Gender pay gap – draft guidance is published

With gender pay gap reporting obligations almost upon us, the Government Equalities Office and ACAS this week published their draft guidance (Guidance). The Guidance is a step-by-step guide for employers on the types of data they need to publish and how they should calculate gender pay gaps prior to publication.

The first snapshot date is 5 April 2017 (which is earlier than initially indicated). Prior to this date relevant employers (i.e. those with 250 or more employees) should become familiar with the Guidance and implement a few trial calculations in readiness.

The Guidance explains in detail how to extract the relevant data for men and women (including how to go about identifying male and female employees) and then apply a formula to arrive at the required gender pay gap figures.  Employers’ gender pay gap reports, which are required to be published by 4 April 2018, must include:

1. the mean and median gender pay gap figures based on hourly pay;
2. the mean and median gender pay gap relating to bonuses;
3. the percentage of men and percentage of women who receive bonuses; and
4. the percentage of female employees in four salary quartiles, based on the employer’s overall pay range.

The employer must also include a supporting statement confirming the accuracy of the data provided which (in the case of a company) needs to be signed by a director.

Finally, the Guidance suggests a “best practice” additional obligation that employers should implement plans to manage the gender pay gap moving forward (although this is not mandatory).

Who published the draft Guidance? 

The Government Equalities Office and ACAS have published the draft Guidance this week, available at http://www.legislation.gov.uk/ukdsi/2017/9780111152010.

The Guidance sets out for employers how to comply with their obligations under the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (Regulations).

Who will the Guidance apply to?   

Relevant employers are those who have 250 or more relevant employees on the snapshot date (5 April 2017). Note however:

• Group companies are not required to aggregate employees across different subsidiaries, so each group entity has responsibility for reporting its own data if it has 250 or more relevant employees.
• Employers based in the UK who send employees abroad may need to include some or all of those overseas employees. Similarly, multinational companies who have employees working across jurisdictions which include the UK may also find these employees are included once the Regulations take effect.
• Partners and LLP members are excluded – no account need be taken of their earnings.
• Anyone who is engaged directly by the business as a consultant or independent contractor and who performs a personal service (namely a Worker) is likely to be caught provided that the employer can access the relevant information.
• Only so-called “full pay relevant employees” are to be included in the pay gap calculation. Employees receiving statutory maternity pay or statutory sick pay are excluded. However, anyone in receipt of full pay whilst on maternity leave or sick leave would be included.
• All relevant employees are included for the purposes of calculating bonus data, regardless of whether they are receiving reduced pay for any reason.

How is “pay” calculated?

According to the Guidance, once the pool of full pay relevant employees has been extracted, the next step is to identify their gender and their pay. Pay includes basic pay, paid leave, shift premium pay, bonus pay (proportioned to the relevant pay period), car allowances and other allowances paid through payroll. Pay does not include overtime, expenses or benefits in kind.

The calculation relates to the particular pay period incorporating 5 April. For all those employees who are paid on a monthly basis, the pay period will be one month. For weekly paid staff it is one week. Insofar as those employees who are paid irregularly are concerned, the period used will generally be an hourly rate of pay determined using a 12 week reference period. The Guidance advises employers to:

• make a list of ordinary pay received during the relevant pay period for the full pay relevant employees;
• record all bonuses received during the relevant pay period for the full pay relevant employees;
• record the weekly working hours for full pay relevant employees;
• record full pay relevant employees’ hourly pay – add together the bonus pay and ordinary pay and multiply it by an “appropriate multiplier”, which is the number of days in the pay period divided by 7. This amount should then be divided by the employee’s weekly working hours;
• Regulation 6 sets out the calculation in detail.

How is bonus calculated?

The next step is to calculate bonus. Bonus pay is broadly defined to include money earned in relation to profit sharing, productivity, performance, such as bonus or incentive pay and commission, LTIPs and cash equivalent value of shares. The reference period for bonus pay is the 12 month period ending on the snapshot date of 5 April. This date replaced the original proposal of 30 April to align with the tax year and make things easier for employers.

What information do employers need to publish, and where?

As well as reporting on the mean and median pay and bonus, employers must also report on the number of men and women in each salary quartile as a percentage. This involves ranking employees in order of pay from lowest to highest and dividing them into four equal groups. If men and women on the same salary fall into different quartiles, the men and women in each split should be divided as evenly as possible.

Gender pay gap information must be published on the employer’s website and remain available there for three years. The report will also be uploaded to a Government sponsored website.

What is the risk in failing to publish?

The main concern for employers will be the significant reputational risk posed in the naming and shaming of those employers who either fail to comply with the Regulations or who publish large gender pay gap figures.

Practical tips to take away:

1. Ensure a record of pay and bonus data for all workers, including casual workers and contractors, is being collated in an easily accessible and accurate format.
2. Review the timing of bonus payment. If bonus payments are made to some in early April and to others at a later date this could have an effect on bonus differentials.
3. It would be sensible to carry out an audit of pay and bonus data to assess the potential gender pay gap in advance of the snapshot date. If any particular issues are flagged this will allow time to address them.

Caroline Philipps, Associate, Fladgate LLP (cphilipps@fladgate.com)