After some delay, the Government has now published the final draft of the legislation on the mandatory gender pay gap reporting regime.
Subject to parliamentary approval, the regulations will come into force on 6 April 2017, with a first 'snap shot' date of 5 April 2017 and a first publication deadline of 4 April 2018.
Once the legislation has successfully passed through Parliament, the Government will also publish its own guidance for employers on the regulations. However in the meantime, the revised regulations contain a number of amendments which have made the picture much clearer.
So what's new?
Despite some welcome clarification, the simple answer is, fundamentally not that much. Anyone who was hoping that recent domestic and international political turmoil might have led to a loss of appetite and dilution of the obligations to report, will be disappointed.
The final regulations have been both long awaited and long debated. Drafts were published in February 2016. They have since been closely scrutinised by HR teams, employment lawyers and various interest groups throughout the detailed consultation process.
Consequently, much of the final draft is about tying up loose ends and clarifying ambiguities in the original drafting. However there are a few notable exceptions.
First, a quick reminder of where we were with the original draft:
Recap on the four key features of mandatory gender pay gap reporting
- By April 2018 all employers of more than 250 employees must publish:
- both the mean and median hourly pay gap between men and women;
- the number of men and women paid a bonus in the preceding 12 months; and
- the annual mean bonus gap between men and women,
based on a pay period containing a 'snap shot date'. The original snap shot date of 30 April 2017 has been changed to 5 April 2017 (and anniversaries thereof).
- Employers must then split their work force into four quartiles and set out how many employees are in each quartile;
- Employers must publish the information on their own websites (and keep it there for three years) as well as uploading it to a central Government register; and
- Employers have the option (but not the obligation) to publish an accompanying narrative to explain their own data.
- A new snap shot date
The new snap shot date is 5 April 2017 (instead of 30 April 2017). This won't make much difference to employers who pay their staff on a monthly basis at month end (because the revised date still falls within the same monthly payment period) but it may affect employers who adopt a US model of paying staff fortnightly.
- Employees – who's in and who's out?
Put simply, employees and workers are in and genuine partners/members of LLPs are out.
The Government has opted for the wider meaning of employees used in the Equality Act rather than the narrow definition contained in the original draft. It covers employment under a contract of employment/apprenticeship or a contract personally to do work. This means that some consultants and independent contractors who are treated as self-employed may be included.
However, a new exception in the final regulations means that employers will not have to report in relation to workers where the employer does not have the relevant pay data, and it is not reasonably practicable to obtain it. This may cover some contractors or temporary workers who do not work fixed hours or workers who are not paid through the normal payroll systems.
An important and welcome clarification is that, for the purposes of calculating the ordinary pay gap (i.e. 1(a) above) the regulations only cover those receiving their full pay in the relevant pay period. Therefore those on sick leave, family related leave or other special forms of leave will not be included unless they are receiving their full rate of pay. This must surely be common sense and will avoid skewing the figures if a significant number of female employees are on maternity leave. However, slightly bizarrely, this exception doesn't apply to reporting of bonus data. Therefore, women on maternity leave who miss out on bonus/commission will still count as part of the calculation of the bonus pay gap data but not the ordinary pay gap data.
- What is 'pay'?
The revised regulations refer to 'ordinary pay' instead of 'pay'. Ordinary pay includes basic pay, allowances (including cash benefits such as car allowances), paid leave and shift pay. Ordinary pay excludes overtime, termination payments, pay in lieu of leave, non-monetary benefits and expenses.
The pay gap is based on the hourly rate of ordinary pay, calculated by taking weekly pay and dividing it by normal weekly hours (the revised regulations now helpfully contain detail on how to calculate this for those whose weekly hours vary).
Further, the definition of bonus pay has been amended and now clearly covers remuneration in the form of money, vouchers, securities, options or interests in securities and profit shares/commission.
The final regulations have also clarified the point at which securities - such as restricted shares, options and long term incentive awards - are deemed to be paid for the purposes of calculating the bonus gap (i.e. whether on award or on vesting): the Government has opted to go for the point at which they give rise to taxable earnings or income.
- Mean and median data for bonuses
The final regulations include an obligation to publish both the mean and the median bonus gap data. This is a change from the original draft, which, unlike the ordinary pay gap, required only the mean bonus gap to be published.
For those for whom O-Level or GCSE maths is a mercifully distant memory, the mean is the sum of all the numbers in the set divided by the amount of numbers in the set; the median is the middle point of a number set, in which half the numbers are above the median and half are below.
- Quartile confusions sorted
There was great debate as part of the consultation on how the required quartiles should be split, i.e. whether it should be based on four pay bands which employees are then assigned to based on their hourly rate (it being likely that the top band will have the fewest employees in it), or simply putting everyone in a list based on their hourly rate of pay and splitting them into four equal quartiles with the same number of employees (or as close to the same number as possible) in each. The Government has opted for the latter and the revised regulations provide much greater clarity as to how to carry this out in practice. In anticipation of potential abuse, the regulations provide that where employees on the same hourly rate span two quartiles, the proportion of men and women receiving that pay should be the same in each quartile.
Ever since the draft regulations were first published in February 2016, employment lawyers have been advocating dry runs and litmus tests behind the cloak of legal privilege to allow their clients to understand:
- how many in scope employees they have – those close to the 250 threshold may find there are years when they are in scope and years when they are out;
- what payroll and accounting systems they have in place to produce this data by reference to the gender of the affected employees;
- whether pay data for those not on normal PAYE systems can reasonably be obtained; and
- how to address any obvious areas of vulnerability in their existing data.
One important thing that hasn't changed in the final draft is the position on enforcement. The Regulations remain as toothless as ever in strict legal terms.
However, the consensus remains that the gender pay data will be a powerful recruiting and retention tool where the data is positive, and reputationally damaging where it is negative. In the latter case it may also be used in an increased number of sex discrimination claims as further evidence of alleged institutional sexism/discriminatory practices.
However, come 4 April 2018, ultimately the proof will be in the pudding. That date is a longstop deadline. Employers can choose the date on which they decide to publish their data, provided they do so by that date at the latest and by reference to the correct payment period/snap shot date. Those with good news to report will no doubt select a slow news day, those hoping to shield their data from the public (and their own staff) will aim for a date when attention is firmly fixed in another direction.
Only time will tell whether the new transparency envisaged by the regulations will give rise to the ultimate objective of narrowing the gap in pay between men and women.