Closing the gap – is gender pay reporting the way forward?

United Kingdom
After much speculation, the Government published Draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2016 (the Draft Regulations) in February 2016. The Draft Regulations provide that, by April 2018, private and public sector organisations with more than 250 employees must publish their gender pay gap figure for pay and bonuses. When one considers that only 34% of employers will be in scope, this leaves a lot of workplaces facing no scrutiny at all.

Even for those employers who are in scope, one of the most notable features of the Draft Regulations is that they merely impose to publish. It is not a duty to take any action to deal with any pay gap or, indeed, to provide any narrative or explanation for any such gap that appears to exist. Further, there is no enforcement mechanism for employers who do not comply. While the aim is to produce league tables of employers to provide a comparative analysis of figures, the question remains: “will the Draft Regulations live up to expectations, and achieve the stated aim of reducing the gender pay gap?”

In this update we explore some constructive criticisms that remain regarding the wording of the Draft Regulations, and the reality of closing the gap.

Definition of Pay

Pay is defined within the Draft Regulations in broad terms and rather surprisingly includes maternity pay. The Government has advised that the definition reflects that used by the Office of National Statistics, but there is a genuine concern that the inclusion of maternity pay could lead to an artificial inflation of the gender pay gap. A woman may, obviously, have a high basic salary but be in receipt of statutory maternity pay (currently below National Minimum Wage rates at £139.18 a week) at the time the data is captured. There has also been some criticism that the current definition of pay does not include other types of family leave-related pay (e.g. paternity pay). The Government has since confirmed that the intention is that such pay should be included and the Draft Regulations will be amended to reflect this.

Bonuses

Another potential issue with the Draft Regulations relates to the calculation of bonuses. Unlike pay, which is based on an employee’s hourly rate, the bonus calculation does not take into account whether an employee works part-time or full-time. Given that more women than men work part-time, this could serve to distort the overall figures. One way of preventing such a distortion would be to calculate bonus payments on a full-time equivalent basis or on a percentage of overall salary.

Failure to include part time work

There is, of course, an argument that the fact that more women work part-time than men is an important contributory factor to the gender pay gap and should not therefore be ignored. This is a legitimate point, but the problem is that Draft Regulations do not adequately address it. For example, there is no requirement for employers to compare the pay of part-time and full-time employees, or to disclose the number of men and women working part-time. The publication of these figures would be much more telling than the inclusion of a bonus figure which disregards the number of hours that an employee works.

The intention of the Draft Regulations is to help employers understand if they have a gender pay gap. However, as drafted, there is a risk that the Draft Regulations will in fact create a misleading picture of the gender pay gap within organisations.

Lack of positive action

In any event, it will take positive action on the part of employers, and not just the publication of some figures, to reduce the gender pay gap. It is, therefore, somewhat surprising that the Draft Regulations do not require employers to take any positive steps to reduce any gap. This is in contrast to the gender reporting requirements of other countries such as France, Sweden, Belgium and Finland, which all require large employers to prepare an action plan to tackle any gap.

While the Government has said that it would encourage employers to provide a narrative to explain the figure, there is no obligation on an employer to do so. If an employer considers that its figure is broadly along the lines of national average, and feels confident about its approach to diversity generally, then it may well choose to do nothing. A significant emphasis is placed on public opinion and reputational damage holding organisations to account. That may be optimistic: there is certainly significant interest in this issue now. Will that necessarily be the case in, say, 5 years’ time.

Government steps

The Government has at least recognised that it will take more than the publication duty to end the gender pay gap.

While employers obviously have a part to play, ultimately many of the factors which contribute to a gender pay gap are cultural, and will require a wider range of state interventions before we see a tangible difference.

As the latest report from the Women and Equality Committee of the House of Commons makes clear, tackling the pay gap will involve a range of government action to reduce the motherhood penalty and create a society where unpaid caring is shared on an equal basis. This involves encouraging the take up of shared parental leave, embracing flexible working and support caring responsibilities.

Work also needs to take place to encourage young women to study STEM subjects within higher education where low participation at entry level remains an issue. The Committee also called upon the government to produce a strategy to tackle the over representation of women in low paid jobs such as cleaning and caring.

Conclusion

The Draft Regulations, at best, perhaps mark the start of a long cultural, social and legislative journey. It is, of course, open for employers to go further than their basic legal obligations and to ‘get ahead of the curve’. Even those that seek to do so may well find that the extent to which solutions are within their gift is limited. That is not, however, to decry the commercial benefits that may well flow from taking a proactive lead.