Gender pay reporting – Final draft Regulations published

On 6 December the draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 were laid before Parliament. They set out details of how employers with 250 or more employees are to comply with the requirement to publish certain information about gender pay.

The Regulations come into force on 6 April 2017. They apply to the private and voluntary sector but we know that similar regulations relating to the public sector in England (not Wales) are likely to follow the same principles.

Who is affected?

Employers will need to report information on their gender pay gap if they have 250 or more employees on the snapshot date of 5 April 2017 and each subsequent 5 April. This is a change from the previous draft where the snapshot date was 30 April. The reporting must be done within a year of each snapshot date.

Although the threshold is defined simply by the number of ’employees’, the reporting obligations relate to ‘relevant employees’ who are ’employed’ on the snapshot date. Under the Equality Act 2010, ’employed’ includes employment under a contract of employment, a contract of apprenticeship or a contract personally to do work. The threshold triggering the obligation to report could therefore be reached when you include individuals who are not employees in the strict sense, but are, for example, self-employed contractors required to do the work personally or ‘members’ (partners) of LLPs. However, the information to be published is only about ‘relevant employees’ – partners in firms (including, it seems, LLPs) are specifically excluded from that; a change from what was expected.

In addition, the employer will not have to report if the employer does not have, and it is not reasonable for the employer to obtain the data for those under a contract personally to do work – for example, self-employed contractors. This could also apply to agency workers.

There is no requirement for group companies to report as a group, so a company with less than 250 employees has no obligation to report, even if it is part of a group which collectively employs more than that.

What must be reported?

Employers must report on:

• The difference between the mean hourly rate of pay for male and female ‘full pay employees expressed as a percentage – ‘full pay’ means the employee is not on nil or reduced pay as a result of being on holiday, sick leave, special leave, or maternity, paternity, adoption, parental, or shared parental leave. This is a change from the previous draft and makes clear that such employees are not included in this calculation at all.
• The difference between the median hourly rate of pay for male and female ‘full pay’ employees expressed as a percentage – again, those on nil or reduced pay through the absences referred to above are excluded.
• The difference between the mean bonus pay paid to male and female employees over the 12 months ending 5 April, expressed as a percentage – here there is no reference to ‘full pay employees’ so it appears absent employees are included. However the bonus pay only relates to ‘relevant employees’ so if they are not employed on the 5 April the bonus will not be included.
• The difference between the median bonus pay paid to male and female employees over the 12 months ending 5 April, expressed as a percentage – this is an addition to original draft which only required the difference in mean bonus pay. Again absent employees appear to be included, but those not employed on 5 April are not.
• The proportions of male and female employees who were paid bonus pay over the 12 months ending 5 April – again absent employees are included, but those not employed on 5 April are not. The proportion of men who were paid bonus pay must be expressed as a percentage of all male employees, and the proportion of women who were paid bonus pay must be expressed as a percentage of all female employees.
• The proportions of male and female ‘full pay’ employees in quartile pay bands – this has been significantly clarified since the first draft of the regulations, and now requires employers to rank all full pay employees in order of lowest to highest paid, divide them into 4 equal groups, and then express the proportion of men in the quartile as a percentage of all employees in that quartile, and the same for women. The draft Regulations attempt to prevent skewing of the figures where employees at the same hourly rate fall within more than one quartile. In this case, employers are required to ensure that, when ranking employees from lowest to highest paid, each of those quartiles contains the same proportion of male and female employees with that hourly rate.

The draft Regulations set out 6 steps to enable employers to calculate the ‘hourly rate of pay’. It is based on the pay period in which the snapshot date falls – so if an employee is paid weekly, it will be based on the week in which 5 April falls, or the month in which it falls for monthly paid, and so on. The steps include how bonus pay (which may relate to a longer period) is calculated for this purpose. There are further details on how to determine the number of working hours in a week for each employee.

Bonus pay is specifically defined as including remuneration which is in the form of money, vouchers, security options, or interests in securities and specifies when they are treated as paid to the employee. It includes remuneration relating to profit sharing, productivity, performance, incentive or commission.

Publication

There has been no change to the publication requirements, namely that:

• The information must be accompanied by a written statement confirming it is accurate – signed by a director, member of an LLP, partner in a partnership, member of the governing body, or otherwise the most senior employee;
• The information and statement must be published on the employer’s website, accessible to all its employees and the public, for a period of three years; and
• The information and job title of the person confirming accuracy must be published on a website designated by the Secretary of State.

There is no requirement to do so, but many employers will want to add a narrative to the information they publish to explain the context for any obvious gaps or other relevant information.

Next steps

The draft Regulations are subject to the ‘affirmative procedure’ meaning that both houses of Parliament need to approve it by a resolution before the Regulations will be confirmed. However, they are likely to be the final form of the Regulations. The Explanatory Notes confirm that non-statutory guidance (from ACAS) will be published when they have been approved by Parliament.

Employers now have a small window to prepare. Although publication is not compulsory before 4 April 2018, the first snapshot pay period on which the figures will be based is 5 April 2017 (except for bonuses which will be based on the year 6 April 2016 to 5 April 2017). The detail of the calculations and definitions set out in the final draft Regulations go much further than the previous version, and it will take some time for employers to ensure the correct calculations have been made.  We would still encourage employers to do a ‘dummy run’ to ensure they understand how the calculations work and are prepared for any unexpected results, potentially reviewing pay levels if appropriate.

There has been much criticism of the fact that there are no sanctions as such for failing to report or producing inaccurate figures. The Explanatory Notes to the draft Regulations specify that failure to comply will allow the Equality and Human Rights Commission to take enforcement action, although this is not specifically set out in the draft Regulations. In any event, the implications for recruitment and retention, not to mention reputation, should not be underestimated.

How we can help

We have a specialist Equal Pay Audit team combining employment lawyers with our HR consultancy team and benefitting from significant legal and practical experience. We can assist you in carrying out gender pay audits or general equal pay audits, whether to comply with your statutory duties, to protect you from claims or simply to ensure you are adhering to best practice as a responsible employer: please get in touch for more details.

Please see a more up-to-date article on gender pay reporting here and contact our employment experts for the very latest legal advice.