At long last we have the final Gender Pay Reporting Regulations, due to be implemented by 6th April 2017. The final Regulations are significantly different from the original draft proposals.
Many organisations will have begun analysing their gender pay gaps but should revisit their analysis in light of the more technical detail contained in the final Regulations now laid. Not only have the calculations changed but there are more data fields to report on.
All large employers must publish their first report by 4th April 2018 (the first deadline) after which there will be an annual reporting obligation on employers. Importantly, gender pay reporting should not be treated as just a compliance point; gaps will undoubtedly exist and it is incumbent on all employers to look to improve their gender pay gap year on year.
So what has changed?
Quite a lot! Important points of clarification have been addressed and it is essential to ensure an accurate and fully compliant report is prepared by reference to the right employees (as to which, see below) and that the right calculations are made. After all, the organisation’s most senior executive must certify the report is accurate and complies with the legal requirements and upload on both the employer’s and a separate Government website.
The final Regulations are applicable to private employers who have 250 or more “employees” at the snapshot date (5th April each year). Such employers will have to report on their pay and bonus gaps by 4 April of the following year (from 2018 onwards). Despite lobbying to allow group reporting, the Regulations do not permit this and reporting must be undertaken by legal entity.
Which employees count?
The Regulations require employers to identify and report on the pay and bonus paid not just to employees, but others such as consultants, undertaking work in a personal capacity. This will mean that information must be collated not just from payroll but payments made to self-employed consultants.
Office holders such as non-executive directors whilst at first glance excluded may actually be carrying out executive roles – again the test is one of personal service. Finally care must be taken with agency supplied staff to assess whether they are to be reported on.
Special consideration will need to be given to internationally mobile employees, where an individual who is posted abroad or is working in the UK is employed by the UK legal entity.
What must be reported on?
The data fields on which an employer must report have also been added to. Previously there were 5 fields, there are now 6:
- The percentage difference in mean hourly pay between men and women during the relevant pay period
- The percentage difference in median hourly pay between men and women during the relevant pay period
The relevant period is the pay period falling on 5 April.
- The percentage difference in the mean bonus between male and female employees in the 12 months to 5 April
- The percentage difference in the median bonus (which is a new addition)
- The proportion of male and female employees (in gender group) who received a bonus in the 12 months to 5 April in the relevant year – expressed as a percentage
- Finally the pay quartiles remain, however we now have clarification that the quartiles must be split evenly across the employed population and that the percentage of male and female employees in each quartile must be reported.
There are now very detailed calculations on how to calculate hourly pay by reference to the normal working week. Most important of all, is the fact that for the purposes of the hourly pay calculation, one now excludes absentees from work (on various forms of leave) where that absence means that their pay drops below normal full pay. This amendment has been introduced to address concerns that including those absent on maternity leave, for example, and in receipt of maternity pay would build bias into the figures. Careful analysis in collating the data is needed to ensure compliance.
Remember the calculations are based on normal working week and normal pay –and would not be met by HR and reward teams adopting a full time equivalent approach.
Bonuses in the relevant pay period
Whilst bonuses paid in 5th April pay period are still counted for the hourly pay figures, there is now a very complex pro-rating formula which will require careful analysis.
Bonuses in the 12 months to 5 April
The main provisions remain largely the same although there is clarification that one is looking at all bonuses paid the 12 months to 5 April to all relevant employees i.e. those who remain employed and/or working as at the 5 April (the relevant date).
Leavers are excluded but by contrast with the hourly pay calculations, those who are on maternity or other leave but still in receipt of the bonus are included. There is no pro-rating here, even though their bonus may be pro-rated to take account of absences. There is a clearer definition of bonuses which can include retention bonuses, allowances and indeed one off vouchers.
Finally there is the question of share options and deferred bonuses, which caused considerable consternation when first introduced in the draft regulations. This has been modified in the final Regulations to make the inclusion of share options easier to administer. Only options which trigger a PAYE tax charge have to be reported in the year that the benefit is actually received by the employee and they are therefore taxed on it. Thus options which are deferred would not be included and neither would deferred bonuses.
Sitting alongside the Regulations will be joint guidance issued by ACAS and the Government Equalities Office. This guidance is likely to go beyond just the compliance aspect and will provide advice to organisations about managing their gender pay gap reporting and how to address pay gaps.
Employers, who will be starting to work on (and in some cases reconsidering) their gender pay gap calculations, will need to pay very careful heed to the detail and complexities that the Regulations in final form will impose on them. There is some suggestion that even though non-compliance and failure to report will not result in a civil fine, the Equality and Human Rights Commission could take enforcement proceedings. More importantly, any inaccuracy could well lead an employer in any subsequent bonus dispute or discrimination claim and face adverse inferences particularly where the information is misleading and this is highlighted by a complainant. Legal advice should be sought to ensure the correct test and definitions are applied.
The most important aspect of these new provisions (although not mentioned or required by the Regulations themselves) however, is the narrative which explains what an employer is doing to close their gender pay gap. The expectation is that the narrative will not just be a form of words and aspirational, but should be underpinned by an action plan of steps which will be taken – and which in the annual report cycle on gender pay reporting, could be used to measure commitment and the organisation’s proactive steps in achieving improvements.