Gender Pay Gap

Gender Pay Gap

Audit & Compliance Manager, Simon Wright, clarifies new Gender Pay Gap reporting regulations in force from April 2017.

New Gender Pay Gap reporting regulations will be coming into force for all private-sector companies who employ 250 or more people from 5 April 2017. The new regulations (The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017) don’t apply to government departments, any of the armed forces or any other organisation excluded by Schedule 19 of the Equality Act 2010. These organisations will be covered by the Equality Act 2010 (Specific Duties and Public Authorities) Regulations 2017, which are expected to come into force on 31stMarch 2017.

These new regulations mean that companies must publish a snapshot of salaries and bonuses across six key metrics, and must publish information about their gender pay gap within 12 months of the Regulations coming into force.

When publishing this information, employers have the option to provide an explanatory narrative around the figures they are required to publish. Organisations can explain why any of the figures seem high, and can explain any challenges they have experienced in reducing the gap, such as greater numbers of men receiving higher bonuses as a result of there being more of them at senior level.

Employers can also use the explanatory narrative to suggest how they intend to address any pay gaps in the long term.

An example of this might be where an employer is under-represented by women in engineering roles, and the narrative may suggest that they will run a recruitment campaign for trainee roles that particularly encourages women to apply.

Whilst in the short term this may mean that they have more women employed on starting salaries, in the long term the salaries will rise, and may balance out any initial under-representation.

The main points of the legislation are that:

  • Employers must be compliant with the regulations for any UK tax year where they have 250 or more employees on 5th April.
  • The definition of who counts as an employee for gender pay reporting can be found within the Equality Act 2010.
  • This broadly means that employees with a contract of employment and workers with a contract to do work or provide a service are included, as well as self-employed people where they personally have to perform the work.
  • Agency workers will form part of the headcount of the agency that provides them, and not the employer they are on assignment to.
  • There are six calculations to carry out, and the results of these calculations must be published on the employer's website and a government website within 12 months. This means that the first publication will be required no later than 4th April 2018.
  • The calculations must be signed off in a written statement by an appropriate person, such as a chief executive.
  • Employers have the option to provide a narrative with their calculations. This narrative can be used to explain any company specific reasons for the pay gap results and can be used to provide details of any actions that are going to be taken to reduce or eliminate the gender pay gap.
  • Each part time worker counts as one employee for gender pay reporting purposes. Where job-share arrangements are used, every employee within a job-share counts as one employee each. For example, if two people job-share, they would still count as two employees for gender pay reporting purposes.
  • This is particularly important where employers are accustomed to counting employees as ‘full time equivalents’ because the obligation to report and the calculations that follow are based on the number of individual employees.
  • The regulations exclude partners in traditional partnerships and limited liability partnerships, because partners are not “paid” but instead take a share of the profits, which is not directly comparable with employees’ pay.
  • An employer that is based in the UK, and who sends employees abroad to work may find that some or all of these employees will need to be counted for the gender pay reporting regulations.
  • They should be counted where the employment relationship suggests stronger ties to the UK and UK employment laws than to the law of any other country.
  • Indications that someone should be included within the Gender Pay Reporting include:
  • having a UK employment contract
  • Continuing to have their home in the UK
  • Having the UK tax legislation apply to their employment
  • Each case should be considered on its own merit and the employer will need to make a decision.
  • Employers should be sensitive to how an employee chooses to self-identify in terms of their gender. The regulations do not define the terms ‘male’ and ‘female’ and gender pay reporting should not result in employees being singled out and questioned about their gender.
  • Employers should be able to base reports on the gender identification the employee has provided for HR/payroll, if such records are regularly updated.
  • Where this information is not available or may be unreliable, employers should establish a method which enables all employees to confirm or update their gender.
  • Employees should be excluded from the employer's gender pay gap calculation if they are being paid either at a reduced rate, or nil as a result of being on leave.
  • This includes employees on maternity, paternity, adoption, parental or shared parental leave.
  • Employees on maternity leave, or other family leave, should be included only if they are in receipt of full pay during the pay reference period on which the employer's calculation is based.
  • This exclusion does not apply to reporting on the payment of bonuses. Any employees who were on family-related leave for some or all of the 12-month period to which the bonus pay calculations relate should still be included.

What calculations are required?

Each organisation that meets the reporting conditions must publish six defined calculations showing:

  1. Their average gender pay gap as a mean average
  2. Their average gender pay gap as a median average
  3. Their average bonus gender pay gap as a mean average
  4. Their average bonus gender pay gap as a median average
  5. The proportion of males receiving a bonus payment and proportion of females receiving a bonus payment
  6. The proportion of males and females when divided into four groups ordered from lowest to highest pay.

For gender pay gap reporting, the mean figures would be calculated by adding together the sum of all of the hourly pay figures, and then dividing this by the number of relevant employees.

The median average is the middle value in a data set when all of the items are arranged in numerical order from the lowest to the highest value. Where there are an even number of values, the median is the mean (average) of the two central numbers (add them together and then divide by 2).

For each relevant employee, the reporting requires the following data as a minimum:

  • Ordinary pay and the duration of the relevant pay period
  • Hours worked
  • Bonus pay and the duration of the bonus pay period
  • Gender

The definition of ordinary pay includes:

  • Basic pay
  • Allowances, which includes payments for
  • Duties that are ancillary to the employee’s main duties, such as for the role of fire warden
  • The employment’s location (for example, offshore allowances)
  • The purchase, lease or maintenance of a vehicle or other item
  • Recruitment or retention of the employee
  • Pay for piecework
  • This means pay calculated by reference to the number of “pieces” made or processed rather than the number of hours worked
  • Pay for leave
  • This means annual leave, child related leave (maternity, paternity, adoption, parental and shared leave) and sick leave
  • Employees whose pay during the relevant period has been reduced because of being on leave are excluded from the gender pay gap and quartile figures, but are included in the gender bonus pay gap figures
  • Shift premium pay
  • The difference in pay between basic pay and a higher rate paid for work carried out at different times of the day or night

The following are specifically excluded from the calculation of ordinary pay:

  • Overtime pay
  • Redundancy or other termination pay
  • Pay in lieu of leave
  • Remuneration provided otherwise than in money (benefits in kind or salary sacrifice schemes)
  • Expenses
  • Pay that would normally be paid in a different pay period

The regulations define bonus pay as any remuneration that:

  • Is in the form of money, vouchers, securities, securities options or interests in securities
  • Relates to profit sharing, productivity, performance, incentive or commission

Remuneration in the form of securities is treated as paid to the employee at the point where it becomes taxable.

The gender pay information should be calculated on data from a snapshot date of 5 April each year, starting from 5 April 2017. The bonus information to be included must be based on the preceding 12-month period, starting with the 12 months leading up to 5 April 2017.

The draft Equality Act 2010 (Specific Duties and Public Authorities) Regulations 2017, which are expected to come into force on 31 March 2017, will set out an equivalent reporting requirement for the public sector. This public-sector reporting will mirror that for the private and voluntary sectors, with the main difference being that the snapshot date for gathering data each year is 31 March rather than 5 April.

Employers should use the information to help identify any underlying causes for any gender pay gap and take appropriate action to minimise it.