Not sure? Then you are not alone, but if you employ 250 employees or more you will be expected to find out in April 2017 and publish your findings prior to 4 April 2018.
What is a gender pay gap?
This is a term used to describe any difference in the average pay of all women and men. Since 1997, the gap between men and women’s average pay has been monitored by the Office for National Statistics. In 2015, the gap was 9.4% for full time employees and 19.2% for all employees owing to the fact that more women work part time than men and part time workers of both sexes earn less per hour, on average, then their full time counterparts.
Which employers are affected?
Both private and voluntary sector employers with a workforce of 250 or more are required to comply with the duty. Public sector employers are subject to separate, but similar, regulations under The Equality Act 2010 (Specific Duties and Public Authorities).
The requirement to have at least 250 employees is judged on 5 April each year, starting from 2017 (for public authorities the relevant date is 31 March and publication has to take place by 30 March 2018). This is known as the “snapshot date”. This means that a company with 245 employees on 5 April 2017 will not have to comply with the duty, even if later the same month it employs a further five individuals, but it will have to do so the following year (assuming its employment figures remain static or increase).
One issue of concern to many of our clients was whether group companies have to aggregate employees across different subsidiaries. The Regulations do not require this. Instead, each separate legal entity that employs 250 or more staff will have to comply with the Regulations.
Are all employees counted?
Most members of staff will be counted to establish whether or not an organisation engages at least 250 people on the snapshot date. These include employees and workers (including those engaged directly as consultants and independent contractors and those working casually such as zero hours workers). Partners and LLP members will also be counted for these purposes.
It is possible that employees engaged by the organisation who are working overseas may also have to be included, but usually only if their employment relationship suggests a strong enough connection to British employment law than the law of the other country.
However, the duty to report on the actual gender pay gap of the business applies to a narrower group of “relevant employees”, rather than all of the employees who are counted towards the threshold. The earnings of partners and LLP members do not have to be included. In addition, employers do not have to include data relating to contract workers engaged to work for them if they do not have the information required to compile the data and it is not reasonably practicable to obtain it. This recognises that employers may not be able to gather information for members of staff that are not on their normal payroll systems.
What information has to be provided?
There are six calculations to carry out and employers must publish:
- The average gender pay gap as a mean and median average;
- The average bonus gender pay gap as a mean and median average;
- The proportion of males receiving bonuses compared to females; and
- The proportion of males and females when in each pay quartile ordered from lowest to highest paid.
What counts as ordinary pay?
Pay includes basic pay, paid leave (provided it is at the same rate as full pay but not otherwise), shift premium pay, bonus pay and allowances (including location payments, those paid to reflect other duties performed such as a fire warden and car allowances).
The issue of including bonus information throws up some interesting issues. Bonus payments will only have to be included to determine the hourly rate calculations if they are paid in April. If they are paid in some other month, the bonus will drop out of the hourly rate pay calculations altogether. Bonuses that are paid in April will be pro-rated if the period covered by the bonus exceeds the pay period of the employee. For example, only 1/12th of an annual bonus paid in April (the pay period) will be taken into account when calculating the hourly rate.
Pay does not include overtime pay, redundancy pay or payments relating to the termination of employment, payments in lieu of taking leave and non-monetary benefits.
What about bonuses?
Employers are required to separately report on the gender pay gap in respect of bonuses paid (or deemed to have been paid) during the relevant period. Payments received linked to productivity, performance or commission earned have to be included. In addition, benefits received in the form of vouchers, securities, securities options and interests in securities are also included in the definition.
The relevant period for bonus pay reporting is the 12 month period ending on the snapshot date. So, for the first gender pay gap report, employers will need to take account of the bonuses paid between 6 April 2016 and 5 April 2017. Note: the full amount of the bonus paid in this period should be used; there is no requirement to pro-rata the calculation even if the bonus relates to a period of longer than a year such as a long term incentive.
Pay period
Pay is calculated over a specific reference period which includes the 5 April each year. The reference period reflects the employee’s pay dates. For example, the pay period for an employee paid monthly will be April.
How is the pay gap calculated?
To generate average earnings figures unaffected by the number of hours worked, employers will need to calculate an hourly rate of pay for each relevant employee. The Regulations set out in precise detail how this should be tackled and specify that a month is always treated as 30.44 days and a year 365.25 days.
In order to calculate the hourly rate of pay, the employer will need to know what the employee’s weekly working hours are. The weekly pay is determined using gross weekly pay divided by the employee’s normal working hours, where applicable, and adopting a 12 week reference period for employees whose working hours vary from week to week. Weeks where the employee does no work are not counted (but oddly are, where, at least an hour’s work is done).
The gender pay gap is calculated using the following formula:
A is mean (or median) pay of all relevant male employees.
B is the mean (or median) pay of all relevant female employees.
How are quartiles calculated?
Employers must identify quartiles for the overall pay range. This requires:
- listing the hourly rate of pay for all relevant men and women in order from the lowest to the highest paid;
- dividing that list from top to bottom into four groups containing equal numbers of employees (made up of men and women);
- calculating the percentage of male and female full pay relevant employees in each of the quartiles.
Note: Employers do not have to publish the actual monetary range of each pay band. Instead, the bands can be described as lower, lower middle, upper middle and upper.
Calculating the gender bonus gap
Once an employer has identified how to treat the various types of bonus pay and decided which fall within the scope of the reporting requirements, the calculation of the gender bonus gap is relatively straightforward.
The gender bonus gap is calculated using the following formula:
A is mean (or median) bonus pay of all relevant male employees.
B is the mean (or median) bonus pay of all relevant female employees.
When is the first report due?
Organisations have a year from the first snapshot date of 5 April 2017 to publish their results. This means that the final date for publication is 4 April 2018. Thereafter, reports have to be published by 4 April each year.
Where do we have to publish this information?
On a searchable UK website that is accessible to the public as well as to your website, the information must be retained for three years. If your business is a subsidiary without its own website, you will need to publish your data on the group website.
In addition, employers will also have to upload the information to a government sponsored website (which is likely to display the information in some sort of league table). This has not yet been set up.
Employers can, if they wish, include a carefully drafted narrative explaining any pay gaps in their data and setting out how it plans to address these.
Can we opt out?
All businesses with employees over the 250 threshold have to comply. There are no opt outs. However, the government has decided against imposing penalties for non compliance. Instead it will run “periodic checks”, produce sector based tables and it is also considering “naming and shaming” those organisations that do not comply. In addition, the notes to the Regulations indicated that the Equality and Human Rights Commission could investigate organisations that fail to publish their gender pay metrics.
It is also possible that businesses may also face reputational damage if they do not provide the information.
What are the risks to our business if our report shows disparity between the pay of men and women?
There might be perfectly good reasons for this including the fact that more men hold the most senior roles or more women work part time in your organisation. This is not unlawful.
However, if you discover that there is a difference between pay within specific roles and grades, you will need to undertake further work to ascertain the reasons for it. If these relate to gender, then your organisation will be vulnerable to a claim. Claims for Equal Pay can be brought in the Employment Tribunal (generally within six months from the end of the employment contract) or in the County Court (within six years). Trade unions are likely to scrutinise the information provided to try and find out if any claims can be brought.
Claims can be brought for the six years’ back pay (five years in Scotland).
Published: 3 April 2017
Employment Law Update - April 2017
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