- Calculating the threshold number of employees and working out who is in scope is not as simple as it might first appear.
- The internal and external implications of gender pay gap reporting should not be underestimated.
The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (the Regulations) came into force on 6 April 2017, requiring larger employers to produce an annual report on their gender pay gap.
The first report must be published by 4 April 2018 on data as at the snapshot date of 5 April 2017 and annually thereafter. There are many legal and practical issues for employers to consider.
The basic obligation
Employers with 250 or more employees as at 5 April must report the following metrics:
- the difference in mean hourly pay of male and female employees;
- the difference in median hourly pay of male and female employees;
- the differencein mean bonus pay for the previous 12 months of male and female employees;
- the difference in median bonus pay in the previous 12 months of male and female employees;
- the proportions of male and female employees paid a bonus in the previous 12 months; and
- the number of male and female employees in each quartile.
The Regulations set out detailed instructions on how to carry out the calculations for each of the metrics. While the basic obligation appears simple enough, there are a number of challenging areas within the Regulations as they are not as clear as they could be.
Who counts for the 250 threshold?
The first question is whether the employer is caught by the 250 employee threshold. While the Regulations themselves do not define ‘employee’, the Explanatory Notes provide that ‘employment’ has the meaning set out in s 83 of the Equality Act 2010. Therefore, employers should include in their threshold calculations any person employed under a contract of employment, a contract of apprenticeship, or a contract personally to do work.
Depending on the organisation’s structure and engagement methods, this could prove more complex than employers anticipate, including in relation to partners, overseas employees, non-executive directors, consultants and casual workers.
In terms of the inclusion of partners, the Regulations include a definition of ‘relevant employee’ to determine who should be reported on, which expressly excludes partners and LLP members, meaning they will not have to be reported on. However, they are not expressly excluded for the purposes of calculating the ‘employee’ numbers for the threshold. Therefore, if a partner falls within the definition of ‘employment’ within the Equality Act 2010 they should be included in the threshold calculation.
In terms of overseas employees, the ACAS guidance (Guidance) suggests that generally when an employer based in Great Britain has an employee based overseas, that employee will be classed as an ‘employee’ for the Regulations if they would be able to bring a claim in the employment ribunal under the Equality Act 2010. This will involve an analysis of the tests in Lawson v Serco  IRLR 289 and Ravat Halliburton  IRLR 315. Equally there is no clarity as to how overseas secondees to the UK, or UK employees of businesses with overseas headquarters should be treated.
Who should be reported on?
Not every person included for the 250 employee threshold purposes will need to be included in the report, for example, partners (as outlined above).
In addition, the Regulations provide that if the employer does not have the data relating to an employee working under a contract personally to do work (such as a consultant) and it is not reasonably practicable to obtain the data, then it does not have to be included.
However, employers should be wary about relying on this exclusion, as in many cases this data will be relatively easy for the employer to obtain, for instance by asking the consultant or budget holder within the business for the data. In addition, while this might provide a plausible reason to not include the data in the first report, this is likely to be less acceptable for future years as the Guidance specifically states that employers should try to ensure that they have access to the relevant data.
Getting the data right
Employers need to ensure that they have access to and can obtain all of the required data. This may not be entirely straightforward for some employers, for instance if they operate multiple payrolls, have different payment mechanisms, or keep payment information in different locations.
They should also consider whether the method of extracting or compiling the data actually creates potentially problematic documents. For instance, if it is easiest to compile the data according to business area, this may highlight a particular issue with the gender pay gap or even equal pay issues within that business area. This then may put the onus on the employer to tackle that issue. It would also be helpful information for an employee bringing a claim within that business area. Therefore, it is not just the final report that may create legal risk, but also documents created as part of the process.
Risk of getting it wrong
Employers should obviously be trying to ensure that the data reported is correct and in compliance with the Regulations. However, given the perceived lack of teeth which the Regulations have in terms of enforcement, some employers may take the view that where there are grey areas or the obligations are unclear, a proportionate approach would be to adopt a logical and consistent methodology and accept the risk that it could be incomplete or not entirely in compliance.
The content of the report & sign-off
Once employers are comfortable with their data, the next question will be how the data should be presented. It is anticipated that most employers will have a gender pay gap. Employers therefore should carefully consider putting some context around the data. There are a number of messages that the employer may want to consider, for instance:
- Does a feature of the calculations skew the data in some way? For instance is annual bonus paid in the ‘relevant period’ and therefore double counted to a certain extent by being included in ‘hourly pay’ and bonus metrics? This will involve a careful analysis of the calculations and the data in order to determine whether this is the case and why.
- Are there senior (and otherwise well paid) individuals who were not ‘relevant full pay employees’ at the snapshot date (because they were on leave) and so were not reported on?
- Is the pay gap common to the sector as a whole? How do the employer’s metrics compare to others in the sector?
- Has the employer taken any steps already to reduce the gender pay gap? Has it introduced any initiatives to promote women within the organisation to get to the higher paying roles, has it introduced any recruitment initiatives which may help address the gender pay gap?
- What steps is the employer going to take to reduce the gender pay gap further?
- Is the employer involved in any sector initiatives to help encourage women into the sector or develop those already working in the sector?
While it is anticipated that employers will have a gender pay gap in the first year and for a number of years to come, there will be an expectation that the gap will narrow each year, particularly where the employer has identified steps it is taking or will take to improve the gap within the narrative of the report. Therefore, employers should carefully consider what they are prepared to commit to in the report given the risk of further negative attention if steps are promised and then not followed through.
“ It is anticipated that most employers will have a gender pay gap”
The report has to be signed-off by a senior person within the organisation (a director for companies). The person, or team responsible for ensuring compliance with the Regulations should therefore consider early on who this is likely to be and their preferred approach to the obligations. Some will want to adopt a minimal ‘compliance only’ approach, whereas others will want to use the obligations as an opportunity to push forward the diversity agenda at the organisation.
Publishing the report—when & where
Once the report has been drafted the employer should consider tactics for publishing the report. When to publish the report is a key question as this could significantly affect how much external attention the report receives. Employers may decide to delay publishing until close to the deadline in the hope that their report will be one of many published at that point. Alternatively, employers may consider other strategic publishing times, for instance at a time when there are other high profile news issues.
The report has to be submitted to a designated government website and also published in a manner accessible to all its employees and the public on the employer’s website. Therefore, there is some leeway in where to publish it and it does not necessarily have to be displayed on the employer’s landing page on their website.
Most employers will have given careful thought to how the report will be perceived externally and the external communications accompanying it. However, how the report is perceived by the employer’s own staff will be important as the report could raise a lot of questions, and may spark pay grievances or even claims for sex discrimination or equal pay. Therefore, the scope, content and timing of internal communications should not be overlooked. Clarifying the distinction between equal pay and gender pay issues will be particularly important, including making clear that data showing a gender pay gap does not necessarily show an ‘equal pay’ issue.
How might the data be used?
In addition to the data potentially sparking grievances and claims regarding pay, inevitably any employee or former employee bringing a sex discrimination claim will seek to use the gender pay gap data as evidence of ingrained discrimination within an organisation. The only way to mitigate this risk will be to publish carefully worded narrative with the data, and to refer to a clear commitment to address it going forward.
Any other data that is generated while preparing the report could become disclosable in employment tribunal claims if it is relevant to the particular claim. Therefore, employers should be careful when producing and commenting on the data internally. Involving legal advisers in order to protect the data and analysis with privilege should therefore be considered.
While the obligations for employers to produce the gender pay gap report seems, on the face of it, straightforward and clear, the internal and external implications should not be underestimated. Employers should therefore be thinking ahead and planning their approach to their obligations under the regulations as they may be able to mitigate some of the risks associated with their obligations and be better prepared to deal with any risks that materialise.
Amy Douthwaite is a senior associate & Marian Bloodworth is a partner in the employment team at Kemp Little (www.kemplittle.com).
Amy Douthwaite & Marian Bloodworth consider the implications of the gender pay gap reporting rules