Gender pay gap reporting and small businesses
03 February 2022
Although only employers with 250 or more employees are required to report their gender pay gaps, many smaller businesses are deciding to do it anyway. Over 400 small businesses voluntarily uploaded their gender pay gaps relating to April 2020 onto the government’s database.
This article considers the reasons why a small business might want to voluntarily report its gender pay gap and what issues they should consider.
Why should small businesses report their gender pay gaps?
Gender pay gap reporting can be time-consuming and difficult. So why should smaller businesses bother when they don’t have to? There are a number of reasons why it might make sense for small businesses to report their gender pay gaps.
Candidates look at gender pay gaps
Research by the Equality and Human Rights Commission (EHRC) has found that almost two thirds of women look at a prospective employer’s gender pay gap before applying for a job with that employer.
With fierce competition for talent, employers need to do all they can to attract the best candidates. Being open and transparency about their pay gaps – and powerfully demonstrating a commitment to gender diversity – can help give a small business a competitive edge.
Corporate group structures can be complicated. Different entities might employ different types of workers. There could be thousands of lower pay staff employed by one company, but management might be employed by another. Yet all are fundamentally working for the same business. Candidates and consumers won’t necessarily appreciate this and understand the intricacies of how a group might operate. They might just want to know a business’s gap.
For this reason, it can be useful for small businesses existing within a much larger corporate structure to also calculate and report their gap.
For example, if 9 out of 10 companies in a group have over 250 employees and report their gaps, it’s a good idea to also analyse the figures for the 10th. Doing this means that an aggregated gap for the entire business (in the broad sense of the word) can be reported.
Growth cycle and the gender pay gap
Trying to reduce a gender pay gap becomes more difficult as a business’s size increases. By making it an earlier priority, employers can get the right processes and initiatives in place to prevent the growth of larger gaps as the business grows.
Issues with gender pay gap reporting for small businesses
There are a few technical and practical issues that a small business should consider when thinking about gender pay gap reporting.
Small groups problem
We’ve discussed before the “small groups” problem in the context of ethnicity pay gap reporting, but it also becomes relevant to gender pay gap reporting for small businesses. In a nutshell, the point is this: gaps are calculated from averages, so when the number of people in the group is small, the average could be changed a lot by the addition/removal of a few individuals.
In practice, it means that gaps will fluctuate more in small businesses, and the smaller the business, the bigger the issue. For example, if an employer has just 14 staff, the inclusion or exclusion of just a single person will change the gaps completely (see, this gender pay gap report by Ivors Academy who employ just 14 people).
Without going far beyond the gender pay gap reporting requirements and using some complex statistical approaches (for example, bootstrapping to calculate some sort of “hypothetical” or “simulated” gender pay gap), there is not much that can be done about the small groups problem. The gap is what it is.
But this issue is why the narrative in the report is so important. This allows for the gaps to be properly explained. Moreover, although identifying the causes of changes to gender pay gaps is hard for large businesses, it is much easier for smaller businesses.
Crafting the narrative is not always easy. There is a fine balance between giving too little information that the statistics lack their essential context, and too much that the fundamental message gets lost.
Small businesses need to be wary of publishing anything that might reveal personal data. For example a gap in a business of 13 men and 1 woman would reveal that woman’s pay, relative to the average man.
Even in less extreme examples, it may be possible to identify someone’s pay. For example, if a small business’s headcount comprised 6 men and 7 women and it reported its gap, but in the following year 1 woman had left, the subsequent gender pay gap might reveal something about the former employee’s pay.
Government guidance emphasises that it is important for employers to be sensitive to how an employee identifies in terms of gender and, if employees have not already provided gender identity information then employers should establish a method which enables all employees to confirm or update their gender. Many small businesses, however, do not have the systems in place for this.
Review of gender pay gap reporting regulations
The government is required to review the Regulations this year – it was written into the legislation that a review must take place after five years of gender pay gap reporting.
However, the scope of the review isn’t set out. There is no explicit requirement to run a formal consultation or seek any feedback from employers on how well the Regulations work in practice. Therefore, the government could (theoretically) meet its obligation by conducting a cursory review then concluding that no changes are necessary at this time. But if the government did decide to carry out a more thorough review, reducing the headcount might be something they seriously consider.
The gender pay gap reporting regulations have been mentioned in Parliament in recent years, with a reduction in headcount often part of the debates. In 2020, a piece of draft legislation with a dramatic name – the “EPIC Bill” – proposed a reduction in headcount so that employers with 100 or more employees would have to report. The EPIC Bill received cross party support – a rainbow coalition of Conservative, Labour, Lib Dem, Green and SNP MPs all got behind it. But the EPIC Bill eventually failed as it lacked government support.
Recently, the Fawcett Society recently published a report on the causes of the gender pay gap, and it reiterated its suggestion that the threshold for reporting be dropped to those employers with 100 or more employees. Moreover, in Ireland new gender pay gap reporting legislation will eventually apply to employers with just 50 staff. Already, employers in France, South Africa and Spain with 50 employees or more must report gender pay gap information.
The consensus in this country (and beyond) seems to be towards more transparency and more reporting of data. Although small businesses are exempt from gender pay gap reporting at the moment, that doesn’t mean they will be forever. Those that are sowing the seeds of transparency now may find themselves harvesting the benefits to their business later.