12 Dec 2016

Gender pay gap reporting final regulations published

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The Government has now published the finalised Gender Pay Gap Information Regulations 2016, which will make gender pay gap reporting mandatory for employers with at least 250 employees.  The Regulations are expected to come into force on 6 April 2017 with the first reports from employers due no later than 4 April 2018. We highlight below the main changes since the first draft of the Regulations was published early this year and set out a reminder of the impact of the Regulations for employers. 

Which employers are caught by the Regulations?

The Regulations will apply to employers with at least 250 employees on 5 April.  If an employer sits within a group structure, the 250 employee threshold would only apply in respect of each employer within the group rather than the entire group.

Who is an "employee"?

The definition of "employee" in the new Regulations is very broad - workers and some self-employed contractors will be covered. However, there is recognition in the Regulations that employers may not be able to gather the relevant information for consultants and others who are not processed via their usual payroll systems – employers do not have to compile information if they do not have the relevant data and it is not reasonably practicable for them to obtain it. In addition, the Regulations expressly state that partners (including members of LLPs) will not be covered.

What about overseas employees?

The previous version of the Regulations provided that a "relevant employee" for the purposes of the reporting obligation was a person who ordinarily works in Great Britain and whose contract of employment is governed by UK legislation. The new Regulations simply state that a "relevant employee" is "a person who is employed by the relevant employer". The definition of "relevant employer" does not make any reference to geographical scope. It is not, therefore, clear how the Regulations will apply to international employers or to employers who have employees who work abroad. This is an issue which we hope will be clarified in the accompanying guidance which has yet to be published.

What information will have to be reported? 

  1. The difference in mean average hourly pay between male and female employees, which should be calculated over the relevant pay period, which should include 5 April each year (no longer 30 April as in the previous draft Regulations).
      
  2. The difference in median pay between male and female employees over the relevant pay period. 
     
  3. The number of men and women working in each of the four quartiles of the employer's pay range. The Regulations specify that the four quartiles are obtained by putting all employees in order of their pay, from lowest to highest, then dividing the employees into four equal groups. 
           
  4. For employees who receive bonuses, the 'gender bonus gap' during the 12 month period to 5 April each year. Bonus figure calculations will include profit sharing, performance, long-term incentive plans and cash equivalents for share payments. Non-cash elements of bonus are to be treated as paid when they would give rise to taxable earnings rather than at the time of award. 
     
  5. The proportion of male and female employees who received bonus pay during the 12 months prior to 5 April.

Employers can voluntarily include a narrative with their reports and/or further calculations by grades or job roles, which may be a useful way of trying to manage any negative criticism that could arise from the plain statistics required by the ​Regulations.

How is 'hourly pay' calculated? 

  • The hourly pay rate should include basic salary, bonuses, shift premiums, pay for piecework and allowances, but not overtime, redundancy pay or benefits in kind. It is now clear that employees on any kind of leave (maternity, parental, sickness etc) should not be included in the calculations, which limits the scope for the statistics to be distorted. 
  • It is now clear that only the portion of bonus pay which is attributable to the relevant pay period should be included in the hourly pay calculations.
  • The new version of the Regulations sets out helpful and detailed guidance on how to calculate hourly pay, including in respect of casual workers who do not work regular hours, adopting a 12 week reference period in order to establish "ordinary pay".  

When will the reporting requirements come into force?

  • The Regulations are now expected to come into force on 6 April 2017. 
  • Employers will have to collect the relevant pay and bonus data as at 5 April 2017.   
  • By 4 April 2018, employers will have to publish their full gender pay gap report ​setting out the data captured as at April 2017.  This report must be published on a publicly accessible website and also uploaded to a Government website. 
  • Employers will need to produce an updated gender pay gap report by April each year.
  • The Government plans to publish league tables comparing companies' gender pay gap information by sector.  
  • The gender pay gap reports will need to be signed-off as accurate by a statutory director (or equivalent) of the company - this brings responsibility for the reports right up to Board level. 

What happens if an employer does not comply?

Although there are no formal penalties for employers who do not publish a report, it is likely that the press and probably also the Government will name and shame companies who fail to comply.  The plan for league tables will also provide a relatively simple (if blunt) tool to encourage employers to address their gender pay gaps. In addition, the explanatory notes for the Regulations state that failure to comply will constitute an "unlawful act" under the Equality Act 2010, which opens the door for enforcement action to be taken by the Equality and Human Rights Commission (although the ECHR has previously indicated it does not have sufficient resources to take such action). 

What should you do next?

Given the need to collect data in just a few months and publish full reports by early April 2018, employers must start preparing the process for their analysis of gender pay soon if they have not already done so.   It will be essential to review pay and recruitment practices, and analyse where gender pay gaps have arisen and can be reduced or even eliminated.

The Stephenson Harwood Employment team can help you prepare for gender pay reporting and provide recommendations on how to minimise risks and protect your organisation from claims.

If you have any questions on this e-alert or any other employment law matter, then please contact Purvis Ghani, Beth Hale or your usual Stephenson Harwood LLP contact.

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KEY CONTACT

Purvis Ghani

Purvis Ghani
Partner

T:  +44 20 7809 2526 M:  +44 7711 759 926 Email Purvis | Vcard Office:  London

Beth Hale

Beth Hale
Senior associate

T:  +44 20 7809 2134 M:  +44 7825 064 185 Email Beth | Vcard Office:  London