Tag Archive: equal pay

Gender pay reporting regulations published, to come into force 6 April 2017

The Government has today published the revised draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, which are intended to come into force on 6 April 2017. Under the regulations, employers employing 250 or more employees will be required to publish information about the gender pay gap in their organisation.

The original draft regulations contained a number of problem areas (Se our Be Aware of 15 February 2016). Whilst some of those problems have been addressed in the new draft, some remain and there are some new problem areas to grapple with.

Employees

‘Employees’ are not defined in the draft regulations; however, the explanatory notes state that the definition of employment is the section 83 of the Equality Act 2010 definition which includes employment under a contract of employment, a contract of apprenticeship and a contract personally to do work. This would include many independent contractors. However, the impact of using the wide definition of employee is softened slightly by a new provision which says that the employer is not required to include data relating to an employee who is employed under a contract personally to do work if the employer does not have the data and it is not reasonably practicable to obtain it.

Partners, including partners in an LLP, are excluded from the definition of employee. It is not clear why this exclusion has been made.

The data snapshot

The requirement is to publish data captured at a snapshot date. This has changed from 30 April 2017 to 5 April 2017. The obligation to report is within a year of the snapshot date.

Pay

Pay is gross pay calculated before deductions at source. The definition of pay has been tweaked in the new regulations but has not changed substantially. Pay will include basic pay, paid leave, allowances, shift premium pay, and pay for piecework. Pay will not include overtime pay, expenses, benefits in kind, redundancy or other termination pay, payment in lieu of leave. Bonus pay is included but has a separate definition in the new regulations. Commission is treated as bonus pay.

The duty to publish annual information relating to pay

The basic obligations on employers who are caught by the regulations remain the same. They will need to publish:

  • The difference in the mean and median pay of male and female employees;
  • The difference in mean and median bonus pay of male and female employees;
  • The proportions of male and female employees who were paid a bonus in the previous year; and
  • The numbers of male and female employees employed in quartile pay bands.

However, the detail of what must be published has changed.

In calculating the mean and median pay gap, employees who are not on full pay due to being on leave are excluded. If an employee is being paid at a reduced rate or nil as a result of being on leave during the pay period which includes 5 April they are not included. Leave includes maternity, paternity, adoption, parental and shared parental leave, sick leave, annual leave and special leave. This could mean that many employees who are on annual leave on 5 April should be excluded; even without the impact of the holiday pay litigation, many employers perfectly lawfully pay employees less during annual leave than they would receive if they were not on leave; arguably, this is pay at a reduced rate. This could have a significant impact on some employers, particularly as the snapshot date will often fall in the Easter holiday period.

Employees on leave are also excluded from the quartiles information but are not excluded from the calculation of mean and median bonus or proportions of employees paid a bonus.

Bonus

The definition of bonus has been clarified and now makes it clear that pay in the form of securities, securities options and interests in securities is treated as paid at the time when and in the amounts in respect of which it gives rise to taxable earnings.

Calculation of the hourly rate of pay

The new regulations set out in detail the steps involved in calculation of the hourly rate of pay of relevant employees, presumably intended to mitigate the impact of unusual work patterns and achieve a more accurate comparison. The steps are as follows:

  • Identify the pay period – generally speaking, the period in respect of which the employer pays basic pay (weekly, fortnightly, monthly etc);
  • Identify all amounts of pay and bonus pay paid during the pay period which includes 5 April;
  • Exclude any ordinary pay which would normally be paid in another pay period;
  • If bonus (which includes commission) is calculated over a different period, pro-rata it in respect of the pay period;
  • Add together the ordinary and bonus pay as adjusted;
  • Multiply by (7 divided by the number of days in the pay period); and
  • Divide by the number of working hours in a week.

There is  a new provision which determines how to calculate working hours; either normal working hours or an average over a 12 week period if the employee has no normal working hours.

Quartiles

The new regulations set out in detail how the quartile pay bands should be calculated. This was unclear under the old regulations. Once the hourly rate of pay for all full-pay relevant employees (ie not those receiving reduced or nil rate due to being on leave) has been calculated, those employees should be ranked from lowest hourly rate to highest hourly rate. The list should then be divided into 4 sections each containing (so far as possible) an equal number of employees. The employer must publish the proportion of male and female employees in each quartile as a percentage.

In recognition of the fact that this method is potentially open to manipulation, as employers can decide which quartile employees on the same hourly rate of pay are assigned to,  the regulations require employers to assign relative proportions of male and female employees to each quartile – so if there are 20 employees who could legitimately be put in either of 2 adjacent quartiles and 10 are male and 10 female, 5 of each should be assigned to each of the 2 quartiles.

Form and manner of publication

Here there has been no change. The information must be published on the employer’s website in a manner which is accessible to its employees and the public, for a period of at least 3 years, and it must be accompanied by a statement signed by a director (or similar for non-companies) which confirms that the information is accurate.

Enforcement

Whilst the new regulations, like the old regulations, do not expressly contain any sanctions for failure to comply, the explanatory notes state that a failure to comply with an obligation imposed by the regulations will constitute an ‘unlawful act’ within the meaning of section 34 Equality Act 2006 which empowers the Equality and Human Rights Commission to take enforcement action. Such enforcement action is, in practice, unlikely due to the EHRC’s limited resources but does mean that the regulations are theoretically not completely toothless.

Permanent link to this article: http://www.dlapiperbeaware.co.uk/gender-pay-reporting-regulations-published-to-come-into-force-6-april-2017/

Pay issues remain in the spotlight for employers

In recent times, pay issues have never been far from the spotlight. The Government’s proposals to introduce mandatory gender pay gap reporting have run alongside some high profile litigation relating to equal pay.   Although the concepts of gender pay gaps and equal pay are different, both place important obligations on employers and give rise to important considerations about how employers may wish to structure their business.

Equal pay encapsulates the principle that men and women should have equal pay for equal work. Employees who feel that this principle has been breached must be able to demonstrate this by pointing to a comparator of the opposite gender who works in the same employment. The meaning of ‘same employment’ (which includes employment at the same establishment or at a different establishment but where ‘common’ terms of employment apply) has recently been tested in a case involving a comparison between the pay of (predominantly female) retail store workers and the pay of (predominantly male) distribution depot workers.  The employment tribunal found that in the particular circumstances of this case, despite certain geographical and organisational distinctions between the two sets of  workers, they were each found to be in the same employment and, therefore, their pay could be compared.  However, the circumstances of each business will be different – and the case should give employers pause for thought in considering how different facets of their business are organised.  In some instances it may be more difficult for employees to identify comparators in the ‘same employment’ if, for example, certain aspects of the business have been  outsourced to a third party.

Reviewing how a business is structured may also be an important consideration in the context of gender pay gap reporting. A gender pay gap is different to unequal pay. It shows the difference between the average earnings of men and women as a percentage of men’s pay. A gender pay gap of 20% for example, would show that a woman was earning 80p for every £1 earned by a man.

From April 2017, the Government is proposing to make gender pay gap reporting a mandatory obligation for all employers with 250 or more employees. Some employers may be reviewing the number of employees who are employed in its business and whether it may be appropriate to employ certain individuals through one or more other legal entities.  This could potentially obviate the need to report altogether (if the employee number threshold for reporting is no longer met), or remove from the business certain individuals whose income may significantly skew the gender pay gap results.   Employers should exercise caution, however.  Reputation is paramount and employers should be slow to take any measures which may damage the organisation’s equality profile with competitors, clients or the media.  The final regulations are also awaited and, until then, uncertainty continues over the extent of the obligations which will apply.

For now, what is certain is that pay issues will remain firmly in the spotlight for some time to come. Employers should be mindful of the impact of the current equal pay litigation in the courts, and in particular, whether its high profile will increase the potential for claims from employees.  If there are any concerns about equal pay issues, legal advice is a must to minimise legal risks and to obtain the protection of legal advice privilege over sensitive information, where possible. In terms of gender pay gap reporting, despite the absence of final regulations, employers should already be taking measures to ensure they are prepared. Legal advice will again be key if there are any concerns about the potential existence of gender pay gaps, or if there is information which the company wishes to keep confidential whilst it assesses its obligations.  As part of a process of reviewing pay structures, employers may wish to take our quiz, How equal is your organisation’s pay?

Permanent link to this article: http://www.dlapiperbeaware.co.uk/pay-issues-remain-in-the-spotlight-for-employers/

Employers must prepare for gender pay gap reporting as IFS report confirms 18% gap

Today’s publication of a report by the Institute for Fiscal Studies brings the gender pay gap into sharp focus once again.  The report confirms that the hourly wages of female employees are currently about 18% lower than men’s on average, and that the impact of taking time out of the workplace for family reasons continues to have a significant impact upon a woman’s pay potential for the remainder of her working life. Although this news is unsurprising – concurring with previous reports – its publication is timely, coming at a point when addressing the gender pay gap is high on the Government’s agenda, and reinforcing the need for action.

The Government has already made progress with legislation in this area. In February 2016, the Government confirmed that it would bring in laws to require employers of 250+ employees in the private and voluntary sectors to publish their gender pay gaps. See our previous Be Aware alert for details.  The final legislation is still awaited and it appears will not be ready for its original October timeframe – although the power in the Equality Act 2010 to make the regulations did finally come into force on 22 August 2016.  Instead, the legislation will reportedly take effect in April 2017.

It is expected, however, that the proposal for employers to take a first data snapshot of their pay arrangements in April 2017 will still stand, meaning that there may be a very short timeframe between employers knowing what their final obligations are, and having to comply. The first snapshot figures are also likely to relate to the period from May 2016, meaning that employers should already be thinking carefully about pay decisions and ensuring they are transparent, moderated and carefully documented. Employers will have until April 2018 to publish their first gender pay gap figures.

In the meantime, the Government has also published this week a consultation paper on gender pay gap reporting obligations in the public sector, which largely mirrors that of the private sector.  The consultation closes on 30 September 2016.

With the Government committed to closing the pay gap between men and women, employers must ensure their houses are in order. Take our quiz, How equal is your organisation’s pay? to help identify where there may be pay issues in your organisation, but be sure to seek legal advice before taking any remedial action.  Legal privilege may be able to protect the confidentiality of your information and the steps you plan to take.

If you wish to discuss gender pay in your organisation, or would like a copy of our ‘Gender pay gap reporting’ flyer, please contact Clare Gregory or Kate Hodgkiss, Partners in our Employment team, or speak to your usual DLA Piper contact.

Permanent link to this article: http://www.dlapiperbeaware.co.uk/employers-must-prepare-for-gender-pay-gap-reporting-as-ifs-report-confirms-18-gap/

Government confirms that gender pay gap reporting will be mandatory

The Government has now published its response to its consultation on mandatory gender pay gap reporting, confirming that private or voluntary sector employers with 250 or more employees (ordinarily working in Great Britain with a contract governed by UK law) will be required to publish annual information relating to their gender pay gaps on their UK website. At the same time, the Government has published for consultation (closing on 11 March 2016) a set of draft regulations. It is intended that the regulations will come into force on 1 October 2016 and require employers to take a preliminary data snapshot in April 2017, followed by publication of a full report by no later than April 2018.

The key points of which employers need to be aware are as follows:

  • Employers will be required to publish an overall gender pay gap figure, calculated using both the media and mean figures. The Government suggests that:
    • The median is the best representation of the ‘typical’ difference as it is unaffected by the small number of very high earners;
    • The mean will take into account the full earnings distribution and will be useful because women are often over-represented at the low earning extreme and men over-represented at the high earning extreme.
  • “Pay” is proposed to include basic pay, paid leave, maternity pay, sick pay, area allowances, shift premium pay, bonus pay and certain allowances. “Pay” will not include overtime pay, expenses, the value of salary sacrifice schemes, benefits in kind, redundancy pay, arrears of pay and tax credits.
  • Employers will be required to separately analyse all bonus payments made in a 12 month period and publish the difference between women and men.
  • Employers will be required to report on the number of men and women working across salary quartiles. The salary quartiles will be calculated by employers themselves based on their overall pay range.
  • Narrative reporting to provide context to, and explain, an employer’s gender pay gap information, and to set out what actions will be taken, will be voluntary but strongly encouraged.
  • Employers will be required to take a data snapshot on 30 April each year and must then publish their gender pay gap information at any time within 12 months of that date.
  • The gender pay information must be published in English on a searchable UK website that is accessible to both employees and the public. The information must include the signature of a director (for companies) confirming its accuracy, and the information must be linked to a Government-sponsored website which will serve as notification to the Government that the information has been published. The information must be retained online for 3 years.
  • At this stage, there will be no civil or criminal penalties for failure to comply with the obligation to publish gender pay gap information. Instead, the Government is relying on an expectation that employers will comply, backed up by the potential for it to publicise the identity of employers who have not complied. This position will be kept under review during the first few years of implementation.
  • Ahead of commencement of the reporting obligations, the Government will be preparing a package of guidance and support for employers to ensure they are familiar with what is required.
  • The Government plans to produce publically displayed tables by sector of employers’ reported pay gaps. It will also aim to identify and highlight employers publishing particularly full and explanatory information.
  • The Government will review the gender pay reporting obligations within 5 years, setting out its conclusions in a published report.

 

Permanent link to this article: http://www.dlapiperbeaware.co.uk/government-confirms-that-gender-pay-reporting-will-be-mandatory/

Gender pay gap consultation published

Clare Gregory, a Partner in our Sheffield office, comments: The Government has today published an initial consultation on legislation which will implement gender pay gap reporting for organisations with 250 or more employees.

The requirement to publish gender pay data has had a complicated legislative history. Section 78 of the Equality Act 2010 introduced a power to make Regulations requiring employers to publish information relating to the pay of employees for the purpose of showing whether there is a difference in pay between male and female employees. However, s.78 was not brought into force. Towards the end of the last Parliament a late amendment to the Small Business, Enterprise and Employment Act 2015 included a provision requiring Regulations under s.78 to be made within 12 months of that Act coming into force; however, that provision was also not brought into force. In the meantime, the Coalition Government introduced a voluntary pay data reporting initiative, ‘Think, Act, Report’, but since its launch in 2011 only 5 companies have published pay details.

The Government is now proposing to introduce Regulations under s.78 which will require employers in the private and voluntary sectors in Great Britain with at least 250 employees to publish information about the pay of their male and female employees. A person will be considered an employee if they are employed under a contract of employment, a contract of apprenticeship or a contract personally to do work. This encompasses employees, workers and a wider category of individuals who are self-employed, provided that their contract obliges them to perform the work personally: ie if they are not permitted to sub-contract any part of the work or employ their own staff to do it. The new reporting requirements will not apply to most public authorities who are required to comply with the public sector equality duty and, therefore, already have broader equality obligations than most other employers.

The Government is consulting on what form of reporting will be required. Options include an overall gender pay gap figure measured by calculating the difference in earnings between all men and all women employed by the organisation, gender pay gap figures broken down by full-time and part-time employees and gender pay gap figures broken down by grade or job type.  The metrics chosen will be crucial; the overall pay gap figure in most organisations will be largely meaningless as it can be disproportionately affected by a small number of high earners. A requirement to break the data down by grade or job title is much more likely to highlight an equal pay problem and therefore expose employers to the risk of equal pay claims, but there are likely to be significant difficulties in how to define grade or job type.

The Government is also consulting on whether any additional narrative information should be required, for example explaining any pay gap and setting out what remedial action the employer plans to take.

Reporting will not be required more frequently than once every 12 months but the consultation seeks views on whether it should be required less frequently.

It is expected that the new Regulations will be made during the first half of 2016, but commencement is likely to be delayed to give businesses an opportunity to prepare for implementation, and may be on a phased basis affecting the largest organisations first. Nearly 8,000 employers will be required to report some information about pay data when the Regulations are implemented.

A copy of the consultation paper ‘Closing the gender pay gap’ can be accessed here. The consultation closes on 6 September 2015.

It is questionable how successful the proposed legislation is likely to be in its stated aim of closing the gender pay gap. The overall UK gender pay gap stands at 19.1%, although the gap for full-time employees has narrowed to 9.4%. The causes of the gender pay gap are complex and multi-factoral.  Female part-time employees are paid more than their male counterparts but as part-time work is often low-paid and a higher proportion of women than men work part-time, this continues to have a significant impact on the overall gap. Women are still concentrated in lower paid occupations such as caring whereas many of the highest paid sectors are disproportionately made up of male employees.

Employers may wish to get their houses in order before being exposed to public scrutiny. Employers who will be affected by the proposed Regulations can use the lead in period before implementation to conduct an audit of pay arrangements to identify potential problem areas and help the organisation to manage and present information meaningfully and in context.

Permanent link to this article: http://www.dlapiperbeaware.co.uk/gender-pay-gap-consultation-published/

New regulations give tribunals the power to order equal pay audits

Sandra Wallace, UK Employment Group Head, comments: In 2012, the Government first proposed the introduction of compulsory equal pay audits for employers who are found by an employment tribunal to have committed an equal pay breach. Now, two years down the line, and a number of consultations later, the Government has confirmed that this measure will be introduced in October 2014.  Draft regulations have just been published.

So what does this mean for employers? This measure is part of the Government’s programme of employment law reforms aimed at addressing the gender pay gap.  It introduces for the first time, a power for employment tribunals, to require employers to audit their pay policies and practices if they are found to have breached equal pay legislation or sex discrimination provisions relating to pay.   The results of the audit must be provided to the tribunal who will determine whether or not it is compliant with the terms of its order. If the audit is compliant, the employer is required to publish it on its website (if it has one) for at least 3 years, unless to do so would breach a legal obligation (in which case it must provide the tribunal with reasons why it considers that publication would breach a legal obligation). If the audit is not compliant the tribunal must order the employer to amend it.

On the face of it, these measures seem onerous and draconian; however, they are subject to a number of important exceptions. For example, audits cannot be ordered if an employer has carried out an audit meeting the required standards within the previous 3 years; or if it is clear without an audit whether action is required to avoid equal pay breaches; or if the tribunal has no reason to think that there may be other breaches. It will, therefore, remain to be seen how often such audits are actually ordered in practice.  Businesses with fewer than 10 employees and certain new businesses will also be exempt from the regulations for up to 10 years.

Employers may be fined up to £5,000 for any failure to comply with an order to carry out a pay audit, payable to the Secretary of State. The tribunal will have regard to the employer’s ability to pay in deciding whether to order, and the amount of, any penalty.

Employers should carefully assess the impact of this new law on their business. In practice, it will only come into play if an employer unsuccessfully defends an equal pay claim. Employers who already have transparent and equal pay structures are unlikely to face claims in the first place; those who may be at risk may be more minded to settle a claim than progress to a tribunal hearing to avoid any risk of an equal pay audit being ordered.  It may, however, also serve as a useful impetus for employers to get their house in order now and fully review pay policies and practices at this stage to minimise any future litigation risks.

Permanent link to this article: http://www.dlapiperbeaware.co.uk/new-regulations-give-tribunals-the-power-to-order-equal-pay-audits/