Gender Pay Gap
The purpose of this guide is to explain whether the regulations apply to your business and explain the obligations that arise under the regulations.
Regulations and guidance
In the private sector, the obligations are provided by the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, which can be found here.
Public sector employers should instead look at the Equality Act 2010 (Specific Duties and Public Authorities) Regulations 2017, which can be found here.
In Northern Ireland, where employment law is a devolved matter, gender pay gap reporting is not yet a legal requirement, although the framework is in place to introduce gender pay gap reporting legislation in Northern Ireland with more far-reaching requirements.
Acas, in conjunction with the Government Equalities Office, have produced a guide to the regulations which is available here. This provides non-statutory guidance to the regulations.
- 5 April = snapshot date
- 4 April following year = deadline for report
- 31 March = snapshot date
- 30 March following year = deadline for report
The “snapshot date” is the date for which salary is relevant for determining pay.
Which employers have a duty to report on the pay gap?
You have to produce this report if you have 250 or more employees on the snapshot date each year.
Employment status is defined differently for different purposes. As these regulations are made under powers from the Equality Act 2010, the wider definition of employee under the Act applies. This definition may include some people who for other purposes would be considered self-employed, such as casual workers, bank staff and some contractors. If they are required to provide personal service and carry out work under your direction and control, they are likely to be considered employees for this purpose.
The regulations do not expressly state whether or not overseas employees are to be included in the reporting. It is likely that overseas employees could, in theory, count where they are able to issue claims in employment tribunals under the Equality Act 2010, which depends on a number of factors related to the level of connection to Great Britain.
Note that for this purpose, partners in partnership will normally count as employees. However, as explained below, they are excluded from the pay calculations if they don’t receive a salary.
For companies within a group structure, the duty to produce a report falls on each separate legal entity. Accordingly, if a large group of employers is split into several companies that each employs less than 250 employees, there will be no duty to produce a report.
- Acas’ guidance suggests that sometimes it will be helpful for large employers to produce more than one report to account for different parts of their business. It also suggests that groups of companies may, in addition to the individual reports that they must produce, create an overarching report for the group. It adds, however, that those reports would be voluntary, and first they must make sure they comply with the regulations.
The regulations describe 6 matters that have to be calculated:
- Average difference in pay between male and female employees as a mean average – expressed as a percentage;
- Average difference in pay between male and female employees as a median average – as percentage;
- Average difference in bonuses received by male and female employees as a mean average – as percentage;
- Average difference in bonuses received by male and female employees as a median average – as percentage;
- Proportion of males who receive a bonus and proportions of females who receive a bonus;
- Proportion of males and of females in each quartile of the workforce – quartiles are 4 groups of employees, divided up by salary, with equal numbers of employees in each group.
For these calculations, the regulations say only to use the figures for “relevant employees”, and the regulations say that that excludes partners in a partnership/firm. (Note that for deciding whether you have the 250 employees such that you are covered by the regulations, it’s all employees, not only “relevant employees”.
The regulations also say that for casual workers, if it would not be reasonably practicable to obtain the data you can exclude that data in the calculations.
For the first two figures above (difference in hourly pay) the regulations refer to “full-pay relevant employees”. That means that you should exclude employees on leave that is not at full-pay. The purpose of this exclusion is that a high proportion of such employees will be on maternity leave, therefore their figures could skew the data. However, it would also relate to other periods of absence.
The other figures do not exclude non-full-pay employees – for example, an employee on maternity leave may receive a bonus. That is taken into account.
To calculate these figures, it is first necessary to examine each element of the calculations.
Hourly rate of pay
For each employee, it will be necessary to calculate the hourly rate of pay. Regulation 6 provides a six-step procedure for doing this calculation. In brief:
- Hourly pay = TP x (7/days) / hours
- TP = total pay in pay period, with bonus pro-rated if applicable
- Days = days in pay period
- Hours = hours worked in week
Acas’ guidance provides a very simple example at page 11 for a (presumably) fictional employee called Jenny. There are other examples on more specific issues.
The pay period is the period over which an employee is paid – for example monthly or weekly. However, for these regulations:
- 1 month is defined as 30.44 days;
- 1 year is defined as 365.25 days.
The relevant pay period is that which the relevant snapshot date falls in. For example, if an employee is paid monthly on the last day of every month, then April will be the pay period in question, and the total pay will be the pay received on 30 April.
Meaning of pay
- Pay includes basic gross pay, allowances, piecework pay, leave pay if paid in full, shift premium pay, sometimes bonus (see below).
- It excludes paid overtime, redundancy and termination payments and pay in lieu of notice (PILON), remuneration otherwise than monetary, expenses.
As premium pay is included, but paid overtime is excluded, it will be necessary to distinguish between premiums paid for work during regular hours and premiums received for working overtime.
As we are looking at gross pay, we can ignore deductions that are made, such as tax and pension contributions.
However, if the employee makes a “salary sacrifice” the employee’s salary is defined as the salary after the sacrifice. For example, if the employee agrees to reduce his salary by £30/month in return for gym membership, gym membership is excluded from the calculation because it is not monetary and the salary figure to look at is the salary after the reduction for the sacrifice.
This may produce unexpected results for the types of benefits that are almost monetary. That ‘almost’ is this writer’s choice of word and is not a technical term. The best example is pensions. As explained on pages 25-26 of Acas’ guide, employee pension contributions are a deduction so the salary figure used is the figure before the contribution. The employer’s contribution is also ignored as it is not received by the employee but goes straight to the pension.
But what if, instead of making a contribution in the normal manner, the employee chooses to make a salary sacrifice of the amount of the contribution in return for the employer adding that amount to the pension fund? It does appear that that would be a valid way of reducing salaries for gender pay gap reporting. (If the decision to exclude salary sacrifice seems strange to you, then you are not alone.)
If a bonus is received during the relevant pay period, then it is included in the pay figures. However, for that purpose it is pro-rated. For example, if an employee has a monthly pay period and receives a yearly bonus of £1,200 during the relevant pay period, £100 of the bonus will be included in pay calculation.
You will note that there are calculations specifically about the bonus pay gap. Bonus for that purpose is calculated differently, as is explained below.
- If an employee has fixed weekly hours which are always the same, the matter is simple and self-explanatory.
- If the employee has no fixed hours, you take the average over 12 weeks, excluding weeks with no hours worked.
- If hours are stated, but in actual fact the worker normally does additional hours, the matter is not as simple. In our opinion, and that of most commentators, you should use actual hours worked (excluding paid overtime). For example, a senior employee’s contract may state the weekly hours as one thing, on average he or she does considerably more – you might estimate it as 50 weekly hours. The regulations, in defining weekly hours, do not refer to the contractual figure and do not say additional hours are excluded. Accordingly, taking the actual hours worked, using a 12-week average if appropriate, seems to accord with the regulations.
When addressing this point, Acas refers to contractual hours (page 30). The regulations don’t say that. In addition, this would introduce further complexities, as there would often be an issue about whether the contract had been varied by custom and practice. In our opinion, it is both simpler and consistent with the regulations to use the actual hours worked.
- What if the employee has variable hours but has not worked for you for 12 weeks? In that case, the regulations say to use a number that fairly represents their weekly hours, taking into account the hours that employee is expected to work and the hours that other employees do work.
As explained above, bonus pay is sometimes included in the calculation for hourly pay.
However, there are also calculations specifically relating to bonus. For this purpose, bonus counts if it is received during the 12-month period ending on the snapshot date.
For this purpose, it is not pro-rated up for part-time employees and if it relates to a period other than one year it is not pro-rated – for example, if it relates to three years, the whole amount is still included.
Miscellaneous notes on calculations
- In case you have not had to calculate averages since school:
- Mean average is the weighted average. That means it is all the figures added together divided by the number of employees. So the average of £3, £7, £8, £11 and £16 = £45/5 = £9.
- For the median, you put all the figures in numerical order, and the average is the middle figure. So the median average of the above values is £8.
- If there is no middle because the number of figures is even, the median of the middle two is used. So the median average of £3, £4, £7, £8, £11 and £16 is £7.5.
Having calculated the average hourly pay for men and for women, the gender pay gap is = 100 x (A-B)/A, where A is the men’s average pay and B is the women’s. Assuming there is a gender pay gap in favour of men, the figure will be positive. If it so happens that women are paid more than men, the gender pay gap will be negative.
For the quartile figures, if they do not divide into four equal groups then you should make them as equal as possible. And if two or more employees have the same hourly rate of pay and happen to fall on a dividing line between quartiles, then as far as possible you should divide them between the quartiles such that men and women are divided equally.
Finalising the report
In the private sector, along with the report they must prepare a written statement confirming that the data is accurate and it must be signed by an appropriate person.
Public sector employers do not need to prepare this statement, but may do so if they wish.
Where the signature is required in the private sector, the appropriate person is as follows:
- Company/corporate body other than a limited liability partnership: a director (or equivalent)
- Limited liability partnership: a designated member
- Limited partnership: a general partner
- Any other kind of partnership: a partner
- Unincorporated body of persons other than a partnership: member of the governing body or a senior officer
- Any other type of body: the most senior employee
The report must be published in two places: on the gov.uk Government website and the employer’s website – where it must be maintained for at least three years.
The regulations don’t require any narrative to support the data. Acas, however, strongly encourages it and in our opinion it will normally make sense. The narrative would broadly be of three types:
- Explanations of how the calculations were done if it is not self-explanatory or if any choices were made. Given the prescriptive regulations, this may not be necessary.
- Explanations of any striking pay gaps or other anomaly. If there is an explanation that helps you to present the data in a way that makes the business look good, then this should be included.
- Present actions plans – if you can say what is being done to bring the gender pay gap down, this will look better. If you had already realised that you have a gender pay gap and have had an action plan in place for some time, that’s even better.
Differences between public and private sector
For most purposes, although the two sets of regulations are structured differently, the rules are intended to be exactly the same. The principal differences are as follows:
- The public sector duty is introduced as part of the existing public sector equality duty, rather than as a standalone requirement.
- In first year and every 4 years, must accompany report with report on equality duty:
- Public bodies must publish at least one objective relating to any of the three objectives of the public sector equality duty: eliminate discrimination; advance equality of opportunity; foster good relations.
- Objectives must be specific and measurable.
There is no clear system for enforcement in the regulations. The Government and Acas have said that the Equality and Human Rights Commission has the power to enforce any failure to comply with the regulations. That power would be from section 20 of the Equality Act 2006, which gives it the power to investigate and issue notices of acts that are unlawful pursuant to the Equality Act 2010.
Commentators and the Commission itself have suggested that this power would not enable enforcement of these regulations. The reason for this is that the Equality Act 2010 does not actually make it unlawful not to publish this report – it only grants a minister the power to make regulations regarding the gender pay gap report.
Acas has also said that failure to publish the report would create a reputational risk, and the inferences made as to the reason for the failure may be worse than any negative impact of the report.
The Government response to the consultation said that requiring employers to publish the information will allow it to monitor compliance and they can keep the position under review. Perhaps in a few years’ time after they have more information they will alter their approach to enforcement.
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