The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 introduced an obligation for larger employers to report on salaries and pay and the differences in pay between men and women. The key points;

  • Reporting requirements will apply to each separate legal entity (i.e. the employer) with at least 250 employees within a group structure
  • The legislation focuses on employers with 250 or more employees delivering a report on the 5th April of a given year- you must use your actual headcount – FTE and length of service of employees does not matter.
  • The Equality Act 2010 makes it unlawful to prevent employees from having discussions to establish if there are differences in pay. However, an employer can require their employees to keep pay rates confidential from people outside of the workplace.
  • If an employer argues that ‘they cannot afford to pay’, this will not be a sufficient defence if discrimination on the grounds of sex is the reason for the differences in pay rates.
  • Also to claim that women are paid less than men because they are ‘prepared to work for less’ is not a defence.

The Business Case for Equal Pay:

Some of the barriers to gender equality and diversity include lack of opportunity to balance work with personal responsibilities, occupational segregation, gender bias and the gender pay gap.

If employers do not give women and men ‘equal pay for equal work’ then they run the risk of equal pay tribunal claims.  Furthermore, it can result in failing to attract the best candidates and retaining staff.

It makes good business sense to treat women and men equally.

If you understand the barriers to equality and diversity you are more likely to eradicate the inequality and improve diversity.

As an employer you are under a legal obligation to provide equal pay.

In the Britain, there is an overall gender pay gap of 19%. This shows that a woman, on average, earns around 80p for every £1 earned by a man.

How to conduct an Equal Pay Audit:

  1. Gather information

The first step of an equal pay audit is for the employer to assemble information about the organisation’s roles and pay arrangements. The employer could instruct an equal pay consultant to assist with the audit, and should involve managers and trade union or employee representatives.

The Equality and Human Rights Commission provides an equal pay review audit toolkit for employers.

Close the Gap is a Scottish partnership project looking at and working on women’s participation in the labour market.  This site has some useful information for employers.  www.closethegap.org.uk

 

  1. Determine which jobs are equal

Like work

Work that involves similar tasks requiring similar skills, and where any differences in the work are not of practical importance.

Job titles are the most common indicator of like work, but they can also be misleading. You need to review the job titles in your system early in your audit to ensure that the same, or very similar, titles really do indicate like work.

 

Work of equal value

Work of equal value is work which is not the same and is not rated as equivalent, but is of equal value in terms of factors such as effort, skill and decision-making.

Jobs that may be entirely different in content might be considered work of equal value when the demands made on the employees doing them are assessed. Do not assume that different types of jobs cannot be of equal value.

Applying a fair analytical job evaluation is the most reliable way of assessing whether jobs are of equal value.

If not using analytical job evaluation, you need to find an alternative means of checking whether employees are doing work of equal value.

 

Work rated as equivalent (under a job evaluation study)

Work rated as equivalent is work that has been rated under a fair job evaluation scheme as being of equal value in terms of how demanding it is.

Please note: grading that is not based on analytical, gender neutral job evaluation will not provide you with an effective defence against equal pay claims.

 

  1. Identify pay gaps

Once the employer has determined which jobs are equal, it should calculate whether or not there are gaps in pay for equal work.

 

  1. Determine the causes of pay gaps

If an equal pay audit reveals that the organisation is not giving ‘equal pay for equal work’, it should determine whether or not this is due to sex.

 

Can you argue that it is due to another reason – the ‘material factor defence’?

Possible material factor defence arguments include:

  • market forces, recruitment and retention factors, where the additional pay was made in response to demonstrably higher market rates than the normal grade rate. (you would need clear evidence of this, that the comparison is appropriate and the market information is not influenced by discriminatory factors e.g. job segregation)
  • differences in individual performance (you would need clear factual evidence of how this has been assessed)
  • differences in experience (you need to be extremely careful with this one and be able to argue that the difference in pay reflects differences in competence, performance or output)
  • differences in collective bargaining arrangements.

 

For something to be considered a ‘material defence’ – it has to be significant and relevant. It has to be the real reason for the difference and not a sham/pretence. It has to be the ‘cause’ of the difference in pay between the woman and her comparator.

For something to be considered a material defence the material factor must not be directly discriminatory and if it is indirectly discriminatory, the difference in terms must be justified.  (objective justification)

 

Indirect discrimination is where a pay system, pay policy or other policy, or a certain arrangement has a disproportionate adverse impact on women compared to their male comparators. If you cannot objectively justify it then it will not hold as a defence.

  1. Develop an equal pay Action Plan

If you discover ‘unequal pay for equal work’ what do you do?

Plan towards providing equal pay:

  • Introduce Equal Pay Policy
  • Train managers to make decisions that do not discriminate on basis of gender
  • Introduce initiatives to minimise occupational sex segregation
  • Monitor pay on a regular basis
  • Look at your processes – how do you determine your pay structure? How do you determine pay increases?

 

Understand that this is not a one off process. Implementing equal pay must be an ongoing business objective and kept under review.

Although the regulations will not require the publication of action plans, the non-statutory guidance will encourage employers to do so voluntarily where appropriate.

 

Moving Forward in preparation for pay gap reporting:

  1. Identify ‘relevant’ employees

Regulations apply to employees within the meaning of section 83 of the Equality Act 2010:

  • Any employees as per the Act who are paid during the reference period would be included: employment under a contract of employment, a contract of apprenticeship or a contract personally to do work. Therefore zero-hours contractors, apprentices and some consultants would be included.
  • Those who are not based in Great Britain but are still regarded as being employees of employers within scope could still be covered because of a strong connection with Great Britain.
  • Self-employed people (those who are not employees for the purposes of the Equality Act 2010) should not be included in the overall gender pay gap calculations (someone who does not have a contract of employment or a contract to personally do work with the employer)
  • Partners in a firm, including LLP members, are not included
  • Agency workers will be taken into account by the employer with whom they have the contract of employment or a contract personally to do work (generally their agency)

Note – employer is not required to include data relating to a relevant employee if:

  1. Person is employed under a contract personally to do work, and
  2. The employer does not have, and it is not reasonably practicable for the employer to obtain the data

So some self-employed workers may be part of the 250 employees but actual data may not be included if it is not ‘reasonably practicable’ to obtain this information

 

 

  1. Identify the pay period
  • Period when the employer pays the ‘relevant employee’ basic pay, whether weekly, monthly etc
  • If not paid basic pay then look at the period the employer most frequently pays the employee one of the elements of ordinary pay as defined below

3. Identify the ‘relevant pay period’

  • Means the pay period within which the ‘snapshot date’ falls (snapshot date is the 5th of April each year)

 

 

  1. Identify the ‘full-pay relevant’ employees
  • When looking at mean and median hourly rate of pay differences the Gender Pay Gap calculations will cover only those employees receiving their full pay during the specified pay period.
  • The bonus pay gaps look at relevant employees not just full-pay relevant employees
  • Consider who is a ‘full-pay relevant employee’ – this means someone who is not, during the relevant pay period, being paid at a reduced rate or nil as a result of the employee being on leave (so part time staff are classed as ‘full-pay relevant employees’ as long as they are earning their usual/full pay during the relevant pay period). Therefore staff receiving their full pay during parental or sick leave should be included in the mean and median hourly rate of pay differences but someone receiving less than their full pay should not be included.

 

  1. Identify working hours in a week
  • Normal / usual working hours per week
  • If no normal / usual working hours then average working hours per week using 12 week period ending with the last complete week of the relevant pay period. If no work done then ignore that week and go back a further week(s) to get your 12 weeks to take average from
  • If person has not been employed long enough to have 12 week period then use a ‘number which fairly represents the number of working hours in a week’ e.g. contracted hours or average hours of other staff in same job

 

  1. Then divide into 2 categories (male and female)

 

  1. Define ‘ordinary’ pay
  • “Ordinary Pay” includes basic pay, paid leave, maternity pay, sick pay, area / geography allowances, shift premium pay, shift allowances, and other pay (including car allowances paid through the payroll, on call and standby allowances, first aider or fire warden allowances).  Includes all allowances paid in money that have been earned in the pay period as part of the employee’s job
  • It does not include overtime pay, expenses, the value of salary sacrifice schemes, benefits in kind e.g. company cars, redundancy pay, other types of severance and termination pay, pay in lieu of leave, arrears of pay and tax credits, and pay for a different period

 

(If a company feels that their reporting results are skewed because of the greater take up of salary sacrifice schemes by one sex more than the other then this can be explained in the narrative summary. Similarly if a company feels that female employees’ earning potential is being depressed because they need to or opt to work family friendly hours and don’t therefore earn shift allowances/shift premium pay this can be highlighted in the narrative summary)

 

Pay is to be calculated before deductions for PAYE, national insurance, pension schemes, student loan repayments, compulsory deductions e.g. court-imposed payments.

Above to be in line with national gender pay gap figures, definition of pay is consistent with that used by the Office of National Statistics (ONS) for the Annual Survey of Hours and Earnings (ASHE). 

 

  1. Define bonus pay
  • “Bonus pay” is any remuneration that:
    • is in the form of money, vouchers, securities, securities options, or interests in securities – Remuneration in these forms is to be treated as paid to the employee at the time, and in the amount in respect of which, they give rise to taxable earnings or income as per the meaning of taxable earnings or income within ITEPA 2003 – Income Tax (Earnings and Pensions) Act
    • relates to profit sharing, productivity, performance, incentive or commission
  • Bonus pay does not include – ordinary pay, overtime pay, remuneration in relation to redundancy or termination of employment

 

  • It does not matter if the bonus is contractual or discretionary

 

  • For bonus pay gap info: The bonus information must be based on the preceding 12-month period, beginning with the 12 months leading up to 5th April (leading up to 5th April 2017 for the first set of figures to be published).

 

  • Gender pay gap calculations and earning quartiles are all based on headcount rather than FTE (full-time equivalent). If a gender bonus gap has been skewed where a percentage bonus has been paid to full-time and part-time employees, the employer may want to highlight that in their narrative summary.

 

  1. Define Hourly Rate of Pay
  • Have your relevant pay period
  • For each person identify all amounts of ordinary pay and bonus pay paid during the relevant pay period
  • Don’t include any ordinary pay that would normally fall to be paid in a different pay period
  • For bonus pay paid during the relevant pay period – if this bonus is not just for that pay period then divide the amount by the length of the bonus period** and multiply it by the length of the relevant pay period** (basically pro rating the bonus paid if necessary)
  • Add the ordinary pay and (pro rata) bonus pay together
  • Multiply this amount by 7
  • Divide this amount by number of days in relevant pay period
  • Divide that amount by the number of working hours in a week for that person

 

** year is treated as having 365.25 days and month treated as having 30.44 days

 

  1. Create Salary Quartiles

Basis of this is to be able to look at the proportion of male and female full-pay relevant employees in the lower, lower middle, upper middle and upper quartile pay bands.

 

The objective is to identify the numbers of women and men in each quarter by the overall pay distribution.

 

This will help employers consider where women are concentrated in terms of their remuneration and if there are any blockages to their progression.

 

 

 

Six Areas that need to be reported on

  1. Difference in mean hourly rate of pay

“Mean” = means the sum of all the values in a list divided by the number of values

(Average calculation)

Reflecting the full earnings distribution, the mean can be useful because women are often over-represented at the low earning extreme and men overrepresented at the high earning extreme.

  • Have your full-pay relevant employees – only include these in this calculation
  • Use the hourly rate of pay you have defined for each person
  • Work out male average (mean) rate of pay and female average (mean) rate of pay

What to publish

  • The difference between mean hourly rate of pay for males and that of females must be expressed as a % of the mean hourly rate of pay of male employees during the relevant pay period:

(A minus B)     x 100

                                                                   A

  • A is the mean hourly rate of pay of all male full-pay relevant employees
  • B is the mean hourly rate of pay of all female full-pay relevant employees

 

  1. Difference in median hourly rate of pay

“Median” = means the middle value in a list where the values are listed in numerical order, from lowest to highest

(Point at which half earn more and half earn less)

By identifying the wage of the middle earner, the median is the best representation of the ‘typical’ difference as it is unaffected by a small number of very high earners.

  • Have your full-pay relevant employees – only include these in this calculation
  • Use the hourly rate of pay you have defined for each person
  • Work out median rate of pay for males and median rate of pay for females

 

What to publish

  • The difference between the median hourly rate of pay of male employees and that of female employees must be expressed as a % of the median pay of male employees during the relevant pay period:

(A minus B)   x 100    

                                                                    A

  • A is the median hourly rate of pay of all male full-pay relevant employees
  • B is the median hourly rate of pay of all female full-pay relevant employees

 

  1. Difference in mean bonus pay
  • The relevant period for this calculation is the period of 12 months ending with the snapshot date (so for the very first calculation this will be the 12 month period leading up to 5th April 2017)
  • This calculation is applicable to relevant employees – so anyone employed on the snapshot date – 5th April each year (this calculation is not limited to full-pay relevant employees)
  • work out average (mean) bonus pay for males and average (mean) bonus pay for females

What to publish

The difference between the mean bonus pay paid to males and that paid to females must be expressed as a % of the mean bonus pay paid to males:

(A minus B)   x 100    

                                                                    A

  • A is the mean bonus pay paid during the relevant period to male relevant employees who were paid bonus pay during that period
  • B is the mean bonus pay paid during the relevant period to female relevant employees who were paid bonus pay during that period

 

  1. Difference in median bonus pay
  • The relevant period for this calculation is the period of 12 months ending with the snapshot date (so for the very first calculation this will be the 12 month period leading up to 5th April 2017)
  • This calculation is applicable to relevant employees – so anyone employed on the snapshot date – 5th April each year (this calculation is not limited to full-pay relevant employees)
  • Work out median bonus pay for males and median bonus pay for females

 

 

What to publish

The difference between the median bonus pay paid to males and that paid to females must be expressed as a % of the median bonus pay paid to males:

(A minus B)   x 100    

                                                                    A

  • A is the median bonus pay paid during the relevant period to male relevant employees who were paid bonus pay during that period
  • B is the median bonus pay paid during the relevant period to female relevant employees who were paid bonus pay during that period

 

  1. Numbers of men and women who received bonuses

% of men who received a bonus and % of women who received a bonus

  • Relevant employees (this calculation is not limited to full-pay relevant employees)
  • Relevant period is the period of 12 months ending with the snapshot date (5th April)
  • Again only need to capture the data of those employees who are employed on the relevant date (5th April)

 

  • Proportion of males who were paid a bonus as a % of the males overall (male relevant employees)
  • Proportion of females who were paid a bonus as a % of females overall (female relevant employees)

 

  1. Salary Quartiles
  • Only full-pay relevant employees included in this calculation
  • Use the hourly rate of pay you have defined
  • Rank hourly rates of pay low to high
  • Find median point in the ranking and this will help you create lower, lower middle, upper middle and upper quartiles
  • Where employees receiving the same hourly rate of pay fall within more than one quartile pay band you must as much as you can ensure that equal proportions of males and females on that specific pay rate are in each of those pay bands (e.g. don’t just put the woman all into the higher band)
  • Then express proportion of males and proportion of females in each quartile band as a % of the total numbers in each quartile band

 

Contact Solve today for more help with Gender pay gap reporting.