Gender Pay Gap Reporting: Final deadline just weeks away
Is your organisation ready to publish its gender pay gap data? As the final deadline creeps closer, Phil Allen reminds us of the requirements..
The deadline for organisations with over 250 employees to provide their gender pay gap data is fast approaching. Public sector employers must publish by 30 March 2018 and private sector employers by 4 April 2018. We know that many of you have already published or are working on your figures.
However, we are aware that a number of employers have been surprised to receive a letter from the Government Equalities Office, threatening to ‘name and shame’ relevant employers who have not yet registered on the Government’s database, despite the deadline still being a number of weeks away.
As expected, the media has kept a close eye on the numbers published by larger organisations, which have attracted significant press attention. For example, travel company TUI found itself in the spotlight when it revealed the largest gender pay gap of any organisation to publish so far, with men earning over 50% more on average than women. The company states that this is due to the fact that women are underrepresented in its highest paying roles, such as pilots or senior engineers. Meanwhile, attention has been drawn to the unlikely figures produced by a number of (mostly smaller) organisations which have come up with a statistically improbable exact correlation in pay between the genders.
Whether your organisation is ‘almost there’ or still has a lot of work to do to produce its gender pay gap figures, we remind you of the key details below. However, please remember that this only a summary of a complex set of requirements. If you need any help to finalise or explain your organisation’s gender pay gap figures, please do get in touch.
Who does the reporting obligation apply to?
The reporting obligation applies to private and voluntary sector employers with over 250 employees (in England, Wales and Scotland). It also applies to public sector employers in England and Wales (with the exception of fully devolved public authorities in Wales). It is important to note that public bodies in Scotland with more than 20 employees are already required to publish gender pay gap data.
Remember this is about each company and not about groups of companies. So, if you have different employing entities within your broader organisation that means the obligation may apply to some companies and not others. It also means that if a relatively small number of the most senior people in your group are employed by a different company to the majority of your staff, the pay received by those senior people will fall outside the statistics you need to report.
What is required?
To comply with the reporting obligation you will need to publish the following 14 numbers:
1. Mean gender pay gap as a percentage of the mean pay of a male employee;
2. Median gender pay gap as a percentage of the median pay of a male employee;
3. Difference in mean bonus pay between men and women as a percentage of the mean bonus paid to a male employee;
4. Difference in median bonus pay between men and women as a percentage of the mean bonus paid to a male employee;
5. The proportion of male employees who received any bonus pay;
6. The proportion of female employees who received any bonus pay;
7. The number of male employees in your top pay quartile;
8. The number of female employees in your top pay quartile;
9. The number of male employees in the second quartile of pay;
10. The number of female employees in the second quartile of pay;
11. The number of male employees in the third quartile of pay;
12. The number of female employees in the third quartile of pay;
13. The number of male employees in the lowest quartile of pay; and
14. The number of female employees in the lowest quartile of pay.
For those numbers which relate to pay, the key date for the private and voluntary sector is 5 April 2017 and for the public sector is 31 March 2017. You will need to take a 'snapshot' of the pay period for each employee that includes this date.
For the bonus figures you will need to consider and report on all bonuses paid throughout the year between 6 April 2016 and 5 April 2017 (or between 1 April 2016 and 31 March 2017 for public sector organisations).
Reassuringly, while the input figures are different, the basic calculation you must perform to work out numbers 1-6 above is the same.
The first step: Gross Hourly rate of Pay
To perform the calculations you will need to work out gross hourly rate of pay for each employee. Very broadly, this involves dividing the total pay received by the employee in the relevant period by the number of hours worked by the employee in the relevant period.
For employees with fixed hours, you should make this calculation using their basic contractually required hours. Where the hours worked vary, the default is an average taken over a twelve week reference period. Hours available at or near the place of work must be included, but not those when the worker is at home or asleep. Any hours where the worker is entitled to overtime pay remain excluded. You will need to check the detail in the Regulations if this is an issue for your employees.
The pay to be included in the calculation includes: basic pay; paid leave; area allowances; shift premium pay; and various allowances including car allowances, first aider allowances, fire warden allowances, and any allowances referable to the recruitment and retention of an employee. It does not include: overtime pay (which may be important for some); expenses; benefits in kind; or redundancy pay. The consultation response clarifies that all severance and termination pay will be excluded from the gender pay gap calculation.
Pay must be calculated before any deductions at source (such as tax, NI contributions, and pension contributions) but after any deductions made under salary sacrifice schemes (for example relating to childcare).
Bonus payments must also be included in the calculation of pay, but only if the bonus is paid in the pay reference period.
What counts as bonus?
The regulations say Bonus Pay includes money, vouchers, securities, securities options or interests in securities. It will also include any payment in relation to profit-sharing, productivity, performance, incentive or commission. The regulations stipulate that bonus pay will not include ordinary pay, overtime pay, or any payment relating to redundancy or termination of employment.
The regulations specify that bonus pay in the form of securities or options must be valued in a particular way with taxable earnings used as a starting point. This may be tricky in practice and if you have LTIPs or share options you should clarify this with us. Approved share options, for which the payment required is the actual value of the shares, may never need to be included at all. Unapproved options, share options offered at an undervalue, or long term LTIPs may have unexpected implications for your bonus calculations. As these may apply at the date when the option is exercised or the LTIP paid (if that is when tax is due), these implications may be felt many years after the arrangement was initially put in place.
Which employees should be included?
The regulations state that the reporting requirement is intended to apply to all employees under the broad definition set out in s83 Equality Act 2010. This means that, as well as individuals working under a contract of employment, other individuals working under 'a contract personally to do work' must also be included. This will capture many individuals who you may not ordinarily consider to be employees. The consultation response makes clear that zero-hours contractors, apprentices and some consultants must be included (if they receive pay during the reference period). Other genuinely self-employed people should not be included in your gender pay gap calculations. Agency workers will generally not need to be included as their contract of employment will usually be with their agency rather than with you.
However, the new regulations provide that individuals under 'a contract personally to do work' may be excluded if it is not reasonably practicable to obtain the relevant data in relation to them.
Remember though that any other workers contracted personally for whom it is possible to capture the data, will still need to be included. It is hard to determine what this means in practice, so do talk to us about how the requirements may apply in your organisation. The default is that contractors/workers are included if they personally must do the work and you pay them.
Partners in a firm can be disregarded for the purposes of the reporting obligations.
What about employees on leave in the relevant period?
You only need to provide pay information for relevant employees on full pay. You do not need to provide this data for any employee who is being paid reduced or nil pay during the relevant pay period as a result of being on leave. This includes employees on annual leave, sick leave, special leave or maternity/paternity/parental leave. Employees on leave will only need to be counted if they receive full pay throughout the relevant pay period. If these employees have received a bonus in the relevant year, they must still be included in your reportable bonus figures.
Quartiles of pay
To work out numbers 7-14 above, you are required to split your workforce into 4 pay bands (called 'quartiles') and report the proportion of male and female employees who fall into each of the quartile pay bands (rather than the number who do so).
You need to prepare a list of all employees, ranked according to hourly pay (using the complex calculation above), starting from the lowest paid to the highest paid, and divide the list into four quarters (so there are an equal number of employees in each quarter). The percentage of men and women in each quarter must be provided. The quartiles are not quarters based upon the amount paid. They are quarters of the workforce numbers.
It is important to note that, if you have multiple employees on exactly the same hourly rate of pay, some employees on the 'boundary' between quartiles will end up in the quartile below and some in the quartile above (in order to ensure that each quartile contains an equal number of people). In these circumstances, you are required to ensure that the proportions of male and female employees in each of those quartiles are the same. It will not be acceptable for all the women on that pay rate to be put into the higher quartile to improve your statistics.
You are not required to provide any other explanation or analysis other than these basic statistics. However if your published figures show any gender disparity you are highly likely to wish to:
• confirm that you pay similar amounts for like work/the same grades;
• Identify what distorts the statistics for you. For example, this might be a few highly paid board level roles; high levels of female support staff in roles paid less than other workers who are predominantly male; trades/certain male-dominated skills receiving higher pay; and/or that you directly employ cleaners, care workers or catering staff who are paid less than other parts of your workforce;
• explain why the gap will close in the future (for example an increased female intake gaining greater length of service and higher pay) or what steps you are taking to close the gap (such as working with a body to encourage women to apply for skilled trade roles, or the improved gender split of apprentice recruits);
• present an alternative set of statistics if you took a different approach to calculating the figures and/or a particular group of staff omitted; and/or
• compare your statistics with national or sector specific gender pay gap figures, which present your gap in a better light.
Publishing your pay data
For employers in the private and voluntary sectors, the information must be accompanied by a written statement which confirms the information is accurate and is signed by a director, partner, or your most senior employee.
The information must be published on your organisation's website; in English; in a manner that is accessible to all employees and the public; and be kept there for at least three years. The information must also be uploaded to a government website to facilitate comparison between employers. The Government has previously indicated that it may produce league tables for specific industries or sectors.
The data must be published by 5 April 2018 (for private and voluntary sector organisations) or 31 March 2018 (for public sector organisations) and on the same date annually thereafter.
What happens if we get reporting wrong?
It initially appeared that failure to comply with the reporting Regulations would be enforced by a 'name and shame' approach only.
However, the Regulations now make clear that failure to comply with the Regulations will be an unlawful act under the Equality Act which means the Equality & Human Rights Commission can take enforcement action.
If you fail to produce any figures at all, the EHRC could issue a notice to your organisation and require you to take remedial steps or present an action plan for improvement. Obviously this might cause embarrassment or reputational damage.
However If you produce a set of figures, but do so incorrectly, in practice it will be very difficult for the EHRC to identify and police any mistakes.
You will not face any enforcement actions simply because your published figures show a gender pay disparity, but there may be an increased risk of/in equal pay or sex discrimination claims if you have a significant and unexplained difference.
We are happy to talk to you about how the reporting regime will apply to you and to help you interpret and present your data. Please speak to your usual advisor in the Weightmans employment, pensions and immigration team.