With the reporting deadline looming, companies should take charge of the story around their gender pay gap
For the first time in the UK, private sector employers will be required to publish gender pay reports. But despite the 4 April deadline approaching fast, at the time of going to press, only around 1,000 companies of the estimated 9,000 required to report had published their figures.
All remaining companies should be considering how they can not only comply with the new reporting obligations but embrace this chance to express good corporate accountability.
Reporting on the gap
The duty to report comes from the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017. All UK companies with at least 250 'relevant' employees on the 5 April 2017 – and on the same date each year after that – have to publish data on their gender pay gap by 4 April 2018.
The figures are based on hourly pay rates as at 5 April 2017 and bonuses paid between 6 April 2016 and 5 April 2017. In a group structure, each legal entity will need to be treated separately and report its data.
A 'relevant' employee has a broad definition in line with the Equality Act 2010 and includes apprentices, some self-employed people and those on zero-hours contracts.
Companies will also need to consider arrangements with contractors to determine whether they will also fall within the definition for reporting purposes.
Employers must publish data in relation to six categories:
- The difference between the mean hourly rate of pay for male and female employees
- The difference between the median hourly rate of pay for male and female employees
- The difference between the mean bonus paid to male and female employees
- The difference between the median bonus paid to male and female employees
- The proportion of male and female employees who were paid a bonus in the previous 12-month period
- The proportion of male and female employees in four notional pay bands (lower, lower middle, upper middle, upper).
Importance of context
The regulations provide detailed instructions on how companies should calculate these figures. Although at the time of writing the number of companies that have published data is low, this cannot be explained by the lack of guidance available to companies.
ACAS, the Government Equalities Office and the Chartered Institute of Personnel and Development have all issued detailed guidance on complying with the new reporting obligations.
Rather, this may be partly explained by the concern many companies have about the possibility for figures to be skewed, or reflect an overly negative picture of its gender pay gap without context. For instance, the gender pay gap and equal pay will all too often be confused as the same problem.
The case of Aviva is a good example of this. When Aviva reported that its gender pay gap was 28.5% – higher than the national average of 17% – and bonus pay gap was 57.2%, the prescriptive way in which the regulations require figures to be reported presented a bad picture.
Aviva said the pay differential across its 16,000 employees in the UK could be explained by the fact that a higher proportion of women were employed in junior positions and the staffing sales and distribution roles, which typically attracted higher bonus opportunities, were filled largely by men.
Although this poses other questions – such as how more can be done to shift the gender imbalance in senior roles – pay gap figures without clear context may be misconstrued as a lack of commitment to equal pay.
The reality is that pay gaps are not influenced by gender alone: it is also affected by age, part-time work and how long people have been in their roles.
It is with this in mind that companies should take the opportunity when publishing their reports to set the story. It is important that the figures are put into context and companies set out the factors that may have distorted figures.
It is also an opportunity, where a significant gender pay gap issue exists, for a company to take control of the message by detailing what new initiatives and measures it is undertaking to address the problem.
Be proactive
Guidance issued by the Government Equalities Office stresses that it not only wants to help businesses understand how to comply with the regulations, but also to offer an 'insight into the business benefits of taking effective action to address the challenges identified by analysing and reporting' on gender pay gaps.
It further recognises that a risk area for employers is the potential reputational damage that can result from significant gender pay gaps.
The other side of this coin is that a proactive approach to reporting can strengthen a firm's reputation as a fair and progressive employer. Recently, the furore at the BBC showed how anything less than transparency in gender pay gap reporting can lead to reputational harm.
Carrie Gracie, the organisation's China editor, resigned, blaming a 'secretive and illegal pay culture', which she alleged discriminated against women.
When giving evidence to a Commons Select Committee, she offered a useful takeaway for any corporate worried about publishing its figures: 'We cannot operate without the truth. If we are not prepared to look at ourselves honestly, how can we be trusted to look at anything else in our reporting honestly?'
Although there are unavoidable costs – both time and money – in complying with the new reporting obligations, it is an opportunity for companies to exercise and demonstrate good corporate accountability.
A proactive approach to reporting and implementing a progressive action plan to identify and address any pay gap issues is one of the clearest expressions of good corporate governance and good corporate citizenship. This is crucial in an environment where attracting the most talented is increasingly competitive.
Although an employer must report by 4 April, it also has complete flexibility over when to publish its data prior to this date.
This presents an opportunity for employers to publish data at a time of their choosing and, where significant pay gaps exist, to address any potential reputational issues – for instance, by publishing data alongside an action plan of initiatives and policy implementation for the year ahead.
An action plan will also be a chance to show senior management's desire to address any pay gap issues, together with the written statement accompanying the report signed by an appropriate person, usually a director or chief executive.
Sanctions for non-compliance
Although the regulations do not specify sanctions for non-compliance, it would be an 'unlawful act' within the meaning of section 34 of the Equality Act 2006.
This provision empowers the Equality and Human Rights Commission (EHRC) to take enforcement action against an employer. This could include opening an investigation into a non-compliant employer, and result in an unlawful act notice being served requiring an employer to produce an action plan.
Many employers will be asking whether enforcement action will be taken against them. In requiring gender pay gap reports to be published both on the employer's website and on a government website, the government has signalled that it will be monitoring non-compliance.
We can only take from this that, if there are a significant number of companies who do not report, the government will move to introduce additional sanctions and a stronger enforcement mechanism.
We can also look to what the EHRC itself has said. In December 2017, it published a report on 'Closing the gap, enforcing the gender pay gap regulations'.
In this report, the EHRC signalled that it would use social media to publish figures in relation to non-compliance, regularly updating its figures throughout the year to 'demonstrate the effectiveness' of its enforcement activity.
The commission has also indicated that its main focus will be those employers who do not publish figures at all, with attention only turning to employers who post inaccurate data if it has the resources and capacity to do so.
Depending on the scale of non-compliance, the EHRC has suggested it may also take a 'staged approach to enforcement', meaning that it will identify the industries with the highest incidence of non-compliance.
Although there is a risk of enforcement action, perhaps the greatest danger of non-compliance – or inaction on a significant gender pay gap – is reputational damage.
There is the risk of government league tables naming and shaming employers who do not report, but there is also an internal risk that inaction on gender pay gaps could lead to high profile naming and shaming by employees themselves – as illustrated by the BBC's case.
Plan of action
The government's guidance sets out five steps for employers to take:
- Extract the data you need
- Complete the calculations
- Prepare the narrative to provide context
- Publish your report
- Implement your action plan.
It is step five that will perhaps require the most attention and focus, as effective gender pay monitoring becomes a permanent feature in an employer's compliance controls.
Any action plan should have, as a minimum, a focus on three key areas: investigation, senior management engagement, and training and communication.
Investigation
If a company has a gender pay gap issue, it will need to investigate what may be contributory factors to inform its action plan. This may include identifying policies and practices related to staff, particularly in relation to recruitment and people development, which should be introduced or updated.
Senior management engagement
Engagement with the new reporting obligations should take a top-down approach, as this will help communicate to both employees and external parties how seriously a company takes the issue of gender pay gaps.
Training and communication
Alongside this, training should be provided to employees in relation to any new policies and procedures introduced to target gender pay gap issues.
However, senior management should also receive awareness training around the mechanisms which exist under the Equality Act 2010 to take action on gender pay gap issues, including, where appropriate, positive action.
Chris Hitchins is a partner in the employment law and litigation team; and Jason Williamson is an associate in the white collar, investigations and compliance practice; both at Katten Muchin Rosenman
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
