UK employers to report gender pay gaps per 'quartile' of pay, government announces

Out-Law News | 15 Feb 2016 | 11:45 am | 3 min. read

Large UK employers will be required to publish their mean and median gender pay gaps, as well as the number of men and women within each 'quartile' of their pay distribution  , once new reporting regulations come into force, the government has announced.

It will then use this information to produce 'league tables' ranking different employment sectors by pay gap, allowing women to "see how sectors compare", according to its response to last year's consultation on mandatory gender pay gap reporting. Businesses with more than 250 employees could be required to calculate their pay gaps from as early as next April, with the first figures due for publication in 2018, according to draft regulations published for further consultation.

Employment law expert Helen Corden of Pinsent Masons, the law firm behind, said that businesses should seek to quantify their own gender pay gaps as early as possible since the new reporting regime "will have a critical impact on recruitment and retention, as well as brand and reputation, and so businesses need a well thought out strategy for communicating and contextualising the current gap and explaining what they are doing to close it"

"While it appears that the government league tables will be at sector level and will not be broken down to list individual employers, it is likely that 'employer specific' league tables will be compiled using the publicly available information, especially by the media," she said. "This will make it strikingly apparent where businesses stand on this issue against their competitors, and makes it impossible for boards to ignore given the brand and reputation of their business is at stake."

"Employers will be required to publish details not only of their overall pay gap but also details of how many women and men are employed in each quartile of the employer's pay distribution - this will focus attention not just on the employer's overall pay gap but also on the representation of women in each pay quartile and on how that moves year on year," she said.

Once in force, the reporting rules will apply to all private and voluntary sector employers in England, Wales and Scotland with at least 250 employees. Employers will be required to publish their overall mean and median pay gaps based on gross hourly pay for men and women, expressed as a percentage; as well as the mean gender bonus gap. They will also be required to publish how many men and how many women are employed within each quartile of their pay distribution, to make it clearer where any discrepancies exist in the business.

Employers will be required to publish details of these pay gaps on their websites, as well as upload the information to a government website. A director, partner or equivalent would have to sign off the data. Reporting would be done on an annual basis and each report would have to be kept on the employer's website for three years. Employers could be expected to calculate their pay gap from as early as April 2017 and publish the data in April 2018 as part of the government's intention to "narrow the gap further and faster".

The draft regulations define 'pay' as including basic pay, various allowances, shift premiums and bonus pay; but exclude overtime and the value of any salary sacrifice accounts. Steven Cochrane, an expert in employment law issues affecting financial services businesses, said that this "extremely wide" definition of pay would create particular issues for these firms.

"The definition of bonus pay in the draft regulations is very wide and would include schemes such as LTIP, CSOP, SIP, EMI and carried interest plans," he said. "While it is clear that deferred incentive awards will be caught, it is not entirely clear how deferred awards should be reported on in practice - that is, whether the payment would be deemed to have been made at the point of award, or upon vesting."

"Within the financial services sector, variable pay can often make up a relatively significant part of total compensation and bonus awards tend to operate in a more opaque manner, where individual managers make awards against a backdrop of performance metrics which can sometimes be viewed as subjective. The inclusion of variable pay in the regime as a completely separate piece puts bonuses firmly under the spotlight and will encourage employers to scrutinise their approach to incentive and reward philosophies," he said.

Cochrane pointed out that the draft regulations covered "those employees ordinarily working in the UK under a contract of employment governed by UK legislation", with obvious implications for global employers.

"This could therefore exclude those employees who are on temporary expat assignments, or those who are working in the UK on assignment from other parts of the world," he said.

The government's consultation on the draft regulations closes on 11 March.