UK Employment Hub 

On Wednesday, the BBC published its annual report on pay for stars earning more than £150,000, and the statistics have been revealing to say the least. As an illustration, the top five highest earning men earn three times more than the top five highest earning women. Whilst the fact of a pay gap may be unsurprising, the scale is still shocking.

Lord Hall remarked that on gender and diversity the BBC is more diverse than the broadcasting industry and the civil service. However, what’s clear is that even the BBC has a long way to go.

It’s worth noting that the BBC has not as yet actually published its gender pay gap. Indeed it’s been reported that only around 30 or so of the 8,000 odd employers caught by the Gender Pay Gap Regulations have reported to date. However, the BBC has pledged to close the gender pay gap between men and women on air by 2020.

Speculation has now commenced as to how that will be achieved. The corporation has indicated that pay cuts will be part of the solution.

As employers prepare to publish their gender pay gap figures, a light needs to be shone not only on the solutions for closing the gender pay gap but also on the underlying reasons for the pay gap and the business case for closing the gap. Whilst there is no legal obligation to publish an accompanying narrative, messaging and communication, both internally and externally, are going to be key in delivering a ‘successful’ gender pay gap report.

As reported in our article “It’s all change in employment law in April…”, private employers with 250 employees or more should have collated their relevant data on the first annual “snapshot date”, on 5 April 2017. These employers must publish their calculations by 4 April 2018. Public employers’ “snapshot date” was 31 March 2017 and they must publish their calculations by 23 March 2018.

However, now that the process of calculating the key pieces of information has begun, many employers are realising that their figures reveal a significant (and often unexpected) pay gap. While the aim of the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (the Regulations) is to address the UK’s gender pay gap, the reality behind the figures published will not always paint an accurate picture. The figures may demonstrate a demographic gap, rather than an equal pay gap. For example, the cause of a gender pay gap may be the result of a greater distribution of men in higher paid roles, rather than a disparity in equal pay. However, just because data reveals a demographic gap, it does not mean that this is not something which the government is trying to address. The Regulations attempt to deal with this issue through the inclusion of quartile calculations.

Where employers’ data reveals that there is a gender pay gap, many employers will assert that they pay their employees in a non-discriminatory manner and try to justify the disparity as being a result of the workforce demographic. However, even where employees receive equal pay, the results do not remove the risk that there are other discriminatory factors causing the disparity. For example, while an employer’s pay gap may be a product of how its workforce is spread across the business, this might be a result of discrimination on a different level, such as against females applying for senior positions. Alternatively, there may be other sufficient reasons for a gender pay gap, such as a shortage of qualified men or women in a certain industry. Therefore, the calculations may go a long way to emphasise the issues that companies continue to face and could provide an impetus on employers to deliver a solution.

This is where the optional narrative can be an important element of employers’ publishing obligations. This is an opportunity for employers to provide a commentary on the figures published and pacify any reputational risk that might arise from publishing the headline figures alone. It is quickly becoming more widely understood that the Regulations do not in fact deal with equal pay but this does not mean that the government is not taking steps to tackle other factors that are causing a gender pay gap. Therefore, employers have the opportunity to use their narratives to acknowledge the issues they continue to face and offer a way forward to improve these problems in conjunction with the government’s efforts. By doing so, any pay gap may be explicable and employers can be seen to be responding to the results proactively. This in turn might potentially minimise the risk of adverse publicity or internal grievances raised by employees.

With reporting obligations due to come into effect from 6 April 2017, the gender pay gap debate has taken centre stage over the past year. With the UK gender pay gap still sitting at over 18 per cent, it is unsurprising that this has been the focus of political and media attention. The purpose of the regulations is not just to force employers to mechanically calculate their pay and bonus gaps, but also to encourage employers to look inwards to identify why any gaps are arising and what steps can be taken to achieve parity. Considering the business case for closing the gender pay gap is tantamount to the success of this latest government initiative.

But the gender gap is not the only gap which affects our productivity in the UK. A government backed review has found that helping black and minority ethnic (BME) people to progress in their careers at the same rate as their white counterparts could add £24bn to the UK economy each year (a boost to GDP of 1.3 per cent).

The report by Baroness McGregor-Smith, who became the first Asian woman to run a FTSE 250 company when she took over at Mitie in 2007, found that people from BME backgrounds were still often disadvantaged at work. Whilst the Baroness acknowledged that this is still in part down to overt race discrimination, she said, for the most part, the differential treatment is actually down to unconscious bias. She also noted that the UK has a structural, historical bias that favours certain individuals.

The review found that employment rates amongst people from BME backgrounds were 12 per cent lower than for white counterparts. It also found that just six per cent reached top-level management positions. But this isn’t new. A report by the TUC in February last year identified that staff from all ethnic minority backgrounds, qualified to degree level, faced a 10 per cent pay deficit in comparison to their white counterparts, with the figure rising to 17 per cent for those with A-levels only.

Of course the reasons for the gap are not straightforward. However, Frances O’Grady, TUC General Secretary, stated that “this is not just about education, but about the systemic disadvantages ethnic minority workers face in the UK”. A study by the Institute for Social and Economic Research at the University of Essex found British ethnic minority graduates were between five and 15 per cent less likely to be employed six months after graduation than their white peers at the same institutions.

One of the main recommendations of the Baroness’ report is legislation to make firms with more than 50 workers publish a breakdown of their workforce by race and by how much they are paid. She suggested that firms should draw up five-year diversity targets and nominate a board member to deliver them. She also noted that she wants to see diversity as part of public procurement guidelines.

Government ministers have been quick to respond in support of the general recommendations of the report but they have ruled out introducing new legislation. Instead, Business Minister, Margot James, has asserted that “the best method is a business-led, voluntary approach and not legislation as a way of bringing about lasting change.” This recommendation is not however supported by the history of gender pay gap reporting.

The 2010-2015 coalition government initially decided to introduce gender pay reporting on a voluntary basis, in the “Think, Act, Report” scheme. Whilst 200 firms signed up to the initiative’s principles, only a handful actually published their gender pay gap statistics. With pressure mounting on the government, the then Prime Minister, David Cameron, announced that the government would “end the gender pay gap in a generation”; a bold statement and one that he could only dream of achieving if it was specifically legislated for. Here’s hoping the new regulations achieve that honourable goal.

But the question is, in light of the gender pay gap experience, can we expect new legislation providing for race/ethnicity pay gap reporting? In the medium term at least it seems likely. By that point, employers will hopefully have developed the infrastructure that will mean that calculating these gaps and reporting on them should not be too much of an onerous task. However, employers should ideally be taking informal steps to assess their race/ethnicity pay gap now and should start to consider initiatives that they might take to close the gap within their workforce. That way, they can be ahead of the curve if and when race/ethnicity pay gap reporting obligations do come into force.

With the commencement of the gender pay reporting obligations in April, ACAS have provided a helpful summary (as well as more detailed guidance) on the regulations.

By way of brief reminder, the regulations require that employers with 250 or more employees annually publish calculations that show the gender pay gap between their male and female employees. The calculations that need to be published are:

1. Average gender pay gap as a mean average;
2. Average gender pay gap as a median average;
3. Average bonus gender pay gap as a mean average;
4. Average bonus gender pay gap as a median average;
5. Proportion of males receiving a bonus payment and proportion of females receiving a bonus payment; and
6. Proportion of males and females when divided into four groups ordered from lowest to highest.

These calculations must be published (both on the company website and on a government website) within 12 months of the snapshot date (5 April each year). Companies may include a narrative explaining the calculations. This is an opportunity for companies to set out the challenges that they face, the success they’ve had, and/or set out their long terms plans to close the gender pay gap.

For further detail please click here to see our previous article on the revised regulations and click here to see the ACAS Guidance.

Following the women’s march over the weekend, in which hundreds of thousands of women globally took to the streets to march for women’s rights, it seems apt that only last week the Government published the draft Equality Act 2010 (Specific Duties and Public Authorities) Regulations 2017.

The draft regulations extend the duty to publish annual gender pay gap reports to public sector employers with over 250 employees. The draft regulations broadly reflect the draft gender pay gap regulations published in December last year, which apply to private sector employers with over 250 employees.

However, there are a couple of key differences. Specifically, the public sector duty will take effect as part of the existing public-sector equality duty, rather than as a standalone requirement. Whilst the stipulated ‘snapshot’ date for relevant private sector employers is 5 April, the ‘snapshot’ date for public sector employers will be 31 March.

As we’ve previously noted, the Government’s response paper issued in December did deal with a number of the outstanding issues relating to gender pay gap reporting. However, there are still unanswered questions and it is hoped that the Government will issue further guidance before the gender pay gap regulations come into force. It is currently anticipated that they will come into force by April 2017.

Employers should be carefully considering whether or not they are likely to be caught by the new regulations and be carrying out some initial analysis to determine what their gender pay gap is likely to look like. Employers may wish to consider whether there could be a benefit to changing bonus structures or bonus payment dates under any plans they operate, if their current arrangements are likely to inflate their pay gap.

Ultimately the aim of gender pay gap reporting is for employers to show that they are making progress in closing their gender pay gap, year on year. Employers will be assessed against their industry peers, and websites have already been set up to enable stakeholders to undertake a comparison exercise. Whilst voluntary under the current draft regulations, narratives could be a useful tool for employers to explain any pay gaps and to set out what steps they are taking to improve their statistics.

The government has published the much anticipated revised version of the draft Equality Act (Gender Pay Gap Information) Regulations. The key points to note are:

1. The draft Regulations are due to come into force on 6th April 2017.
2. The snapshot date will now be 5 April each year (rather than 30 April). Gender pay gap information will need to be published within 12 months, meaning that the first reports are due by 4 April 2018.
3. The definition of “relevant employees” has been clarified and means “a person who is employed by the employer on the relevant snapshot date“. This is to include both workers and employees. There is, however, an exception to the duty to report for employees who are employed under a contract personally to do work where “the employer does not have, and it is not reasonably practicable for the employer to obtain, the data“.
4. Only “full-pay relevant employees” need to be included when calculating the relevant gender pay gaps. This is to combat the distortion in figures that relevant employees who are being paid at a reduced rate or nil, as a result of being on leave, would cause. Leave includes annual leave, maternity leave, paternity leave, shared parental leave, sick leave and special leave.
5. The updated Regulations have clarified how “gross hourly pay” should be calculated. This should be calculated by reference to an employee’s normal hours, however where no such normal hours are kept, a 12-week reference period should be used.
6. There are two points to note in relation to bonus pay:
   1. bonus pay is still to be included in the calculations, however under the revised regulations only the portion of the bonus payment that is proportionate to the relevant pay period should be included when calculating gross hourly pay; and
   2. bonuses paid in the form of securities, securities options and interests in securities are to be treated as paid at the point that they would give rise to taxable earnings.
7. Quartiles are to contain equal numbers of employees. To create quartiles, employers should rank all relevant employees in order of their hourly pay (low to high) and then divide the employees into four equal groups.
8. Previously, the Regulations and guidance were silent as to what penalty might be applied in the event of non-compliance. However, the Explanatory Notes now state that a failure to comply with the reporting obligations could constitute an “unlawful act” under the Equality Act 2010. This means that the Equality and Human Rights Commission could take enforcement action.

A report published this week indicates that the gender pay gap increases dramatically on a woman’s return to work following maternity leave. Whilst this may not be entirely surprising, the statistics are depressing. The report suggests that by the time the first child is aged 12, a woman’s hourly wages are a third below men’s. Part-time working arrangements, missed promotions and necessary time out of the workplace are all contributing to what is being labelled the “mum tax”.

Recent research estimates that women earn 18 per cent less than men on average and male managers are 40 per cent more likely than female managers to be promoted.

The government has indicated that it is still committed to closing the gender pay gap in the UK but publication of the final gender pay gap reporting regulations has been delayed. Notwithstanding that, it is still anticipated that gender pay gap reporting obligations will take effect from April 2017.

In the meantime, a number of companies have considered innovative ways in which they can close the gender pay gap and ensure that women are given opportunities at the top. We set out a few practical ideas below:

1. Encourage shared parental leave: Although the uptake of shared parental leave has been disappointingly low, some employers are offering enhanced shared parental pay to try to encourage fathers to take the new form of leave. It is hoped that this will give the opportunity for mothers to return to work at an earlier date and avoid some of the pitfalls of being out of the workplace for an extended period.

2. Offering women a pay rise: It may seem a shockingly obvious way to tackle the gender pay gap but the University of Essex and Brainlabs, a marketing agency, have recently increased the pay of their female staff to bring their average pay into line with their male colleagues, branding it a “pay gap tax”.

3. Allowing babies in the office: Amongst other employers, taxi firm, Addison Lee, has reportedly experimented with the idea, and Goldman Sachs supports parents returning to work with an on-site office crèche. These schemes enable employees to return to the workplace. However, where employers do offer such arrangements, they should be careful to ensure that the arrangements do not prove disruptive or interfere with any employee’s ability to carry out their job.

4. Enable parents to work from home: Flexible working is an invaluable tool in an employer’s toolkit and research suggests that those who are allowed to work flexibly are often more productive. Where possible, employers should support and encourage parents seeking alternative working arrangements.

5. Subsidise childcare: Childcare vouchers already provide a tax efficient way for employers to help employees with their childcare costs. However, some childcare voucher schemes do affect tax credits and for some mothers on low income, once childcare and travel costs are accounted for, it can become financially unattractive to work. There is currently a campaign on-going calling for state childcare assistance once paid parental leave ends for a parent.

If you thought your firm was exempt from the gender pay gap regulations, please think again. A recent clarification from the Government has suggested that the definition of ’employee’ is wider than originally thought. The regulations do not just require reporting on employees but also agency staff, atypical workers, LLP members, casual staff and even self-employed contractors. This may well take your business over the reporting threshold which kicks in when your business has 250 or more ’employees’. We await the publication of the final form regulations this year, which will confirm exactly which staff are caught by the regulations. In this interim period, if you are doing dry run, we encourage you to collect data, on a privileged basis, on the pay received by all of your staff who fall into the above category. This exercise will give your organisation an insight into what the data for your business will look like at the snapshot date next year and give you time to make changes if you feel it is necessary.

On 22 March 2016, the Government launched a new charter to link City bonuses to the appointment of senior women. The charter is in response to a review by Jayne-Anne Gahdia, CEO of Virgin Money, into the representation of women in senior managerial roles in the financial industry.

The Gadhia review found that, in the UK, financial services female representation was around 23% on boards, but only 14% on executive committees. Amongst other things, the review recommended that financial service firms connect part of the remuneration packages of their executive teams to gender balance targets.

The Government’s charter asks financial service companies to implement four actions:

1. Have one member of the senior executive team who is responsible and accountable for gender diversity and inclusion.
2. Set internal targets for gender diversity in senior management.
3. Publish progress annually against these targets in reports on their websites.
4. Aim to ensure the pay of the senior executive team is linked to delivery against these internal targets on gender diversity.

The recommended actions are voluntary. However, Virgin Money, Lloyds Banking Group, Barclays, HSBC, the Royal Bank of Scotland, Columbia Threadneedle and Capital Credit Union have already indicated that they will be pledging their commitment to improve gender diversity in their firms. This is already an impressive list and the Treasury will publish a list of the firms who have signed up to the charter in three months’ time.

However, the Treasury has indicated that if large sections of the industry do not engage with the recommendations, it may need to re-examine whether a more prescriptive approach is required.

Addressing gender inequality in the workplace is at the heart of the government’s agenda for 2016, with section 78 of the Equality Act 2010 coming into effect this year. This will make it mandatory for all employers with at least 250 employees to publish information about their gender pay gap, and employers need to be ready for the changes.

In February, following a period of initial consultation, the government issued draft regulations that it is proposing will come into effect from October 2016, subject to further consultation with stakeholders. As anticipated, the draft regulations envisage a wide definition of pay and it is likely that the reporting requirements will cover bonus pay and others variable allowances, in addition to basic pay.

Interestingly, the government proposes that affected businesses will be required not only to publish mean and median gender pay gaps, and gender bonus gaps, but also the number of men and women in each quartile of the company’s pay distribution. It is hoped that the quartile data will help identify where women are concentrated in terms of their remuneration and encourage employers to consider whether there are any bars to their progression and how these can be addressed.

For more information on gender pay gap reporting, and what practical steps employers can be taking in preparation, see our February UK Employment Law Round-up.