Revised draft gender pay gap reporting regulations to be laid before the UK Parliament

2016 has seen a greater focus on the economic benefits of reducing gender pay gap. Close the Gap published Gender Equality Pays, which sets out the evidence of the economic case for addressing women’s labour market inequality. A range of global business organisations including McKinsey and Co, and PwC have also published reports on the business and economic benefits of addressing the gender pay gap.

At the beginning of December, the UK Government published a revised version of the draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2017. The regulations are still awaiting parliamentary approval, but are expected to come into force on the 6 April 2017 with employers in England, Scotland and Wales with 250 or more employees required to publish their first gender pay gap report before 4 April 2018.

In August the UK Government consulted on mandatory pay gap reporting in the public sector in England, and it is anticipated that similar regulations for English public bodies will be drafted in the due course.

What do employers need to do?

Private and third sector employers with 250 or more employers will be required to publish:

• The difference between male employees’ mean average hourly rate of pay and female employees’ mean average hourly rate of pay, expressed as a percentage.
• The difference between male employees’ median average hourly rate of pay and female employees’ median average hourly rate of pay, expressed as a percentage.
• The difference between male employees’ mean bonus pay and female employees’ mean bonus pay, expressed as percentage.
• The difference between male employees’ median bonus pay and female employees’ median bonus pay.
• The proportions of male and female employees who were paid bonus pay.
• The proportions of male and female employees in the lower, lower middle, upper middle and upper quartile pay bands.
• Information must be published within 12 months of a single pay period around the ‘snapshot date’ of 5 April 2017. This means that the first pay gap report will be due by 4 April 2018, and on the same date each year after.

Which employees are to be included?

Pay gap calculations must be based on “full-pay relevant employees” which is defined as “a relevant employee who is not, during the relevant pay period, being paid at a reduced rate or nil as a result of being on leave”. “Leave” includes annual leave; maternity, paternity, adoption or shared parental leave; sick leave; and special leave.

This was an amendment following employer concerns that including female employees who were on leave with a reduced level of pay such as maternity leave would leave to an distorted pay gap.

Which elements of pay are included?

“Ordinary pay” means basic pay; allowances; pay for piecework; pay for leave; and shift premium pay.

“Bonus pay” means any remuneration that is in the form of money, vouchers, securities, securities option, interests in securities, profit sharing, productivity, performance, incentive or commission.

How to calculate pay gaps

The regulation includes helpful detailed methodology on calculating:

• Gross hourly pay, using an employee’s normal working hours where applicable, and adopting a 12-week reference period for employees whose hours vary per week.
• Mean and median pay gaps for ordinary pay and bonus pay.
• The proportion of male and female employees according to quartile pay bands.

Under the Public Sector Equality Duty listed Scottish public bodies have had to publish their gender pay gap and occupational segregation since 2013. The regulations relating to the Scottish Specific Duties do not include any methodology which created some confusion, and contributed to poorer performance than anticipated which was identified in Close the Gap’s assessment work of the duty in 2013 and 2015.

How is information to be published?

Employers are required to publish the information with a written statement, signed by a director, on their website which is accessible to the public, and to remain there for at least three years from the date of publication.

How will it be regulated and enforced?

There are no penalties set out but this will be reviewed if levels of compliance are not satisfactory. The UK Government will “from time to time” carry out a review of the regulations and publish a report of its findings which includes whether the objectives of the regulations are achieved; assess whether the objectives remain appropriate and “is so, the extent to which they could be achieved with a system that imposes less regulation”. The first review must be carried out within five years, and future reports published at intervals of no more than five years after that.

The Explanatory Notes states that failure to comply with the regulations will constitute an “unlawful act” and empowers the Equality and Human Rights Commission to take enforcement action, although no specific provision to achieve this has been included in the regulations. There is no additional information as yet on the UK Government additional resource to the Commission to undertake compliance work. In our consultation response we called for the Government to ensure that EHRC was adequately resourced to carry out compliance and enforcement work, and that ring-fenced resources are allocated to the Commission in Scotland to undertake work with employers in Scotland.

Will mandatory pay gap reporting realise change for working women?

The regulations are a welcome first step in addressing the systemic pay inequality that women experience in the labour market. It will ensure that accountability in the private and third sectors reflects accountability in the Scottish public sector where public bodies have been publishing their pay gaps since 2013. However, Close the Gap remains concerned that the threshold of 250 employees excludes SMEs which account for 99.9% of private sector companies, and most third sector organisations.

Women are more likely to work in smaller organisations, and smaller employers are less likely to have good equalities practice because they often don’t have a dedicated HR role within their business. Smaller employers are also less likely to have undertaken an equal pay review or taken any action to address pay gaps.

The regulations also don’t go far enough, as there is no obligation for employers to take further action on the findings of their pay analysis. Without this obligation there is a risk that employers will simply report their pay inequalities without undertaking actions to address the problems. It would be a costly exercise for employers simply to analyse and report, but fail to use their data to its fullest in developing concrete work to effect change. Only time will tell, and we will be keeping a close eye on this reporting.

You can read Close the Gap's response to the UK Government consultation on closing the gender pay gap here.