We consider the key points and finer detail below. Before rushing to complete the necessary calculations, you should remember to:
- Ensure that those involved in the analysis do not generate material that could be detrimental if it is required to be disclosed at a later date. This includes the embarrassing email noting that your gender pay gap results are ‘of serious concern’ or similar.
- Consider involving a suitably qualified legal adviser at an early stage in the process of extraction and consideration of the relevant information. The material that is generated as a result may then benefit from the protection of ‘legal professional privilege’ and may not be disclosable if an equal pay challenge is received.
- Extract information that assists with an analysis of any gender pay gap as well as the information needed for the calculations. This could prove to be highly valuable in explaining the results of the calculations.
- Give serious consideration to the presentation of the results, including the content of any explanatory narrative.
The key points
- The Regulations will come into force on 6 April 2017 and apply to private sector employers with 250 or more employees.
- Publication is required by 4 April 2018.
- Both the mean and median gender bonus gap now needs to be published, along with the mean and median gender pay gap, proportions of male and female employees in each pay quartile and proportions of male and female employees in receipt of a bonus.
- The gender pay gap is based on the difference in the gross hourly rate of pay of male and female ‘full-pay employees’ for the pay period that includes the ‘snapshot date’ of 5 April 2017. Pay includes bonus payments made in, and relating to, this period.
- The new definition of ‘full-pay employees’ excludes those receiving a reduced rate of pay or nil rate of pay.
- There is a step by step guide to calculating the hourly rate of pay.
- The bonus pay gap now relates to bonus payments made between 6 April 2016 and 5 April 2017.
As usual the devil is in the detail.
Definition of employee
The broad definition of ‘employee’ in the Equality Act 2010 applies, which means that those engaged under a contract to provide personal services are included. This could capture some individuals not traditionally treated as employees, such as some independent contractors and consultants.
Where the employer does not have the relevant data and it is not reasonably practicable for the employer to obtain the data for a particular employee, the pay relating to that employee may be excluded, although it is unclear whether the employee should still be counted as a ‘relevant employee’.
Partners in firms are expressly excluded but it remains unclear whether partners who would currently be classed as employees should be included.
Definition of pay
The draft Regulations were criticised for including maternity leave but excluding other types of leave such as paternity and parental leave. The Regulations rectify this by defining leave as including all forms of family friendly leave plus annual leave, sick leave and special leave. However, the definition of ‘full-pay employee’ means that those on leave will only be included if they are in receipt of full pay while on leave. The obvious question is why distinguish between different forms of pay at all if only those on full pay are taken into account?
The Regulations include a step by step guide for calculating the hourly rate of pay, with a month assumed to be 30.44 days and a year 365.25 days. For those with no normal working hours, it is necessary to take the average over the preceding 12 weeks unless there are any weeks when the employee did not work any hours, in which case earlier weeks should be included to ensure that the total adds up to 12, adding to the administrative inconvenience of the process.
The example allowances included in the definition of pay were criticised as arbitrary in the response to the consultation process. The Regulations confirm that all allowances should be included, although the examples continue to be arbitrary in nature (now including any allowances for acting as a bomb warden!) and despite it also being confirmed that the Government will produce further guidance that will clearly outline which elements of pay should be included and excluded.
The impact of salary sacrifice schemes continues to be disregarded in favour of using the payroll figure, as this will be easier to administer. A car allowance is included but the value of the provision of a car is not. This generates a process in which administrative convenience takes precedence in some respects but not in others. Employers do not ultimately benefit, as they are left with the burden of considering whether their results are skewed and how they can explain figures that appear to show a gender–related issue that in fact does not exist.
Bonus payments
Mean and median figures are now required, with bonus payments including securities, security options and interests in securities.
Bonus payments to those who work part time are not adjusted to reflect the employee’s part time hours, as the Government believes that having to make such an adjustment would be ‘confusing’. Again, employers are advised to use the opportunity to explain their results to address the extent to which their bonus pay gap figure is skewed as a result.
Pay quartiles
The proportion of male and female employees in each pay quartile is established by listing all full-pay employees by reference to their rates of pay and dividing them into four equal groups. The proportions of males and females in each group are then noted. Even this process has its complications. Where employees receiving the same rate of pay fall within more than one quartile, an additional step is required. In such circumstances, the employer must go on to ensure that even numbers of males and females in receipt of the same pay fall into each quartile.
Group companies
The Government has responded to the particular issue we raised in the consultation process regarding the treatment of corporate groups. It is now confirmed that the reporting requirements will relate to each legal entity, ie employer, within the group that has 250 or more employees. This is so that senior leaders within each employer have a strong sense of ownership of the published figures and the remedial action required to close any identified gender pay gaps. Guidance will apparently encourage corporate groups to disclose gender pay gaps across the wider group on a voluntary basis, if considered to be informative and appropriate.
Monitoring non-compliance
Non-compliance will constitute an ‘unlawful act’ and fall within the existing enforcement powers of the Equality and Human Rights Commission (EHRC) under the Equality Act 2006. The EHRC website includes a paper detailing the approach it adopts to the exercise of its powers, which is well worth consideration.
Of course the requirement for publication on a Government website will allow compliance to be monitored, with the Government noting that it will establish a database of compliant employers. The functionality of the website is currently being explored.
Guidance
Guidance will be made available and will apparently also encourage a consideration of the following:
- Starting pay for men and women;
- Promotion rates for men and women;
- The proportion of mothers returning to work after maternity leave and the proportion of mothers still in employment a year after returning; and
- The proportion of men and women using flexible working patterns and levels within the organisation at which take–up is occurring.
Could this be indicative of the next phase of gender related reporting requirements?
By Lorraine Heard, Legal Director at national law firm Bond Dickinson LLP
- Lorraine Heard
