The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017

Having now completed its consultation on the draft Regulations, earlier this month the Government published the final draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 setting out how employers are going to be required to calculate, and publish, their gender pay gap data.

At our Employment Law Update Seminar in October we highlighted the fact that the original draft Regulations were far from clear on various aspects of the pay gap reporting obligations. Employers will be pleased to learn that the final Regulations provide some much needed clarity on many of these uncertain areas, though it will probably not come as any surprise that not all of the issues have been addressed and we therefore await publication of the non-statutory guidance for further clarification on these outstanding areas.

The below article summarises the position under the revised Regulations and sets out what employers’ obligations are going to be from April 2017.

In its latest efforts to address the pay gap between male and female workers, from next year the Government is going to require large employers to annually publish data on their gender pay gap, seemingly in the hope that this will encourage private sector employers to tackle any pay gap within their organisation head on.

This mandatory reporting process will apply to employers with at least 250 employees as at 5 April each year (originally the ‘snapshot date’ was going to be 30 April but this has now been revised to 5 April). We anticipate that this new procedure will come into effect in April 2017 with the first deadline for employers to publish the relevant data on their websites being 4 April 2018, on the basis that employers will have 12 months to collate, analyse and publish the data each year.

On 6 December 2016 the Government published its revised draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, providing some welcome clarification as to what an employer’s obligations are going to be under the new Regulations.

In particular, the revised Explanatory Notes now provide clarification as to who will qualify as a ‘relevant employee’, for the purposes of identifying whether or not an employer is a ‘relevant employer’. In short, the Government has confirmed that ‘relevant employee’ is to be defined widely so as to include any workers (working under a contract personally to do work) who are engaged within the business on the snapshot date each year. Whilst we had previously assumed that this was the Government’s intention, the revised Regulations have now definitively confirmed this approach. As a result, casual/bank staff and even potentially self-employed contractors will need to be included in the headcount and subsequent data analysis, depending on the nature of their engagement and some employers who might have previously assumed they would be exempt from the Regulations, having less than 250 'employees', are not going to be.

However, the Government has acknowledged that it may be difficult in practice for employers to include all workers in their calculations, for example if they have any workers who are not paid through the normal payroll, therefore making it difficult for the employer to obtain the necessary data. In response to concerns raised about this during recent consultation, the amended Regulations now include an express exception to the reporting requirements in respect of workers whom the employer does not have (and it is not reasonably practicable to obtain) the relevant data. This will no doubt be welcome news to those employers who engage a lot of casual workers.

The annual information that employers are going to be required to publish is:

  • the organisation’s overall gender pay gap (expressed as a percentage), using both the mean and median hourly rate of pay for female and male employees;
  • the proportion of male and female employees in each of the organisation’s four pay quartiles;
  • the organisation’s overall bonus gender pay gap (expressed as a percentage), using both the mean and median bonus payments received by female and male employees over the preceding 12 month period; and
  •  the proportion of female and male employees who received a bonus in that period.

Whilst 4 April 2018 might admittedly sound like some way off, the potential administrative burden of these Regulations on employers should not be underestimated. In order to calculate their gender pay gap, employers will be obliged to calculate the average gross hourly rate of pay in respect of their ‘relevant employees’. The original draft Regulations simply stated that this rate of pay was to be calculated by dividing the employee’s actual weekly pay in the relevant period by their weekly basic paid hours. Questions were raised as to how this would work in practice for casual staff who do not have ‘basic hours’. The revised Regulations now provide further details in this regard, specifically they provide that where an employee’s hours vary from week to week a 12-week reference period should be used.

Pay’ for the purposes of this calculation will include most types of remuneration paid through the payroll, with only certain limited exceptions, including overtime and expenses. The original draft Regulations provided that the calculation was to be based on the pay received by all relevant employees during the relevant pay period regardless of whether, for example, they were only in receipt of sick pay or maternity pay. The revised Regulations take a different approach and now state that the calculations should only take into account ‘full-pay relevant employees’, being employees who are not in receipt of reduced (or no) pay during the relevant pay period. This therefore permits employers to omit from their calculations anyone on annual leave, maternity, paternity, adoption or shared parental leave, sick leave or special leave, thereby addressing original concerns that an employer’s pay gap could be negatively affected if they happened to have a significant number of female employees receiving statutory maternity pay during the relevant pay period.

Other areas where much needed clarification has now been provided by the revised Regulations includes:

  • details on how to identify the quartile pay bands;
  • clarification on what bonus payments should be included in the calculation;
  • clarification around dealing with elements of bonuses which are awarded as securities, options and/or interests in securities; and
  • confirmation in the Explanatory Notes accompanying the revised Regulations that a failure to comply with the Regulations will amount to an ‘unlawful act’ permitting the Equality and Human Rights Commission to take ‘enforcement action’.

In terms of what employers can be doing now to prepare for the implementation of the Regulations next year, we would advise that they start thinking about:

  • whether they are likely to be a ‘relevant employer’ as at 5 April 2017, by reference to the number of individuals they engage and the nature of those engagements;
  • analysing their employees’ remuneration packages and identifying what payments will need to be included in the necessary calculations;
  • potentially carrying out the pay gap calculations now (for example using April 2016 figures) in order to identify whether they are likely to have a considerable pay gap in 2017; and
  • if they suspect that they are likely to have a significant gap, how they can explain this gap in any accompanying narrative (including a narrative is optional under the draft Regulations but advisable where the gap is significant and could have negative PR implications).

There are still some areas of uncertainty surrounding the calculations, such as should bonuses not actually be assessed on a full-time equivalent basis rather than bonus amounts actually paid, so as to avoid any distortion in the data where an employer has a significant number of part time female employees receiving pro-rated bonuses. Once Parliament has approved the revised Regulations the Government has confirmed that non-statutory guidance will be published, which may well address any areas of continued uncertainty. We therefore eagerly await publication of said guidance and will update you as soon as we have had sight of it.

In the meantime, please do not hesitate to contact the employment team if you would like to discuss in more detail what impact the Regulations could have on your business.

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