Faced with stubbornly persistent evidence that women on earn average significantly less than men – 19.2% less, according to the most recent figures – the Government is using its power under section 78 of the Equality Act 2010 to require all private and voluntary sector employers to publish information about employees’ pay.
Under the draft Gender Pay Gap Information Regulations, an affected employer will be required – by no later than April 2018 – to publish a report containing details of:
- its mean and median pay gaps;
- its mean bonus gap;
- the proportion of male and female employees receiving bonus; and
- numbers of male and female employees in four pay “quartiles”.
Working it out
The mean and median pay gap figures must be based on a snapshot of the employer’s payroll data for the pay period in which 30 April 2017 falls (this is likely to be the month of April for many businesses). Employers will need to work out the mean and median gross hourly rates of pay of all male and female employees employed on that date. The current definition of what counts as “pay” for these purposes has caused some controversy, with maternity pay, sick pay and bonus pay all “in”, and overtime pay “out”. This may yet change in the final version of the Regulations, expected this side of the summer.
The bonus pay figures must be based on the 12-month period preceding 30 April, while the requirements in relation to quartiles are presently the most uncertain and contentious part of the package. It is unclear whether the Government intends that employers should:
- divide their workforces into four equal groups, so that an employer with 400 staff would report on the number of male and female employees in each of four equal groups of 100 from the lowest to the highest paid; or
- divide their pay range into four equal parts (say, £10,000 to £50,000, £50,001 to £90,000, £90,001 to £130,000 and £130,001 to £170,000) and report the number of employees falling in each of the four.
Conflicting guidance has been issued and it is hoped this will be resolved in the final Regulations, although indications are that “option 2” may be the Government’s preferred approach. This raises the prospect that regulations aimed at addressing gender inequality may end up shining more of a light on wider inequalities of income distribution within companies. This might have unintended consequences, as employees rage at the small number of senior staff grouped together in the highest quartile.
In addition to publishing the report on their website and keeping it there for a period of at least three years, employers will also be required to upload it to an official website and the Government has pondered producing sector league tables. While it remains to be seen how viable this will be, it highlights one of the new law’s main objectives – namely, shining a light on employers’ pay practices and providing employees with information to challenge their employers and force change. Increased numbers of grievances can be expected.
But will the information provided be all that useful? A paradox of the new regime is that mean pay gap statistics can hide systemic discrimination. For example, an employer with 1,000 employees may report that the mean hourly pay of both male and female staff is £20 per hour, producing a gender pay gap of zero. However, if this is the product of 100 male managerial employees earning £52 per hour and 400 female managerial employees earning £22.50 per hour, and 400 male factory employees earning £12 per hour while 100 female factory employees earning £10 per hour, it can be seen that there are real disparities in the like-for-like comparisons which are hidden by the overall figures.
The converse applies. Another 1,000-employee company may report a gender pay gap of 20%, based on male mean hourly pay of £20 and female of £16. But this may be the result of 400 male managerial employees earning £22.50 per hour and 240 female managerial employees earning £22.50 per hour, and 100 male factory employees earning £10 per hour and 260 female factory employees earning £10 per hour. In this scenario, the apparent discrimination vanishes when the most relevant comparisons from an equal pay law perspective are made.
In light of this, some employers might decide to publish further information, beyond the minimum required categories of data set out above, in order to provide employees with additional context and potentially head off widespread complaints. A more granular analysis comparing the position grade by grade, function by function and so on may be desirable.
Applying the principle that you don’t know what you might find until you look, employers would be well advised to conduct a “dry run” gender pay gap report, perhaps based on April 2016 payroll data. This would allow them to consider the following (under the cover of legal privilege):
- How bad (or not) are our headline figures likely to look?
- What additional reporting might we want to do to put the figures in context and improve the picture?
- What changes to pay practices might we want to try and put into effect this side of April 2017 with a view to limiting the impact, possibly alongside broader programmes of training and raising awareness?
Revolutions rarely end up where those beginning them expect them. Gender pay gap reporting may yet prove to be an example of this phenomenon.