The Government has published its draft of The Equality Act (Gender Pay Gap Information) Regulations 2016 (the “Regulations”). The Regulations will set out the requirements on employers for gender pay reporting. The Regulations are still in draft and are open for consultation until 11 March 2016. However, the draft Regulations provide a good indication of the obligations employers will face when the Regulations come into force later this year.
Background
Last summer, Prime Minister David Cameron pledged to end the gender pay gap, i.e. to end the difference in pay between male and female employees, within a generation.
A measure which the Government hopes will reduce the pay gap is a requirement on large employers to publish details of the gender pay gap amongst its workforce.
The power to make regulations requiring the publication of information on the pay of men and women is set out in the Equality Act 2010. However, the previous Government did not exercise this power. Last year, the Conservative Government confirmed its intention to introduce such regulations by the end of March this year and it has now issued the Regulations in draft form, with a consultation on the draft Regulations open until 11 March 2016.
Which employers will be affected by the Regulations?
The Regulations will apply to employers in the private and voluntary sectors in England, Wales and Scotland with at least 250 UK based employees on 30 April 2017 (or on any anniversary of that date). Under the draft Regulations group companies will not be required to aggregate employees across different subsidiaries. A large employer may therefore be outside the scope of these requirements if it does not have a single entity that employs 250 or more employees. The definition of employees in the draft Regulations does not include workers, and, in an LLP, partners will not be considered employees.
The Government has also recently indicated its intention to extend gender pay gap reporting obligations to the public sector.
What do the Regulations require?
Employers will need to collate and publish certain information about pay differences between their male and female employees on a ‘searchable’ UK website which is accessible to both employees and the public. This can be the company’s own website. Once the Regulations come into force, employers will be expected to publish this information every year and the information must remain on the website for at least three years. The report must also contain a statement signed by a director, or other authorised signatory, of the employer to confirm that the information is accurate.
Employers will also be required to upload their information to a Government sponsored website. The Government plans to use the information published to produce tables, by sector, of employers’ reported pay gaps. It is anticipated that this will highlight the underrepresentation of women in STEM (Science, Technology, Engineering and Maths) areas, in particular.
Employers will not have to show their working out or provide any evidence beyond the specific and limited information that they are required to publish, but they will have the option to provide an explanation for the figures published. Employers that are concerned about the pay differences that their report reveals may choose to do this to provide context for the figures and minimise the risk of reputational harm.
What information about pay must employers publish?
Employers will be required to assess the mean and median pay for the male proportion of their workforce and compare it to the mean and median pay for the female proportion of their workforce. They will then need to publish details of the mean and median ‘gender pay gap’ i.e. the percentage by which women’s mean and median pay differs from men’s mean and median pay within their business. The draft Regulations state that employers must base their calculations upon gross pay at 30 April each year.
‘Pay’ is to include basic pay, paid leave, maternity pay (and presumably shared parental pay), sick pay, area allowances, shift premium pay, bonus pay, car allowances and other allowances paid through the payroll. It will not include expenses, overtime pay, benefits in kind and salary sacrifice schemes. The inclusion of maternity pay is likely to increase the pay gap figure, whereas the exclusion of overtime is expected to reduce the pay gap figure because, statistically, men work more overtime.
‘Bonus’ includes profit-sharing, commission, long-term incentive schemes and the cash equivalent of any shares awarded. The figures used to calculate the ‘gender bonus gap’ must be based upon the average ‘bonuses’ paid to men and women over the course of the year to 30 April. The proportion of men and women who receives bonuses must also be declared.
In addition, employers will be required to publish how many men and women appear in each quartile of pay in the workforce. This is expected to highlight ‘vertical segregation’ within companies, and sectors, which have fewer women progressing up to senior levels or senior pay structures.
What are the timeframes?
The Regulations are expected to come into force on 1 October 2016. This means that the first date on which employers would be required to collect the data on which they base their report is 30 April 2017. However, employers have up to a year to publish this information online, so the first gender pay gap reports are unlikely to be publicly available until spring 2018.
Are there penalties for non-compliance?
The draft Regulations do not provide for any enforcement measures or civil penalties for employers who fail to comply with their obligations under the Regulations. However, employers who do not comply risk damaging employee relations and attracting negative publicity, which could result in reputational harm.
Advice for employers
As the Regulations are still in draft form, with the public consultation closing on 11 March 2016, they are subject to further change. However, if you are an employer in the private or voluntary sector with 250 or more UK based employees, you should start thinking about the implications of the Regulations now.
In particular, you should assess your pay data as soon as possible so that you can:
- establish the extent of any gender pay gaps within the business;
- identify the reasons for such pay gaps; and
- carry out an assessment of whether the business could be taking steps to reduce the gender pay gap before its collection of data on 30 April 2017 and beyond.
Bear in mind that carrying out this process internally could create evidence to support an employee in an equal pay or discrimination claim which would be disclosable to an Employment Tribunal. To benefit from legal privilege, you may therefore wish to engage legal advisers at an early stage to assist with the process and to advise on any legal risks that arise.
You will also need to decide:
- when you will publish your gender pay gap information (30 April 2018 at the latest);
- who will sign the report to confirm that the data reported is accurate; and
- whether the company will provide an additional statement with the published data to explain the reason for any gender pay gaps and to show what steps it is taking to reduce the gap.