3 Oct 2016

Why, what, where, when? But the real question now is how?

We now have the draft Regulations from Government detailing what employers will need to do in order to comply with new obligations to publish gender pay gaps in their organisations.

On 12 February 2016 a second consultation paper was issued with a short window, for comments by 11 March. The draft regulations and paper outline who, what and how the reporting will operate, with guidance to follow later in the year. Employers need to start planning now.

What to do now

Organisations who are caught by these new provisions would be well advised not to delay analysis and work – if their gender pay gap is not subject to internal examination already; the delayed implementation gives a very clear window of opportunity for employers to begin to address any issues and get into the best position possible to reduce their reputational and legal risks.

Which employers?

The new obligation will apply to large, private and third sector employers who employ 250 or more employees within Great Britain. The reporting will be mandatory and apply be each legal entity meeting the 250 employees’ threshold from corporates, LLPs, statutory bodies and unincorporated associations.

The public sector will also be required to report. Although not originally in scope, the announcement has made clear that separate provisions will be introduced to also require gender pay gap reporting in the public sector.

Key time frames

  • A short further consultation – last week’s paper requires responses by 11 March 2016
  • The Regulations setting out the Reporting obligations will be implemented 1 October 2016
  • The first reporting cycle (by which a report is required to be published) will be 18 months from implementation – so employers need to prepare for their first report in April 2018
  • The first report must be before 30 April 2018 in respect of pay at April 2017 and bonuses paid in the 12 months before 30 April 2017
  • Subsequent annual reporting will be required by 29 April each year after 2018.

What detail do we have?

Which employees? – When calculating the 250 employees’ threshold, only those employees who ordinarily work in Great Britain count towards the 250 figure. In addition it applies to employees who work under a contract of employment “governed by UK legislation”. Given the application of mandatory employment protection legislation this is not altogether clear and employers whose workforce are mobile across Europe or the globe, where staff may be seconded into GB or indeed assigned temporarily outside GB, will need to assess the numbers in scope very carefully.

What has to be reported on?

Relevant employers caught by these provisions will have to provide 5 items of gender pay information, reporting on

  1. The mean gender pay gap
  2. The median gender pay gap
  3. The mean gender bonus gap
  4. The % of men and women participating in the bonus
  5. The distribution between men and women in salary quartiles.

The Gender Pay gap

Pay for these purposes will cover basic pay, holiday pay, premia (such as shift payments, London and other geographical or location allowances), maternity pay and allowances such as standby or call out payments, clothing, special responsibility allowances and other pay such as car allowances; bonuses paid in the snapshot reference period (see below) are also included. This may change before the Regulations are finalised.

By contrast, benefits in kind, the value of salary sacrifice schemes (i.e. the benefits provided under them), redundancy pay and expenses are excluded. Also excluded is overtime pay on the basis it is thought this would distort the figures given more men than women are likely to work more overtime.

The pay gaps formulae

To report on the hourly gender pay gap the employer takes a snapshot of relevant employees pay based on the last pay roll run (whether weekly, or monthly) in the reporting date – which in the first year is 30 April 2017 – and 30 April each year thereafter.

For example, an employer pays monthly and their payroll is run on the 26th of each month – it has to take the payroll run on 26 April and calculate the weekly pay. From there the hourly rate can be calculated by gender.

The Hourly pay gap both mean and median will have to be produced. Each calculated by reference to the gross hourly rate of pay:

Hourly pay gap =       Weekly pay
Weekly basic hours

Given the hourly rate is based on a weekly formula, the Regulations do not explain how this is calculated where pay is monthly.

Having undertaken this hourly calculation for each gender group – the employer will have to publish the women’s mean and median hourly rate as a percentage of the men’s.

Salary bands

In addition to the mean and median, employers will also have to publish the distribution as between men and women by showing the number of men and women in each quarterly pay band. Whilst the actual pay ranges are not required, the workforce profile must identify the distribution between men and women in 4 quartiles (A to D – D being the highest quartile).

Bonus Pay Gaps

The fact bonuses are now included came out after the first consultation exercise. Bonus is now defined widely the mean bonus pay between men and women will have to be identified (again as a percentage of men’s bonuses in the employer).

The final field of information will be to identify the percentage of men and women who receive the bonus expressed as a percentage of the men and women employed respectively. The draft Regulations state that when calculating the gender bonus gap, only those in receipt of a bonus in the 12 months prior to the reporting date have to be included.

Given the first reporting date is by 30 April 2018 – this means for the first bonus figures, bonuses paid to staff in the period between 1 May 2016 and 30 April 2017.

The plans to require bonus reporting are fraught with difficult assessments for employers. In particular, the definition of Bonus Pay includes:

  • profit share, productivity, and performance pay schemes
  • other bonus or incentive payments
  • piecework and commission.

It also extends to include long term incentive plans or schemes – and whilst this might be thought to cover only plans and schemes paying in cash rather than in kind – the Regulations explicitly state that the cash equivalent value of shares should be included “on the payment date” ; although this latter term has not been defined.

Where will this have to be published?

All of this data will have to be on the employer’s UK website – accessible to its own workforce and the public. It must also be certified as true by a director or member in an LLP or senior officer in other voluntary employers, for example charities or not for profit entities.
It appears also that the plan is to have a Government maintained website on which the information will have to be uploaded although no details have as yet been provided. On this website the indication is that tables will be produced ranking employers by sector; although it is not clear which of the 5 measures will be used in these rankings.

Points for Clarification

  • No distinction is drawn between permanent and temporary staff.
  • The definition of employer is the legal entity – rather than by establishment – and the employer’s workforce as a whole in Great Britain must be included in the calculations bringing all locations together.
  • Questions arise about pay which is salary sacrificed and how to calculate and indeed report on incentive or bonus terms, shares and share options, conditional and deferred bonuses will need to be considered carefully.
  • The pay and bonus figures are all calculated by reference to the effective hourly rate however, this does beg the question how to calculate normal hours of work- the draft Regulations state that the hourly rate should be calculated by taking the weekly pay and dividing this by the weekly basic paid hours for each employee.


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