Out-Law Analysis | 12 Jan 2018 | 11:52 am | 6 min. read
To date, just over 500 out of an estimated 8,000 employers that will be subject to the new duty have published the required information on the government's gender pay gap reporting portal. More than 90% of employers are still to report.
In general, explanations provided by reporting businesses for their gender pay gap focus on the lack of female representation at senior management level, compared to higher numbers of women in lower-paid administrative and similar roles. There is also a focus on historical cultural issues, for example construction and engineering firms struggling to recruit women due to a historical lack of women studying the so-called STEM (science, technology, engineering and mathematics) subjects. Conversely, many of the businesses that have reported a zero or negative gap have been in care-related sectors, where women have traditionally been hired in senior positions.
A particularly interesting trend is that companies reporting a large pay gap are coming under considerable scrutiny from the media regardless of their size or relative prominence. Fashion retailer Phase Eight, which has reported the largest mean gender pay gap to date at 64.8%, came under intense media scrutiny even though it does not employ many people and is not a particularly well-known brand.
"This indicates that companies with large gender pay gaps who thought they might be able to fly under the radar because the glare of media scrutiny would be on large PLCs and household names appear to be mistaken," says Susannah Donaldson, a gender pay gap reporting and employment law expert at Pinsent Masons, the law firm behind Out-Law.com. "For these companies, detailed narratives providing additional context and action plans setting out how they intend to narrow the gender pay gap will be essential."
What is required?
The gender pay gap reporting regulations apply to private and voluntary sector employers with 250 or more employees. Public sector employers are subject to a similar duty under separate legislation.
The regulations require you to publish your overall mean and median pay gaps based on gross hourly pay for men and women, expressed as a percentage; as well as your mean and median gender bonus gaps. You are also required to publish the proportion of male and female employees within each quartile of your pay distribution, ordered from lowest to highest pay, as well as the proportion of both men and women that have been paid a bonus in the preceding 12-month period.
Gender pay gap information must be reported annually. The first reports must cover gender pay gap information as at 5 April 2017, and must be reported by 4 April 2018.
The information must be published on your own website, as well as submitted to the government portal. The information that is displayed on the government portal is standardised. However, you can provide a link to more detailed information on your own website. This is where you can go on to contextualise the data, place it in its historical context and set out your action plan to tackle any problem areas.
You will have to consider who to include in and exclude from the definition of employee, as well as what elements of pay you will include and exclude. The regulations define 'employee' as anyone in a contract of employment, a contract of apprenticeship or a contract personally to do work; and therefore potentially includes those with 'worker', rather than employee, status, and the self-employed. Acas has provided some guidance about what is included in the definition of 'ordinary pay and allowances' and how certain bonuses should be dealt with, but questions remain, particularly if your business has a more complex remuneration structure in place.
What do the figures show so far?
Public sector employers are the largest group to report to date with 107 reports; compared to 17 in the construction sector, 15 by financial and insurance employers and 18 reports from the arts, entertainment and recreation sectors.
Of the 536 employers that have reported to date, 29 (5.4%) have a gender pay gap of more than 30% and 60 out of 536 employers (11.2%) have a gap of more than 25%. Some employers have a zero gender pay gap or a negative gender pay gap. This means that their female employees are, on average, paid more than their male employees.
What additional information are employers providing?
It is not obligatory that employers further contextualise their pay gap data with a link to supporting information. However, the majority will choose to do so. Reasons given for large gender pay gaps to date include:
You may also wish to order a legally privileged equal pay audit to provide assurances that any gender pay gap is not indicative of an unlawful equal pay issue, or to help you establish any problem areas and take corrective action.
You may also use your supporting information to set out an action plan on how you will address your gender pay gap now and in the future. Most of the employers who have reported to date have provided full details of planned initiatives and interventions to demonstrate their commitment to making progress on this issue. These may include targets for increasing the number of women in senior management roles or as with easyJet, which has one of the widest pay gaps reported to date at 51.7%, setting a target for 20% of new entry pilots to be female by 2020.
Recruitment initiatives which encourage more women into STEM subjects at school or university will go some way to improving the pipeline of female talent in traditionally male dominated sectors such as construction, energy and financial services. Putting agile working arrangements in place and implementing 'returnship' initiatives will enable women, who still bear the brunt of childcare responsibilities, to remain at work or return after career breaks to look after children, and to climb the ladder to more senior and well-paid positions.
However, if you commit to an action plan you must be transparent and carry through with any commitments made. Gender pay gap information must remain on your website for three years, and it will be obvious if plans have not been implemented or have had little or minimal impact.
How should you communicate pay gaps to employees?
Along with considering how best to present any gender pay gap externally, a strong and positive internal communications campaign is essential. Imagine the impact on staff morale if your workforce was to be first alerted to a significant pay gap by reading about it in the press.
Communicating effectively with staff ahead of time can pre-empt concerns, and it may be that you can share more confidential business information with employees about the reasons for the gap that is not appropriate for wider consumption.
What consequences are there for non-compliance?
Employers that do not comply with the requirements by the 4 April deadline can expect pressure from the Equality and Human Rights Commission (EHRC), which recently launched a consultation on appropriate enforcement actions. Options are likely to include naming and shaming on social media of these businesses which have failed to report, and requiring them to commit to an action plan. Failure to comply with an EHRC action plan can lead to court action and, ultimately, a significant fine.
In addition to EHRC enforcement, it is clear from the press attention to date that businesses that fail to comply with the regulations face the prospect of significant reputational damage – not to mention the negative impact on current employees and the recruitment of prospective employees.
"It is clear that the gender pay gap reporting requirements have strongly reinforced the need for business leaders to scrutinise their workforce demographics and talent pipeline, and to 'get behind the numbers' to see what can be done to accelerate progress and close the gender pay gap," said Lesley Brook, a diversity and inclusion expert at Brook Graham, which is owned by Pinsent Masons. "While there is no simple 'magic bullet' solution that will fit every organisation, it is clear that it needs careful, detailed analysis and planning to identify those specific demographic gaps where improvements can be made. And, of course, the performance management and reward cycle needs to be closely reviewed to ensure it is working as intended, in all parts of the organisational structure."
Susannah Donaldson is a gender pay gap reporting and employment law expert at Pinsent Masons, the law firm behind Out-Law.com. Lesley Brook is a diversity and inclusion expert at Brook Graham, which is owned by Pinsent Masons.