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Gender pay gap reporting – D-Day looms…

28 March 2017

It’s the employment law change that has generated more interest than any other for many years. Next Wednesday – 5 April 2017 – is the first ever “snapshot date” for the new gender pay gap reporting regime. For several thousand employers, it’s the day for which they will have to pull the payroll data from which their first ever public gender pay gap report will need to be compiled.

Under the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (“the GPGR Regulations”), an employer must use the data to produce six key figures:

  • the mean pay gap
  • the median pay gap
  • the mean bonus gap
  • the median bonus gap
  • the proportion of male and female staff receiving bonuses
  • the number of male and female employees in each of four equally sized pay quartiles.

The figures must be published on the organisation’s website, and uploaded to a Government site, by no later than 4 April 2018 – although Acas encourages employers to publish as soon as possible. 

The GPGR Regulations have been criticised for their crudeness in requiring employers to aggregate the pay data of all employees in their workforce and produce statistics that pay no heed to whether the individuals concerned are doing the same jobs or work of equal value. Dry runs indicate that most large employers with a preponderance of male employees in senior management roles and female employees in junior clerical or administrative positions will report significant headline gaps. The mantra “gender pay is not equal pay” has already become a familiar one, but whether employees and the wider public understand the distinction remains to be seen. An upsurge in complaints, grievances and even litigation may yet ensue.

The process required to produce the six figures listed above throws up a number of knotty issues, on which the GPGR Regulations do not always provide clear guidance. The (very) non-exhaustive list below demonstrates various ways in which the headline figures can be skewed:

  • The definition of “pay” for mean and median pay gap calculations. Overtime is out, with the Government having assumed that male employees would be more likely to be able to perform higher paid overtime than their female colleagues. Yet shift premium pay – which might be thought to have a very similar effect – is included. No account is to be taken of pay forfeited in salary sacrifice arrangements, even though some of these benefits (e.g. childcare vouchers) may be disproportionately taken by female staff.
  • Calculating hours worked based on core contractual hours. For many employees, actual hours worked may be well in excess of core hours. Unless the employer has a reliable way of tracking this (most won’t), calculations should nonetheless be based on what the contract says  - even though the result will suggest that employees earn much more per hour than they actually do.
  • No pro-rating of bonuses in mean and median pay gap calculations. Many female staff may receive pro-rated, lower bonuses because they work part time, or have taken maternity leave. No account is taken of this in the bonus calculations, producing a distorting effect.
  • Arbitrary consequences of bonus payment timing. Employers who pay bonuses, including commission and other incentives, in April will have to include an appropriate (probably pro-rated) part of that bonus in their mean and median pay gap calculations, as well as including the full amount in their mean and median bonus gap calculations. Employers who pay bonuses at other times of the year will not have to do so. Another quirk is that employers who have been the recipient of employees transferring under TUPE in the previous 12 months may have to include bonuses over which they had no control, and which may have a distorting effect.
  • The effect of share schemes. Pay in the form of securities, securities options and interests in securities must be treated as bonus and as paid to the employee at the point at which they give rise to a tax charge. This is despite the fact that the date could be several years after the point the original award was made. (The same is also true of LTIPs – long-term incentive plans - which pay out cash over a period of several years.) It is arguable, although probably not within the spirit of the GPGR Regulations, that stock awarded by an overseas parent company which does not employ the individual need not be included in the calculations.

For all these reasons, a priority for many employers in planning their compliance efforts has been to focus on the additional, and voluntary, “narrative” that they will publish alongside their report. This should provide context to explain any disparities and give details of any measures the employer plans taking to try and close its gap. 

Many employers are considering voluntary publication of more meaningful analysis providing details of gender pay differentials within relevant comparator groups, such as those within the same job grade, level or pay band. This depends, of course, on the results demonstrating a rosier picture than the headline figures. Employers might wish to consider a range of measures to improve their future position, such as: an overhaul of pay-setting practices; initiatives to encourage the career development and progression of female staff; and requiring managers to attend unconscious bias training.

Gender pay gap reporting will be an annual requirement from now on, becoming a fixture on the calendar of payroll, comp and bens, HR and legal teams everywhere. Find out more about how Lewis Silkin can help you with gender pay reporting.

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