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By Anya Duncan, Partner

Background

In 2011, Theresa May (the then Minister for Women and Equalities) noted in the House of Commons that the coalition government was “committed to working with business to develop a voluntary approach to gender pay reporting in the private and voluntary sector”. Following this, later that year, the Government launched a voluntary gender equality reporting initiative called “Think, Act, Report” which sought to encourage voluntary pay reporting in the private and voluntary sector. Although more than 200 businesses signed up to the initiative by August 2014 only four had published any gender pay gap information.

The failure of this voluntary approach increased pressure on the government to take further action. As a consequence, at a very late stage a new clause section 147 was introduced into the Small Business, Enterprise and Employment Act 2015. This new clause revised section 78 of the Equality Act 2010 to place a positive duty on the government to make regulations requiring employers with more than 250 employees in the private and public sector to collate and publish information about their gender pay gap. Such regulations must be made by 26 March 2016 at the latest.

On 12 February 2016, the Government Equalities Office issued its consultation on its draft regulations on mandatory gender pay gap reporting. Reponses to the consultation are required to be submitted by 11 March 2016 and subject to the approval of Parliament, the regulations will come into force on the earliest relevant common commencement date (1 October 2016). However, employers will not be required to collate and publish information immediately.

The Draft Regulations

The regulations are called “The Equality Act 2010 (Gender Pay Gap Information) Regulations 2016” and as currently drafted the regulations will apply to all private and public sector employers in Scotland, England and Wales with more than 250 employees. A database will be established as employers provide their information to a government-sponsored website and it is also proposed that this website would identify employers who have and have not complied with their obligations. However, it is noted that it is not the intention to create any additional civil penalties in the regulations at present and it has been noted that levels of compliance will be monitored and reviewed in the early years of implementation. Guidance to assist employers with compliance will also be published this year.

Pay

For the purposes of comparison the definition of pay has been drafted consistently with that used by the Office of the National Statistics (“ONS”) for the Annual Survey of Hours and Earnings. Therefore, “pay” includes:-

  • Basic pay
  • Paid leave
  • Maternity pay
  • Sick pay
  • Area allowances
  • Shift premium pay
  • Bonus pay

All other pay including car allowances paid through payroll, on call and standby allowances, clothing, first aider or fire warden allowances.

“pay” does not include:-

  • Overtime pay
  • Expenses
  • The value of salary sacrifice schemes
  • Benefits in kind
  • Redundancy pay
  • Arrears of pay
  • Tax credits

Publication

Employers will have until April 2017 (approximately 18 months after the commencement of the regulations) to publish the required information for the first time and information must be reported annually thereafter. It is acknowledged that employers may require to create new systems in order to process and analyse the information required to be reported. Upon publication employers must provide a written statement confirming that the information is accurate. The information must be retained by the employer for three years.

Information Published

The draft regulations provide that employers must publish their overall mean and median gender pay gaps. It is intended that this will give employers a better understanding of any pay gaps identified and also facilitate the comparison of information with national and international data. The draft regulations provide specific detail to facilitate the calculation of the mean and the median.

Draft regulation 4 provides for the requirement to publish information in relation to the mean (average) and the basis upon which calculations should be carried out. The mean will provide information in relation to the distribution of earnings and is useful for comparison purposes as women are often over-represented in lower earning jobs and men over-represented in higher earning jobs.

Draft regulation 5 provides for the requirement to publish information in relation to the median (middle value) and the basis upon which calculations should be carried out. The median should produce data which will give the “typical” difference in pay between a man and woman.

In addition to publishing information in relation to pay generally, employers will also have to publish information in relation to the mean bonus payments made to men and women in the 12 months preceding the relevant date. Only employees who actually receive bonuses should be included in the calculation however, employers will also be required to publish statistics relative to the number of male and female employees who receive a bonus.

In addition, employers will be required to split their pay distribution into four equal quartiles and in relation to each quartile, they must publish the number of men and women in each quartile of their pay distribution. It is considered that this will assist with identifying where women are concentrated in terms of their remuneration and if there are any blockages to progression.

Review

The regulations will be reviewed within five years of coming into force and the Secretary of State will publish a report which details whether the regulations meet policy objectives or impose an unnecessary burden.

Outcomes

What impact will the regulations have on closing the gender pay gap? In the absence of any penalties other than the potential embarrassment of publication perhaps very little. While the information is unlikely to be sufficient of itself to create clear legal exposures the availability of the information may cause employees to consider whether they have an equal pay claim against their employer. Although the statutory equal pay questionnaires procedure has been abolished in its place ACAS has produced non-statutory guidance for employees to follow if they wish to ask questions of an employer about discrimination and equal pay issues. The information produced by the new Regulations may inevitably prompt the submission of formal questions to employers with a view to gathering information to formulate a claim and thus fuel equal pay litigation. Inevitably the real impact within organisations and the responses of employees will remain to be seen but the pro-active nature of the obligation will inevitably raise the profile of pay equality within the workplace.

We will provide a further update once the Regulations are finalised but if you have any queries about the new provisions please get in touch with a member of the Stronachs Employment Team.

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