The government has published what we anticipate will be the final version of the draft regulations for the gender pay gap reporting requirements due to come into force in April 2017. But has this new draft clarified all of the uncertainties? And what should employers do now?
In February 2016, draft regulations were published requiring all private and voluntary sector employers with 250 or more employees to publish information detailing the differences in pay between men and women. Obligations include the publication of:
A consultation on the draft regulations ran from 12 February 2016 to 11 March 2016 and it was anticipated that final regulations, alongside guidance on their operation, would be available in the early autumn. However the publication was delayed and the revised regulations were published on 6 December 2016.
Employers who are covered are required to publish details of their gender pay gap, assessed against the earnings of all employees in the pay reference period that includes a specific date in April each year. In the first draft of the regulations that date was 30 April. Despite the delay in publishing the final regulations, the date has been brought forward to 5 April. This means that by 4 April 2018 employers must publish information relating to the pay gap, using the pay reference period in which 5 April 2017 falls, and bonus data for the period from 6 April 2016 to 5 April 2017.
Only employees in employment on the relevant snapshot date (the first being 5 April 2017) are covered by the regulations. ‘Employees’ includes all those employed under a contract of employment, a contract of apprenticeship or a contract personally to do work. This means that the regulations will include some self-employed contractors where they personally perform work. However, the regulations now expressly exclude LLP members which will be a positive outcome for professional services firms.
There was some uncertainty in the first draft of the regulations about how pay for periods of leave was to be accounted for, particularly where an individual was on reduced pay during that leave. This has now been clarified and employees are excluded from the pay reporting obligation and the pay quartiles if they receive less than full pay as a result of leave. This would include not only those who were on family friendly leave but also those who are off sick or taking a sabbatical.
This clarification is welcome as it avoids the potential for a misrepresentative increase in the gender pay gap, particularly where a woman on maternity leave is a higher earner but her reduced pay during maternity leave is used for the purpose of the calculations. Note however, that those on leave are still included in the bonus data.
In addition, as well as being separate reporting obligations in relation to bonus (see below) the definition of ‘pay’ in the draft regulations indicted that bonus payments should be included. If for example an employer paid an annual bonus to some employees in April each year, this would then skew the gender pay figures. It has now been confirmed that only the proportion of bonus that relates to the pay reference period in which 5 April falls should be used. So if the bonus paid in April is an annual one, only one twelfth is included for the purposes of calculating the gender pay gap figure.
The first draft of the regulations required that only the mean difference in bonus payments paid to male and female staff should be published. This was in contrast to the pay gap which required both the mean and the median figure. This anomaly has been addressed in the revised draft and employers are now required to publish both the mean and median figure for the pay gap and bonus payments.
Ever since the draft regulations were published requiring that in scope employers will have to report the number of men and women in each quartile of their pay distribution there has been discussion and debate about how this should be calculated. The source of the confusion was the draft regulations stating that the quartiles have to be identified ‘based on the gross hourly rate of pay for each relevant male or female relevant employee, listed in order of increasing value’. Did this mean that the quartiles were to be made up of equal numbers of employees, or an equal split of the employers pay range, or indeed something else? The final regulations have now clarified that the quartiles are to be made up of equal numbers of employees in each pay band. In practice this means that an employer will need to work out the pay for all employees in the organisation, divide this into quarters containing equal numbers of employees and publish the numbers of male and female employees within each quartile.
As with the first draft, the current regulations make no provision for enforcement. However, the Explanatory Memorandum accompanying the regulations states that a failure to comply with the requirements will constitute an ‘unlawful act’, resulting in the Equality and Human Rights Commission being able to take enforcement action. This was not anticipated when the first draft was published and the EHRC itself has previously said that it does not believe it has the power or the resources to effectively to enforce the regulations.
Whilst the final regulations go some way to addressing uncertainties arising from the first draft, there remains a number of areas that are still unclear including, for example, the impact of salary sacrifice schemes and share, or share options, arrangements on the statistics.
In addition, the anticipated guidance which was hoped would accompany the final regulations has still not been published. The expectation is that this guidance will cover important practical matters such as what narrative can be included alongside the statistics. ACAS has issued a statement confirming that this will be available in the new year.
Notwithstanding this, time is now of the essence and employers will need to get to grips with what the provisions require of you. In this regard, it is worth starting to look at the figures thrown up by your current data. This will give you an opportunity to identify, and remedy, any areas of potential concern within the business and may also start building the narrative to sit alongside your published data.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.