Minding the gap on gender pay

Posted: 07/01/2016

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The gender pay gap overall in the UK is 19.1%, according to the Office for National Statistics (ONS). 

Attempts have been made before to close the pay gap. ‘Think, Act, Report’ was a voluntary reporting initiative launched in 2011. Over 280 organisations signed up, but only four employers published the information. Wonder why? 

Statistics can be unreliable, but there is clearly a problem. The Government is proposing to address this by introducing mandatory gender pay gap reporting for larger employers. Evidence suggests that, for full-timer workers under 40, there is little difference between male and female earnings. Hopefully, increased transparency may reduce the remaining gaps. 

Section 78 of the Equality Act 2010 (EA) provides a power to create regulations requiring employers with 250 or more ‘employees’ to report gender pay gap information. The Government’s consultation on reducing the pay gap closed on 6 September 2015. The results are to be published this winter with draft regulations expected in the first half of 2016. There may be phased implementation with larger companies (500 employees plus) having to publish earlier. 

The Government may decide not to introduce reporting, but this seems unlikely, given its equality drive. Recent announcements include: 

• Pay gap calculations must include bonuses; 
• Large public sector employers will be covered, not just private and voluntary sector ones; 
• It will work with businesses to ensure there are no all-male boards in the FTSE 350; and 
• Encouraging businesses to recruit graduates on a ’name blind’ basis to address discrimination in recruitment.  

Consultation

The Government’s consultation paper raised some fundamental questions about how reporting would work, including: 

• Would disclosure of the pay gap encourage employers to take steps to close it? 
• Should one overall gap figure be disclosed or more detailed information, eg a breakdown by full-time/part-time figures or by grade/job type? 
• Should additional narrative be published to explain the figures? 
• Where should pay gap information be published and how frequently (it will not be more often than once every 12 months)? 
• Is 250 employees the appropriate threshold? 
• What additional costs are involved in compliance? 

The Government has not yet responded to the consultation. 

’Employees’ and ’pay’

Organisations with 250 or more employees will have to publish information relating to employees’ pay. ‘Employee’ is broadly defined here and includes someone employed under a contract of employment, a contract of apprenticeship or a contract personally to do the work. 

This covers workers and consultants, provided they cannot sub-contract work or employ others to do it. This is likely to cover some partners. Various details are still unclear, eg are employees based overseas included? 

What counts as ‘pay’ will be important. Salaries are clearly covered and it makes sense that bonuses will be too. Bonuses are often where discrepancies arise, partly through lack of transparency. Employers will need to consider what other benefits may be included. 

Providing one overall pay gap figure is likely to be misleading. Most employers will want to break the figures down to explain differences, eg due to part-time working, overtime and London weighting. 

The ONS uses median hourly earnings (excluding overtime) for full-time employees to calculate the gender pay gap. This helps avoid small numbers of high/low earners disproportionately affecting the figures. However, using the median can still skew results significantly. 

Risks

The risks of reporting include: potential legal claims; employee relations problems; bad publicity; and potential fines (probably of around £5,000). There is also potential personal liability for a “person acting on behalf of an employer”.  

Next steps

Employers should read the Government’s consultation response (when available). They should consider reviewing their position before the obligations bite to establish potential exposure. Reviews could range from something fairly informal to a full gender pay gap audit. Most employers will find pay gaps (some will be justified). Those undertaking reviews must be prepared to rectify problems.   

If solicitors are instructed to carry out reviews, the results may be protected by privilege and not subject to disclosure, allowing employers to resolve or minimise problems before reporting becomes obligatory. 

Cynically, for employers with a pay gap, a key issue will be how best to present the figures without being misleading. Action to equalise pay may be necessary. Re-grading and changing job titles may also improve figures. These measures have obvious financial and employee relations implications. Some employers may have to make back payments, subject to settlement agreements. 

Additional care will be necessary with pay reviews, using objective criteria and recording rationales to help justify awards. Decision-makers will need to understand the obligations and checks could be made for discriminatory trends.  

Some may take ’softer’ steps to help close the pay gap, including leadership training, mentoring, improved flexible working policies and targeted awareness campaigns to encourage women to enter male-dominated careers. However, care must be taken not to discriminate against others in seeking to close the gap.  

Publicly reporting gender pay gaps will force larger employers to look more closely at fair pay. Next stop, reporting the gap based on other protected characteristics, such as race, religion, age or disability? 

This article was published in New Law Journal in January 2016.

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