But what should HR professionals be doing now to prepare for this new duty?
HR practitioners will be mulling over the draft Equality Act (gender pay gap information) Regulations 2016 published recently by the government Equalities Office. The consultation that accompanies them closes on 11 March but it’s unlikely the regulations will change substantially in form or content.
Somewhat surprisingly, the government has chosen not to include enforcement measures or sanctions in the regulations, apparently relying on the obligation on employers to publish a report on their gender pay gap, and the potential reputational embarrassment that could follow, to ensure compliance.
Regulations implementing the change will be in force from 1 October 2016. The first reports will need to be published before 30 April 2018 on the pay gap identified at 30 April 2017 and companies need to report annually after that. With this in mind, HR professionals should be prepared to explain the reporting approach to senior management in advance of the 30 April 2017 ‘snapshot’ date.
Depending on the importance placed on diversity within their organisation, HR professionals may find themselves having to explain to senior management why compliance is appropriate, given the resources and time that will need to be spent collating data and reporting on it, and the possible downsides of revealing a gender pay gap. They should ensure they are able to articulate the benefits of reporting – perhaps by referring to other organisations in their sector – and the effect on their corporate diversity strategy, recruitment and retention if they fail to do so. They will also need to explain what steps are needed to address the gap. This may involve taking a close look at the corporate structure and employment contracts.
The regulations apply to employers with 250 or more employees. Large group organisations may find they are not subject to the regulations as there is currently no obligation to aggregate employees in individual subsidiary or service companies. The reporting requirement only relates to individual employers.
The government has promised detailed guidance on how companies within corporate structures should report. Depending on the feedback to the consultation, and clarification in the guidance, it is possible that the situation will change, and that aggregation will be required. This could make reporting more onerous. If, however, the obligation does not change, HR and their PR colleagues need to be able to explain why their seemingly large corporate organisation does not have to report.
Currently the definition of ‘employee’ in the regulations does not include ‘workers’. However, on 22 February the Equalities Office confirmed that the wider legal definition of ‘employee’ will apply, thereby increasing the number of employees affected, the workload for HR in reporting and, depending on workers’ rates of pay, the risk of a larger pay gap.
To report on the difference in mean and median pay, employers need to calculate the average hourly rate for each employee during the pay period ending on 30 April 2017. The definition of pay includes maternity pay (and presumably other forms of family pay) and bonuses. It is not clear why the government is taking this ‘snapshot’ approach, since a woman may have a high contractual salary but still only receive statutory maternity pay. Equally, the timing of a bonus payment will make all the difference to an individual’s average hourly rate of pay. So these two factors alone have the potential to skew the figures significantly, and increase the gender pay gap – but it will only demonstrate a quirk of timing rather than anything more sinister. Given these anomalies, HR may wish to consider reporting contractual salaries and think about how to time bonus payments. For example, simply moving the payment date to May rather than April will make a difference.
Employers should use the lead time running up to April 2017 to ensure that, as far as possible, their systems can provide the data they need. Once the regulations are finalised, they could start capturing and recording payments that are within the definition of ‘pay’ for each employee.
Systems can only help identify a pay gap – they cannot rectify it. It will be down to those responsible for diversity and inclusion in an organisation to use their skills and experience to formulate the necessary strategies for dealing with the issue in the longer term.
Marian Bloodworth is a partner in the employment team at Kemp Little
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