Reporting the gender pay gap: some known unknowns

Author: Mark Crail

It will have taken six years to get there, but early in 2016 the Government is expected to publish draft Regulations requiring employers to report on their gender pay gap. XpertHR content director Mark Crail examines what we know and what remains to be unveiled about how the reporting duty will work in practice.

We know that the Regulations will come into force early in 2016 because they have to be introduced within 12 months of the passing of the Small Business, Enterprise and Employment Act 2015, and that happened on 26 March 2015. We also know that the Regulations will apply to all private-, public- and voluntary-sector employers with 250 or more employees. And we know that, in addition to their gender pay gap, employers will need to report on their gender bonus gap. But until a government minister stands up and provides the detail, there is still much that we do not know - and until we do, it is going to be difficult for employers to plan how they will comply with the law.

The requirement for compulsory gender pay gap reporting to be brought in is contained in s.147 of the Small Business, Enterprise and Employment Act 2015; and s.78 of the Equality Act 2010 sets out some detail of what Regulations bringing in the reporting duty would cover. But until the 2015 general election, there appeared to be a lack of political will to bring the legislation into effect. Now, with a consultation exercise over and done with, the machinery of government is grinding its way through the difficulties of turning a political aspiration into practical law. Many questions remain.

Will employers be required to publish more than a single figure?

First, we do not yet know exactly how much data employers will have to publish if they are simply aiming to comply with the law and nothing more. Clearly there will be a requirement that employers publish a single figure representing the pay gap and a single figure representing the bonus gap, calculated in a standard way (more of which below). But could there be an expectation that they will publish more?

By and large, the gender pay gap does not result from employers paying men and women in the same jobs different sums. It is about having a higher proportion of men than women in senior roles, about how particular occupations have a predominantly male or female workforce, and about other factors, wholly, partially or not at all within the control of an individual employer.

So would it make sense to publish gender pay gap figures for different levels of seniority or within different functional areas of a business? Possibly; but defining those groupings in such a way as to make sense and to be applicable to all employers could understandably prove beyond the abilities of those drafting the Regulations. And while it would be possible to break down the data by the age of employees, or perhaps tenure in role, this might not be terribly helpful or informative.

What elements of pay will be included in the calculation?

Second, we do not yet know what elements of pay will be included in the calculation of the gender pay gap. Basic pay, obviously. But what else? It would certainly make sense to include location allowances such as London weighting and shift payments, since these form part of someone's core pay. But individual and collective, company or team-level performance-related elements such as bonus and commission payments need to be reported separately in the gender bonus gap reporting.

That leaves some grey areas: including overtime payments might add something of interest to the analysis, for example, but could also lead to some very erratic results. As for the long-term incentive plans offered to directors, coming up with ways to compare these on a standard basis is a nightmare in itself without overlaying differential reporting requirements. Maybe that is one for phase two.

How will full-time and part-time hours be dealt with in the calculation?

Third, there needs to be a clear and consistent way to calculate pay that accommodates full- and part-time employees and that can cope with different definitions of "full time", which might vary from 35 to 40 hours a week. Here the Office for National Statistics has an established methodology for working out what pay specialists call a derived hourly rate, the rate per hour regardless of the number of hours contracted or worked. Employers will need the method of calculation to be clearly spelled out.

This then means that the pay of men and women in very different roles can be compared on a like-for-like basis, simply by taking the median hourly rate for men and the median hourly rate for women, or by calculating a mean average. As to which of these is appropriate, there really is no right or wrong answer: in producing salary surveys, XpertHR normally advises employers to take note of the median rather than the mean as the median tends to exclude outliers. For these purposes, however, it may be the outliers who contribute most to the gender pay gap.

Where and when will publication be required?

Fourth, we do not yet know where and when employers will be expected to publish their gender pay gap figures. While it is possible that the Regulations could mandate a separate report, the obvious solution will be to insist that the figures are published in the organisation's annual report, which would at least fulfil the obligation for employers to make the data publicly available, even if it then tends to get lost among all the other interesting detail around profit levels and executive pay.

If this is the solution, it narrows down options on the question of when publication will be required. No matter what happens, it is unlikely that Regulations introduced in March 2016 will insist on publication of a pay gap figure by April 2016. More likely, they will mandate employers to include their figure in the next available annual report.

Will employers be required to explain the gap?

Finally, and perhaps most significantly, we do not know whether or not the Regulations will require employers to provide commentary on what is otherwise a singularly uninformative figure. Making it compulsory to explain the gender pay gap could prove difficult. Some employers will have a reasonable story to tell: their gender pay gap may be smaller than is typical in their industry or among employers more generally; they may be implementing programmes to ensure that the gap can be closed; or they may simply wish to acknowledge that they are aware that they have a problem and reassure anyone interested that they are planning to do something about it.

But what of those employers that have no wish to say more. Is it possible to use Regulations to force employers to give a reasoned explanation that is not formulaic, opaque or downright unhelpful? What is there to prevent employers explaining the existence of the most extreme gender pay gap with the simple phrase "life sucks"? Come the new year we will find out.

perspective@xperthr.co.uk