Mind the Gap – Key Q’s & A’s to the new Gender Pay Gap Reporting regime

The new gender pay regime under the draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2016 requires private and voluntary sector employers with 250 employees or more to publish an annual report showing the overall gender pay gap in their organisation. This includes the publication of information relating to wage and bonus differences between male and female employees.

It is expected that the new regulations will come into effect on 1 October 2016.

Which employers are caught by the new regime?

A “relevant employer” with at least 250 relevant employees on the relevant date. The relevant date will be 30 April in each year, being the date on which a snapshot is taken of pay data.

Relevant employers include companies, LLPs, partnerships, limited partnerships, unincorporated bodies or any other types of employing entity. Public sector employers are not included.

The reporting requirements for group companies may change. However, at present a large group of companies could fall outside the scope of these requirements if it does not have any single entity that employs 250 or more employees.

What is a “relevant employee”?

An employee who ordinarily works in Great Britain and whose contract of employment is governed by UK legislation. It is unclear at this stage whether workers who work under a contract of employment (including those under zero hour contracts) or self-employed contractors will be excluded from this definition.

What is pay?

“Pay” is defined non-exhaustively and includes basic pay, paid leave, maternity pay, sick pay, area allowances, shift premium pay, bonus pay and other pay (including car allowances paid through the payroll, on call and standby allowances, clothing, first aider or fire warden allowances).

“Pay” does not include pay for a different pay period, overtime pay, expenses, the value of salary sacrifice schemes, benefits in kind, redundancy pay, arrears of pay and tax credits.

Pay is calculated using gross figures, before any deductions for PAYE, National Insurance contributions, pension contributions, student loan repayments and voluntary deductions e.g. a season ticket loan or gym membership.

What is bonus pay?

“Bonus Pay” is defined as payments received and earned in relation to profit sharing, productivity, performance and other bonus or incentive pay, piecework and commission, long-term incentive plans or schemes (including those dependent on company and personal performance) and the cash equivalent value of shares on the date of payment.

How is the gender pay gap calculated?

By using data from a specific pay period every April from 2017. The pay period is defined according to how often the relevant employees are paid. For example, the pay period will be one month for staff who are paid on a monthly basis.

In order to generate average earnings figures unaffected by the number of hours worked, employers will need to calculate an hourly rate of pay for each relevant employee. The “gross hourly rate of pay” is determined using weekly pay divided by weekly basic paid hours for each relevant employee.

How is the gender bonus pay gap calculated?

An employer is required to publish two pieces of data:

a) The difference in mean bonus pay received, during the period of 12 months preceding the relevant date (30 April), by male and female employees, expressed as a percentage of the mean bonus pay received by male employees in the period; and

b) The proportion of male and female employees who received bonus pay during the same 12 month period. This requires two separate percentage figures to be published.

The gender bonus gap itself is calculated by using the formula:

(E – F)

E

x 100

E is mean bonus pay of all male relevant employees and F is the mean bonus pay of all female relevant employees.

When calculating the mean bonus pay, an employer must add together the different types of “bonus pay” that have been received during the 12 month period. This may include, for example, sales commission, productivity bonuses and profit shares as well discretionary annual bonuses.

What information needs to be published?

Employers will be required to report on the number of men and women in each of four pay bands.

Employers will calculate their own “quartiles” based on their overall pay range. Employers are required to list each relevant employee in order of their gross hourly rate of pay (calculated as above). The ordered list of hourly rates is then divided into four quartiles, which are to be expressed as follows:

  • Pay band A is from the lowest pay to the first quartile.
  • Pay band B is from the first quartile to the second quartile.
  • Pay band C is from the second quartile to the third quartile.
  • Pay band D is from the third quartile to the highest pay.

What other publication requirements are there?

Gender pay gap information must be published by employers on their website and this information must be obtained online for three years. The information must be in English and presented in a manner that is accessible to all employees and the public. Employers must also upload the information to a government-sponsored website. A written statement of accuracy (signed by a director (for companies), a designated member (for LLPs), a partner (for partnerships) or the most senior employee of the employer) must accompany the information.

When should the information be published?

A data snapshot will need to be taken on 30 April 2017 for the first publication by 30 April 2018 and annually thereafter.

Are there any consequences for non-compliance?

No, the government has confirmed that a civil enforcement system for failure to comply with the new Regulations will not be introduced. Instead, the government is proposing to:

a) Run periodic checks to assess for non-compliance.

b) Produce tables by sector of employers’ reported gender pay gaps.

c) Highlight and identify employers publishing particularly full and explanatory information.

d) Possibly publicise the identity of employers known not to have complied.

Next Steps

Whilst the first gender pay gap reports do not have to be published until April 2018, employers should consider taking a number of steps to prepare for the new regime:

a) Identify whether the employer falls under the definition of a relevant employer.

b) Identify any areas of uncertainty over who is in scope. For example, where there is a large pool of casual workers. Ensure that all pay data is readily available.

c) Consider whether there are any overseas employees who are assigned to work in the UK, or employees who work under employment contracts governed by foreign law.

d) Consider the employment status of those who may be regarded as relevant employees under the Regulations.

e) Consider the remuneration package offered, all benefits, and any flexible benefits scheme, and analyse which elements would be reportable under the Regulations.

f) Carry out an audit of bonus schemes offered by the employer and identify which would need to be reported as “bonus pay” under the Regulations.

g) Calculate the gender pay gap information using the methodology of the draft Regulations (perhaps using 30 April 2016 as the relevant date) to assess how big the gap is likely to be when the first report is published, and to identify any issues which may be harmful to the employer’s reputation when published.

h) Identify who will sign the written statement confirming the accuracy of the published information.

For more information or for any enquiries please contact Louise Allen by email at Louise.Allen@dwfmbeckman.com or call 0207 408 8888.