Address The Gender Pay Gap, Before Mandatory Reporting
By April 2018, larger businesses will have to publish data relating to how they pay their male and female workers. So how can they prepare?
From April 2018, under new government regulation, employers with more than 250 employees, will be required to publish data relating to the pay of their male and female employees.
This gender pay legislation is a long time coming, since the original Equal Pay Act was launched in 1970. Equal Pay legislation has evolved and tightened for employers since then, with the 2010 Equality Act stating that employers must give men and women equal pay if they do the same or broadly similar work. Yet, the national pay gap, as reported by Office of National Statistics (Annual Survey of Hours and Earnings), still stands at 19.4 per cent.
Having discussed the proposed regulations with many organisations, I do not believe that employers will generally have a problem actually meeting the legislation. The time and resources required to report the required data isn’t overly troublesome.
The challenge appears when it comes to addressing any pay gap. It is safe to assume that the government’s aim with gender pay reporting is to encourage employers to close any pay gap between males and females.
So what will the legislation involve, how can employers prepare and what are the dangers of ignoring its potential impact?
What is required of employers?
The legislation requires all companies employing more than 250 people, to calculate a baseline pay gap figure(s) as at April 2017, and then a subsequent figure(s) in April 2018, which will then be published. Employers will be required to identify what is driving the baseline figures and take action to close the gap.
Pay and bonus information should be analysed and published separately. Publishing the gross hourly rate of pay will ensure the figures are not affected by the number of hours worked. The pay figure should include bonuses and car allowances, which increases the potential for pay gaps as, for bonuses in particular, the amounts received are often individually-determined.
The legislation requires employers to publish their data on their UK website, accessible to both employees and the public, for three years. Employers will also be required to submit their data to the government through a designated website.
Do employers need to be preparing for this now, when they don’t need to publish their data until 2018?
Whilst employers won’t be required to publish their information for the first time until April 2018, the first publication will cover information from a 12-month period that commences on the 30 April 2017. For employers who review their employees’ pay between May and December, their 2016 pay review will influence their baseline 2017 pay gap figure(s) and provides their first opportunity to reduce their pay gap figures. Employers should therefore not be complacent about the 2018 deadline.
I don’t believe employers will struggle to meet the requirements of the regulations, but where I think employers need to focus their attention is being in the position to be able to explain any pay gap.
The government has stated, “If gender pay gap reporting is to have any impact, it must help employers understand why pay gaps exist and lead to action to address these problems. It must be seen as the beginning of a process rather than the culmination of a tick box exercise.”
Without considering work of comparable demand, the required data does not necessarily highlight or resolve any potential pay gap. Indeed, it may highlight an overall gap that, on closer inspection, does not exist. Only by conducting a full and detailed equal pay audit will employers be able to truly identify genuine pay discrimination and potentially explain away any existing pay gap.
Once employers decide they wish to conduct an audit, they often find it difficult to know what the next steps should be. Using some of the Equality and Human Rights Commission (EHRC) 5-step process, employers can clarify its scope:
- What data is required for the audit and one which system(s) is it held?
- Is your data in a consistent / clean format? If not, what needs to be cleaned?
- How do you categorise your employees your employees on a like-for-like comparison basis?
- Like work is defined as all roles in the same grade/level and family.
- Rated as equivalent is defined as all roles at the same grade/seniority.
- Jobs of equal value is defined as all roles at the same level of demand/seniority.
- Do you have the resources, skills and tools in place to do this internally?
- Do you review the whole organisation or merely a sample?
The chart below simplifies this process:
As the Equality and Human Rights Commission wisely states, “By itself the publication of a single figure does not diagnose or resolve any pay problems, but increased transparency about companies’ gender pay differences is likely to spur many companies to analyse their pay gaps”.
Is it really that big a deal?
For those of you thinking, ‘Why should we be concerned by gender pay reporting?’, let me take you back to the media frenzy that ensued, following the publication of a list of employers who paid below the national minimum wage. It was a PR disaster for those involved, and gender pay reporting may result in similar consequences. The 2018 publication will no doubt generate a lot of publicity, as the inevitable comparisons between employers and sectors are made. From 2019, the focus will likely turn to whether employers have started to reduce their pay gap or not.
PR and reputational damage aside, given the size of most employers’ annual pay bills, the financial cost of resolving equal pay differences can be considerable. Consider notable equal pay cases where employers have been obliged to pay damages; Birmingham City Council were liable for at least £757m to settle equal pay claims brought by mainly women who missed out on bonuses. Meanwhile, Fife Council were forced to pay males and females equally, going back to 2006, as a result of an “historic equal pay agreement” for 2,000 employees.
Given the choice between settling potentially large damages from a legal claim, or addressing key risk areas identified in an audit, but over a number of years, I think most employers would probably prefer the latter.
The CBI also made an interesting point, “It is vital that the difference between equal pay and the gender pay gap is understood, otherwise businesses run the risk of facing an increased level of unwarranted and misunderstood equal pay claims when they report a gender pay gap in their company.”
Consider the impact as well on employee engagement, and recruitment and retention. Staff are more likely to perform well, feel motivated and committed, and therefore be retained, if they feel valued and respected in their working environment. An organisation is more likely to attract people from a wider pool of talent if it is explicit in its commitment to demonstrating equality. Conversely, if there is an awareness of pay inequalities within the organisation, this will have a negative impact on employee morale since pay is naturally an emotive subject.
Tim Kellett is a director at Paydata, a reward management consultancy specialising in advising HR professionals in how to manage their reward and pay practices.