Julie Hodgskin, technical material author at the CIPP, examines the pluses and pitfalls of the new gender pay gap reporting regulations.
Equal pay legislation has been on the statute books for many years and yet the UK’s gender pay gap has been stubbornly slow to narrow. The pay gap currently stands at 19.2%. The government hopes that by focusing their attention on this, employers can be persuaded to review their recruitment practices and consider whether they are making best use of both genders in their hiring and retention practices.
The regulations on gender pay gap reporting, which are currently scheduled to come into force from 1 October 2016, will require relevant employers in the private and voluntary sector to publish their gender pay gap statistics.
With the first disclosure due in April 2018 (based on data collected on 30 April 2017), we have to ask how ready are employers and software providers to respond to this latest statutory requirement when there are so many unanswered questions and the technical guidance is not yet ready.
Early indications from an ongoing CIPP poll show that 40% of respondents who believe they would be affected by the legislation were unaware of what would actually be required. There is, therefore, a lot of work to do in a very short space of time, and it is dependent on the outcome of the technical consultation on the draft regulations.
What do we know so far
- It affects the private and voluntary sector
- It covers England, Scotland and Wales
- It is for companies with a headcount of 250 or more relevant employees*
- Data is to be collected from April 2017
*A relevant employee is someone who ordinarily works in Great Britain and whose contract is governed by UK legislation.
Data to publish
- Mean and median overall gender pay gap
- Mean gender bonus gap (for those receiving a bonus)
- Proportion of male and proportion of female employees that received a bonus
- Number of men and women working at different pay quartiles
Definition of pay
To ensure comparability with national gender pay gap figures, the definition of pay is that used by the Office of National Statistics (ONS).
As such “pay”, as defined by the draft legislation, 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). It does not include overtime pay, expenses, the value of salary sacrifice schemes, benefits in kind, redundancy pay, arrears of pay and tax credits”.
By using the above pay definition, statutory paternity pay, statutory adoption pay and shared parental leave appear to be excluded. Is this an oversight, a deliberate decision, or is there the assumption that ‘statutory maternity pay’ means all child-related statutory pay? If only statutory maternity pay is included then that would build in a bias favouring women’s pay as opposed to men’s.
Another point to note is that the definition excludes overtime pay. It could be argued that, as a minimum, compulsory overtime should be included in the definition. Excluding overtime risks distorting the statistics by reinforcing a current gender bias in the labour market – most overtime is worked by male manual workers.
Hourly pay rate
One of the requirements - to generate average earnings figures unaffected by the number of hours worked - means that employers will need to calculate an hourly pay rate for each relevant employee. This is potentially more complex than it at first appears.
The hourly pay rate could be calculated on contractual hours or actual hours worked. Employees in some sectors or at senior levels may be expected to work many hours over and above the contractually stated amount without any extra remuneration, which would affect the average hourly rate, if taken into account.
If distortions like this creep into the calculations, deliberately or otherwise, comparisons will be flawed. Clear guidance will be needed with ample examples to cover the range of situations that do exist within complex employment and payroll situations, perhaps with reference to the national minimum wage definition.
Preparing the data
Pay data, as defined in the draft legislation, could prove difficult to extract, because it is not the same pay that is reportable on the payslip or on the full payment submission, but only elements of it.
Hopefully it will be extracted by payroll software rather than manually. Alternative definitions of pay exist, including within the same ONS ASHE survey, or that used for the national minimum wage calculations, that would have made data collection much easier, cheaper and more transparent.
The calculation of pay averages is based on a snapshot date of 30 April and so weekly pay that includes this date will be captured, as will monthly and two weekly pay that includes this date. However, bonus calculations are based on the previous 12 months of data, so a bonus paid on a pay date after 30 April but in the same pay period cannot be included in the report. You must collect the information separately and ensure that the bonus elements are not double counted.
Concerns were raised that piece rate earnings were excluded from basic pay. It may seem odd to include it with bonuses, but because piece rate work is not hours-based, there is a certain logic to including that pay in the bonus calculation, which is similarly not tied to particular hours.
This new requirement could have an unintended consequence of influencing how future pay deals are built, casting employers in a favourable light rather than making meaningful changes.
As government statistics show, men dominate the higher pay grades. Employers may well decide, in order to reduce the gender pay gap, to reward higher grade employees with remuneration other than pay and bonuses: an example could be by increasing benefits in kind. It may be that an increase in overtime paid may also become more prevalent.
Another consequence could be the outsourcing of lower grade work, or the creation of off-shoot companies to employ lower skilled workers. This would improve the pay gap for the organisation as lower grade work, such as cleaning, is done predominately by women.
The regulations are intended for employers with more than 250 employees. However, it may be that organisations with less than the 250 employees may also find they are required to show the same information.
One reason could be that they are in the supply chain of a larger organisation, and that organisation, for quality or other contractual reasons has a requirement that organisations associated with them reveal such information. Another reason could be that it becomes a ‘quality standard’ to show, regardless of organisational size, the gender pay gap in order to attract the ‘best and brightest’ employees.
As equal pay legislation has been on the statute books for many years and still change is slow, perhaps forced disclosure will help, particularly if coupled with ‘naming and shaming’. However, as is the case with legislation, there are always alternative ways to comply with the law whilst projecting an overwhelmingly positive outcome. It will therefore be interesting to see what influence this new regulation has over pay and remuneration in the future.
About Julie Hodgskin
Julie Hodgskin is technical material author at the Chartered Institute of Payroll Professionals.