- When do the gender pay reporting regulations (“Regulations”) come into force?
Originally it was expected the Regulations would come into force in October 2016, however in July 2016, the Government Equalities Office confirmed that this timescale had slipped. It is envisaged that the Regulations will be laid before Parliament shortly and will commence on 6 April 2017. We will of course keep you updated in relation to this via our employment news monthly update.
Regardless of the exact date that the Regulations come into force, once they are in force, the relevant date for each year will be 5 April. According to the current draft Regulations, the first relevant 5 April will be 5 April 2017. It is important to not though, that if the Regulations apply to a company then it will have a year to report the data from the relevant date.
Example: If the Regulations come into force on 6 April 2017 (as planned) and on 5 April 2017 a company has 250 or more relevant employees (discussed below) it will need to comply with the Regulations. A company will need to complete a report (discussed below) and publish it by 4 April 2018.
As the Regulations are not yet in force and are still in draft form it is possible changes could be made to them before they come into force. Therefore the advice in this guidance note is based on the draft Regulations published on 6 December 2016 and may need to be amended in due course. We will of course keep you updated of any changes to this advice.
The Regulations above do not apply to public bodies. However the government has published “The Equality Act 2010 (Specific Duties and Public Authorities) Regulations 2017.
These regulations extend the duty to publish annual gender pay gap reports to public sector employers with over 250 employees (discussed below). The public sector duty takes effect as part of the existing public-sector equality duty, rather than as a standalone requirement
The important difference is that the relevant date for public companies is the 31 March rather than the 5 April as mentioned above. Public Companies will therefore have until 30 March to comply with the regulations.
The below guidance is based on the draft Regulations for private companies, although the same principles apply to public companies the detail may differ and further advice should be sought.
- Will the new regulations apply to your company?
The reporting requirements will apply each year to companies who on the 5 April have 250 or more employees (a ‘relevant employer‘).
Although it is important to note that the data collected (discussed below) will only be in relation to relevant employees. A relevant employee is defined as an employee who ‘Is employed by the relevant employer on the relevant date.’
The explanatory notes attached to the draft legislation state that for the purposes of the Regulations, ’employment’ is defined in section 83 of the Equality Act 2010 and includes:
employment under a contract of employment;
a contract of apprenticeship; and
a contract personally to do work.
Therefore it is likely that workers (including workers engaged under zero hour contracts) and some self-employed contractors (those who are obliged to carry out the work personally) will be included under the definition of a relevant employee.
Agency workers working for the relevant employer would arguably not fall within this definition if they are not being actually employed by the relevant employer directly. In addition LLP members are specifically excluded from the definition of a relevant employee by the draft Regulations.
In recognition of the difficulty in compiling information for individuals who are self-employed contractors, under contracts where it is a condition they do the work personally, the draft Regulations state that information does not need to be reported where the employer does not have, and it is not reasonably practicable for the employer to obtain, the data.
It is important to note that when calculating the amount of employees a company has, the draft Regulations state companies do not need to include employees in sister companies or associated companies. The draft Regulations apply to individual limited companies separately, not the group company as a whole.
When will a company need to publish their information?
A company must publish this information annually; it will have a year to collate the information.
Example private companies: Data is collated on 5 April 2017; a company must publish the report by 4 April 2018.?
Example public companies: Data is collated on 31 March 2017; a company must publish the report by 30 March 2018.
Where will a company need to publish the information?
A company will need to publish the information by uploading it onto a specific government website and onto their own ‘searchable website’. We are inferring from this term that this means a website that is searchable by the public and employees, and that an internal intranet would not suffice.
The information needs to be kept on the ‘searchable website’ for 3 years; this will allow comparisons to be made.
The information must be signed by a director or business owner.
How should a company publish this information?
The government have said that they plan to publish league tables (for the best and worst employers!), therefore it is unlikely that any company is only going to publish the statistics e.g. in a table. It is more than likely that companies will want to publish the information in an informed way, a way that tells a fuller picture.
- What will a company need to do to comply with the Regulations?
If the Regulations apply to a company, it will need to publish 6 pieces of information in relation to pay (discussed below) from a specific pay period (also discussed below). It is important to note that these pieces of information need to be from the data collected as a whole, not split down into departments or sectors.
A company will not be obliged to publish any information about job roles or what, if any, action it is going to take following the publication of the data, although this may be beneficial (discussed below).
Before explaining the 6 pieces of information a company will need to publish, it is important to understand what is meant by ‘pay’.
What does the term ‘pay’ mean?
The definition of pay is split into two for the purposes of the draft Regulations. These definitions are important as they are required in order to be able to establish the ‘hourly rate of pay (discussed below).’ The draft Regulations provide a definition for bonuses (‘bonus pay‘) and other type of relevant pay (‘ordinary pay‘).
Ordinary pay will be calculated using gross figures and is defined to include most types of remuneration paid through the payroll and therefore will include (but is not limited to):
Pay for piecework (i.e. pay for project based work);
Shift premiums/ on call allowances / standby allowances; and
Other allowances paid through the payroll e.g. car allowances / clothing allowances etc.
The definition of pay does not include:
Benefits in Kind;
Value of salary sacrifice schemes;
Any type of overtime;
Arrears of pay; or
Bonus pay is defined as remuneration that:
Is in the form of money, securities, vouchers, securities options, or interests in securities (these are to be treated as paid to the employee at the time); and
Relates to profit sharing, productivity, performance, incentive or commission.
The definition of bonus pay does not include:
Remuneration referable to overtime; or
Remuneration referable to redundancy or termination of employment.
The explanatory notes to the Regulations state that ordinary pay and bonus pay are to be calculated gross.
What does ‘hourly rate of pay’ mean?
As you read the remainder of this guidance note you will see that ‘hourly rate of pay’ is referred to. This needs to be calculated in order for a company to be able to calculate some of the 6 pieces of information it needs to publish.
In order to calculate the hourly rate of pay, the ‘pay period’ and ‘relevant pay period’ first need to be established.
The ‘pay period’ means the period that the employer pays the employee. For example for employees that are paid monthly this will be one month and for weekly paid staff this will be one week.
The ‘relevant pay period‘ means the period within which the relevant date falls. Therefore for employees paid weekly, the relevant pay period will be the week within which the relevant date falls each year.
The hourly rate of pay is then calculated by following a series of steps set out in draft Regulations 6 and 7.
What are the 6 pieces of information a company must publish?
- The difference in mean hourly rate of pay of all full-pay employees
This is likely to be the most recognised figure published and is likely to be referred to as the headline gender pay gap figure.
This can be calculated using the following formula:
(A-B) x 100
A: is the mean gross hourly rate of pay of all male full-pay relevant employees employed by the relevant employer on the relevant date.
B: is the mean gross hourly rate of pay of all full-pay female relevant employees employed by the relevant employer on the relevant date.
The mean is calculated by adding the gross hourly rate of everyone in that category (i.e. all men or all women) and then dividing the total by the amount of people in that category
Example: If men earned ¬£10 an hour and women earned ¬£8 an hour the calculation would be (10-8) / 10 x 100 = 20. The figure that would be published is 20%.
Please note: in this calculation only ‘full-pay’ relevant employees need to be included. This means that those employees whose pay has been reduced due to:
maternity, paternity, adoption, parental or shared parental leave;
sick leave; and
during the relevant pay period will not be included for the purposes of the calculation. If however employees whilst on leave are on full pay they will still need to be included.
- The difference in median hourly rate of pay of all full-pay employees
This can be calculated using the following formula:
(C-D) x 100
C: is the median gross hourly rate of pay of all male full-pay relevant employees employed by the relevant employer on the relevant date.
D: is the median gross hourly rate of pay of all female full-pay relevant employees employed by the relevant employer on the relevant date.
The median is calculated by listing in order all the rates of pay in that category (i.e. men or women) and then choosing the middle figure. I.e. if there were 100 men, the rates of pay would appear in order lowest to highest and then the median figure would be the rate of pay of man number 50.
Example: If the median pay of men was ¬£20 and the median pay of women was ¬£15 the calculation would be (20-15) / 20 x 100 = 25. The figure that would be published is 25%.
Please note: this calculation only includes full-pay relevant employees as discussed above.
- The difference in mean bonus pay
This includes all payments received and earned in relation to all types of bonuses e.g. commission, long term incentives, cash equivalent of shares.
It is important to note that instead of using the relevant pay period as discussed above the calculation is done over a year period (relevant period)
The difference is the average during a 12 month period up to the 5 April each year. Therefore employers should be aware that the first relevant 5 April is 5 April 2017, therefore these figures will be taken from 5 April 2016 , 5 April 2017. (Note: For public companies the relevant period will be different)
The 2 figures would be shown as a % of each other and would be calculated the same way to that of ‘the difference in mean hourly rate of pay of all full-pay employees’ explained at point 1 by using the following definitions.
A: is mean bonus pay during the relevant period of all male relevant employees who were paid bonus pay during that period.
B: is the mean bonus pay during the relevant period of all female relevant employees who were paid bonus pay during that period.
- The difference in median bonus pay
This will be calculated in the same way as the difference in mean bonus above, as explained at point 3 by using the following definitions:
A: is median bonus pay during the relevant period of all male relevant employees who were paid bonus pay during that period.
B: is the median bonus pay during the relevant period of all female relevant employees who were paid bonus pay during that period.
5.The Proportion of men and women who receive bonuses.
Two figures will be published under this heading.
The % of men who received bonuses during the relevant period.
The % of women who received bonuses during the relevant period.
This percentage will be calculated as follows:
A x 100
A: is the number of male relevant employees who were paid bonus pay during the relevant period
B: is the number of male relevant employees.
The same calculation will be completed for female employees.
- The gender pay split breakdown between quartile pay bands
For this calculation a company will need to work out what its range of pay is between full-pay employees. The full-pay employees should then be ranked from lowest paid to highest paid. This range then needs to be divided into 4 categories/bands, whereby each band has the same amount of employees in it. Where a number of employees receive the same rate of pay and therefore fall within more than one pay band a company must as far as possible ensure that the relative proportion of men and women is the same for each pay band.
A company would need to publish how many males and how many females are in each quartile pay band. The draft Regulations are unclear but it is unlikely a company would have to publish the actual range of each pay band, it could simply publish ‘pay band A’.
Example: There are 400 full-pay employees whose gross hourly pay ranges from ¬£7 an hour to ¬£63 per hour. The quartiles are calculated by placing the employer’s various gross hourly rates of pay in ascending order and then dividing the list into four equal segments, each containing 100 employees.
Pay range (hourly rate)
Number of men
Number of women
Pay band A
¬£7.00 to ¬£7.99
Pay band B
¬£7.99 to ¬£9.99
Pay band C
¬£9.99 to ¬£17.99
Pay band D
¬£17.99 to ¬£63.00
The proportion of male full-pay employees within each quartile pay band must then be expressed as a percentage of the full-pay relevant employees within that band as follows:
A x 100
A: is the number of male full-pay relevant employees in a quartile band
B: is the number of full-pay relevant employees in that quartile band.
The same calculation will be completed for female employees.
If you have any questions in relation to the content of this article or would like any advice on your obligations under these new regulations or how you can start planning for reporting this data then please do not hesitate to contact Katherine Maxwell.