must be calculated from a ‘snapshot’ of information taken on 5 April of each year and then published within 12 months of that date, meaning the first publication date for employers is no later than 4 April 2018. Data must be kept on the website for three years.
Which employers have to report?
Employers with over 250 employees are required to collect data and publish their results on the employer's website and the Government’s website.
Under the Regulations, an ‘employee’ includes not only workers who are on the company payroll as employees, but also individuals who contract with the company to personally perform work. Therefore, this includes some independent contractors and consultants. Agency workers are also included, but counted by the agency who supplies them.
What needs to be reported?
Employers need to separate their workforce into four separate pay-band quartiles in order to analyse the payroll information.
There are six calculations a business should carry out and publish:
- The gap between the mean hourly rates of full pay.
- The gap between the median hourly rate of pay of male full pay and female full pay.
- The gap between the mean bonus pay paid to male and female employees.
- The difference between the median bonuses paid to both genders.
- The proportions of male and female relevant employees that received bonus pay.
- The proportions of male and female full-pay employees in the lower, lower middle, upper middle and upper quartile pay bands.
The requirement to report on bonus pay and on-cash incentives such as shares and share options is retrospective. It considers bonuses paid during the previous 12 months ending on 5 April.
The data is also required to be confirmed in a written statement by an appropriate person, such as a Chief Executive.
Because statistics can be interpreted in different manners, employers have the option to provide a narrative with their calculations. This may generally explain the reasons for the results (e.g. a recent alteration of part-time working, benefits schemes or bonus provisions) and give details about actions that are being taken to reduce or eliminate the gender pay gap.
Why should employers comply?
There are currently no financial penalties for non-compliance but the Government may still ‘name and shame’ the worst offenders on its website. Failure to comply will be unlawful under the Equality Act 2010 and fall within the existing enforcement powers of the Equality and Human Rights Commission (EHRC), which include applying to courts to order compliance. Claimants may pursue equal pay claims in the Employment Tribunal as a result of non-compliance.
What do businesses need to do now?
It is important for employers to be proactive in assessing how different payments to employees will be treated under the Regulations ahead of their requirement to report.
Affected employers should begin to follow the steps outlined below in order to best prepare for their reporting requirements in 2018:
- Identify which employees will be included in the calculations.
- Begin to collect data for the first reporting period from 5 April 2017.
- Consider if additional data would be useful for internal analysis of gender pay gaps.
- Identify a senior executive who will sign the certification of accuracy confirming that the information is accurate.
- Conduct an initial audit and risk assessment of any pay gap based on previous years.
- Consider an explanatory narrative to accompany publication of the figures.
- Consider creating an action plan to address gender pay issues identified.
Employers have time prior to April 2018 to address any inequality. For example, adopting family-friendly policies and being open to flexible working arrangements may help attract talented female staff and executives. Ensuring that bonus and benefits schemes are fairly allocated and distributed among your workforce is also key to mitigating any disparity in pay.
Although not all employers are required to address the issue at this stage, it is being encouraged by the Government in order to address gender equality in the workplace. In the short term, organisations that are publicly recognised as failing to comply can expect to receive additional criticism and scrutiny in the media. Therefore, identifying potential problems and preparing to report in advance will be crucial in the months ahead.
Gavin Macgregor is an Employment Lawyer at Loch Employment Law, part of the Loch Associates Group. To contact Gavin please call 0131 322 3501 or email email@example.com
For more information on Loch Employment Law and the Loch Associates Group please go to www.lochlaw.co.uk or www.lochassociatesgroup.co.uk