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Reporting requirements may leave gender pay gap rules ineffective

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19th Oct 2016
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Julie Hodgskin, technical material author at the Chartered Institute of Payroll Professionals, examines the reporting requirements for private and public employers and asks if the differences between them will render the regulations ineffective.

The government’s consultation on the private and voluntary sector gender pay gap (GPG) reporting requirements were published earlier this year, followed recently by those for the public sector. The latest requirements are very similar to the private sector requirements, and the government’s objective “to eliminate the GPG in a generation” remains unchanged.

However, there are some differences in the pay definitions and analysis methods that could mean that the government’s intention that “all large employers will be using a consistent approach towards GPG data collection and calculation” might not be met. This article explores the main differences and possible consequences of them.

The relevant date

The first difference between the two sets of requirements is the ‘relevant date’, which is used both for data capture and for the reporting deadline. The private/voluntary sector consultation suggests 30 April as the relevant date. In the public sector consultation, the proposed date is 5 April.

From a payroll perspective, and as far as collecting data for the gender bonus pay gap data is concerned, 5 April is more logical because it falls in line with the end of the tax year. The payroll system will probably contain year-to-date figures for the pay elements that make up ‘bonus pay’.

However, the relevant pay period (the one containing the relevant date) could be in the tax year just ended or in the new tax year depending on the date that payment is actually made. The 30 April relevant date is far enough away from the start of the tax year to mean that the relevant pay period will be in the new tax year for most pay frequencies.

The 5 April relevant date, however, increases the likelihood that the relevant pay period falls into the tax year just ended. As a result, employers with more than one pay frequency in the workforce could be faced with collecting data for the gender pay gap from more than one tax year.

Incidentally, bonus payments that happen to be paid in the relevant pay period will contribute to the gender pay gap figures as well as the gender bonus pay gap figures, but not necessarily in the same year’s GPG report. Where the payment date falls within the overlap between the relevant period and the 12-month bonus data collection window, a specific bonus payment would contribute to both measures. But if the payment date falls after the 12-month window, it will not be reported in the gender bonus pay gap figures until the following year’s GPG report.

For example, the relevant date is 5 April so the 12-month window for bonus payments runs up to 5 April. If the relevant pay period is 1 to 30 April, then the overlap is 1 to 5 April and so a bonus paid on, say, 3 April will contribute to both measures in this year’s GPG report. However, if the bonus is paid on 15 April, after the 12-month window, it will contribute to this year’s gender pay gap figures but will not count in the gender bonus pay gap figures until next year’s GPG report.

The effect of this discrepancy would not be particularly noticeable if similar bonuses were paid every year, but if a large one-off bonus were paid, it would affect one set of figures in one year and the other set of figures in the following year, making interpreting the statistics more of a challenge.

Pay definition

The next difference of note is in the definition of pay. Unlike the private/voluntary sector definition, ‘pay’ for the public sector includes pay for piecework. Piecework is more prevalent in the private sector than in the public sector. Traditionally piecework is seen as low skilled and low paid, with a vast amount of it taking place within the home.

Arguably, it is this flexibility of home working that makes piecework more attractive to women because it allows them to work around family and other commitments. To exclude these earnings from the private sector definition of pay may lead to a distortion in the overall pay figures and give a misleading and possibly over-optimistic view of an organisation’s gender pay gap.

An interesting exclusion in both definitions of pay is the value of salary sacrifice arrangements. By excluding both the amount of remuneration sacrificed and the value of the benefit received, the employee’s remuneration is artificially reduced. At the same time, very low paid workers are excluded from participating in salary sacrifice schemes because of the minimum wage rules, so their remuneration is not reduced. This creates yet another possible distortion in the GPG statistics.

The quartiles

The third difference between the private/voluntary and public sector GPG requirements worth highlighting is in the statistical analysis for reporting the pay quartiles. The private/voluntary sector is required to report by dividing the overall pay distribution (the salary range) into four equal parts or quartiles.

The public sector, on the other hand, is required to create the quartiles by dividing the workforce into four equal-sized groups after arranging them by hourly pay rate from lowest paid to the highest paid. This approach has been adopted in preference to salary range quartiles to remove the possibility of the top quartile containing so few employees that there could be a risk of unintentionally and potentially illegally disclosing an individual’s pay information.

Below is a simple example that illustrates how these different approaches to quartiles can affect the same data. In this example, the organisation has 400 employees earning between £10 and £100 per hour.

Pay-based quartiles

Hourly rate

£100 - £75

£75 - £50

£50 - £25

£25 - £0

Workforce %

5%

10%

35%

50%

Employees

20

40

140

200

 

Workforce-based quartiles

Hourly rate

£100 - £43

£43 - £25

£25 - £12.5

£12.5 - £0

Workforce %

25%

25%

25%

25%

Employees

100

100

100

100

 

Some interesting inferences could be drawn from the above statistics, depending on what message is to be conveyed, and it is this interpretative nature of statistical analysis that may be used later to prove or disprove a point.

Conclusion

The government’s ambition of eliminating the gender pay gap within a generation is a notable and worthy aim that can only be of benefit to the population and the economy as a whole. The introduction of mandatory GPG reporting will increase transparency and create a focus on GPG that, together with reputational pressure, is bound to lead to changed behaviour.

However, for meaningful comparisons to be possible across all sectors, the requirements would have to be more similar than the consultation documents suggest they will be. Although the differences may appear to be small, their impact could be significant.

As is often the case, we are left with various unanswered questions. Are the private/voluntary sector requirements going to change to match the public sector ones? Given that they will be implemented using different pieces of legislation, it is not inevitable that they will be fully aligned. And will the government stick to its stated timetable of implementing the requirements in April 2017?

It is probably already too late for payroll software developers to design and provide the necessary changes that so many employers rely upon. How will employers cope with the amount of data collection and analysis manually?

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