The Gender Pay Gap Regulations (the final draft of which were published in December 2016) are expected to come into force in April 2017, and will apply to large private and voluntary sector employers (defined as those with 250 or more employees on 5 April of each year).

Gender Pay Gap Report

Affected employers will be required to publish within 12 months of 5 April 2017:

• overall gender pay gap figures for relevant employees, calculated using both mean and median average hourly pay;
• the proportion of men and women in each of four pay bands. Employers will generate their own “quartiles”, each containing an equal number of employees. The ratio of male and female employees in each quartile must then be reported in percentage terms. This will show how the gender pay gap differs across the organisation, at different levels of seniority;
• information on the employer’s gender bonus gap, that is, the difference between men and women’s mean and median bonus pay over a 12-month period;
• the proportion of male and female employees who received a bonus in the same 12 month period.

Employers will have the option to include a narrative explaining any pay gaps or other disparities, and setting out what action, if any, they plan to take to address them.

Who is an employee?

For the purpose of calculating whether the Regulations apply to employers, e.g. whether they have 250 employees on 5 April, “employee” means anyone employed under a contract of service, a contract of apprenticeship or a contract personally to do work. This will therefore include employees, casual workers and some contractors (depending on the contract).

However, the gender pay reporting duties apply in respect of a “relevant employee” which is defined in the Regulations as “an employee employed on the relevant snapshot date (5 April), with the exception of partners.” This therefore includes contractors if they are personally contracted to provide work under the direction of the “employer”, without the ability to substitute others.

The Government has recognised that it may be difficult for employers to provide pay reporting for contractors for whom they do not have the relevant pay details and therefore there is an exclusion for contractors for whom the employer does not have, and it is not reasonably practicable for them to obtain, the relevant data. What is meant by “reasonably practicable” will probably be developed over time through case law.

Agency staff supplied by an employment business or agency are unlikely to be included in the calculation of employees by the end user/client, but will count towards the calculation of employees for the employment business that provides them.

Employees on leave and not receiving full pay

Employees are now excluded from the pay reporting obligation if they receive less than full pay as a result of leave. So for example, an employee on long term sickness receiving statutory sick pay, an employee on maternity leave in receipt of statutory maternity pay only or an employee on unpaid sabbatical will not be included for the calculations relating to mean and median hourly rates of pay, or the proportion of male and female employees in each quartile. However, all relevant employees are included in the calculation of the gender bonus gap.

What counts as pay?

“Pay” is defined as basic pay, bonuses, allowances (such as on-call and standby allowances), pay for piecework, pay for leave (but only fully paid leave) and shift premiums. It excludes overtime pay, expenses, benefits in kind and the value of salary sacrifice schemes. The extent to which any element of an employer’s remuneration package is or is not, for example, a benefit in kind will need close examination.

Pay is calculated using gross figures, before any deductions have been applied. An employer’s gender pay gap is calculated using both the mean and median hourly gross pay over a specific pay period (normally a week or a month, depending on the employer’s usual pay cycle).

The Regulations set out further details for calculating the hourly rate of pay for each employee.

What counts as bonus?

“Bonus pay” is defined as remuneration in the form of money, vouchers, securities, securities options, or interests in securities which relates to profit sharing, productivity, performance, incentive or commission. The extent to which any non-cash awards will count towards the employer’s gender pay gap will depend on the type of award.

Timing and publication

Affected employers must analyse their gender pay gap each April (the first in April 2017), and publish their gender pay gap report within 12 months. Thereafter, they must produce and publish an annual report. The report must be published on their own website and it must be kept online and publicly available for three years. They must also upload the information to a government website.

Enforcement

The Regulations do not contain any enforcement provisions or sanctions for non-compliance. However, the government has stated that the Equalities and Human Rights Commission will be able to use its existing powers of enforcement which involves them potentially serving enforcement notices. It has also stated that it will run checks to assess for non-compliance and publish tables, by sector, of employers’ reported gender pay gaps, and that it might establish a database of compliant employers. The greatest risk, however, is likely to be reputational if an employer does not publish its gender pay gap.

Guidance for employers

The Government will produce non-statutory guidance to assist organisations in complying with the Regulations. This is being developed in conjunction with Acas but has not yet been finalised.

Our recommendations:

There are several steps that you should consider in advance to prepare for the new regime:

• Identify whether you are covered by the Regulations. This will involve considering who is an employee and your contracting arrangements (which will probably include, for example, freelancers and some contractors) and whether there are likely to be 250 or more employees per legal entity employer as at 5 April 2017.
• For corporate groups, consider which corporate entities will need to report and identify how many separate gender pay gap reports will need to be produced.
• Identify any employees on leave on 5 April and in receipt of less than full pay as a result of that leave.
• Consider whether pay and hours data for irregular workers is readily available and can be collated together with the pay data for permanent staff.
• Consider the remuneration package offered including all benefits and analyse which elements will need to be reported.
• Carry out an audit of bonus schemes you offer and identify which would need to be reported as “bonus pay”.
• Calculate the gender pay gap information to assess how big the gap is likely to be when the first report is published, and to identify any issues which may be harmful to your reputation when published.
• Identify the senior individual who will sign the written statement confirming the accuracy of the published information.