Gender pay gap reporting: the draft legislation examined

Author: Darren Newman

Consultant editor Darren Newman examines the recently published draft gender pay gap reporting legislation.

The measures on gender pay gap reporting announced this month have not sprung from nowhere. The power to make regulations requiring the publication of information on the pay of men and women is set out in s.78 of the Equality Act 2010. The Coalition Government chose not to activate this power and instead launched a voluntary initiative, "Think, Act, Report". Some 300 employers signed up to this, but only seven chose to disclose details of their gender pay gap. The Conservative Government now says that it has decided to "build on the progress made by the voluntary approach" by introducing regulations under s.78.

It was nudged in this direction by an amendment to the Small Business, Enterprise and Employment Act 2015 requiring regulations to be made under s.78 within 12 months of the Act receiving Royal Assent. The Government is therefore legally obliged to introduce regulations by the end of March this year. Or at least it would be were it not for the fact that the relevant provision of the 2015 Act has not actually been brought into force yet, and neither has s.78 of the Equality Act. We can therefore assume that at least one new commencement order is on its way.

In any event, the 2015 Act dictates only when the regulations should be made and not when the gender pay gap information should be published. Employers will therefore be given a reasonable amount of time to get used to the idea of publishing information about their gender pay gap.

The key date is 30 April 2017. It is the amount that employees are being paid on this date - and each anniversary of this date - that must form the basis of the information published by employers. However, in relation to the amount of bonus pay that men and women receive, employers need to look at the 12 months leading up to 30 April 2017. So, although the information itself does not need to be published until the end of April 2018, it will relate to bonus payments made as early as 30 April 2016.

Whenever new regulations are introduced, employment lawyers are in the habit of scanning them carefully to spot any ambiguities or loopholes. In the case of the draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2016 there appear to be several. For example, employers have to work out the pay of male and female "employees" - but what is the definition of an employee? The Regulations seem to assume it is an individual with a contract of employment, but the Equality Act usually takes a wider view, encompassing those who, in other contexts, are called "workers". What about freelancers and independent contractors and agency workers? It is not clear exactly whose pay has to be taken into account.

There is also the issue of employers whose headcount fluctuates throughout the year. The Regulations apply only to employers with 250 or more employees on 30 April each year. What is more - because the required information relates only to those employed on that date and its subsequent anniversaries - any employees who are taken on for a busy summer or Christmas season will be ignored.

As for the information itself, an employer is not obliged to disclose any actual pay figures, but just the extent of the differences in the average and median pay (and bonuses) of men and women expressed as a percentage, together with the spread of men and women across the four quartiles of the overall pay range. Nevertheless, the figures must be calculated on the basis of each employee's "gross hourly rate of pay", which is arrived at by taking the employee's weekly pay and dividing this by the "weekly basic paid hours" for each employee. The possibility that some employees will not have regular weekly hours is simply not countenanced. It is also worth noting that all payments in respect of overtime are excluded from the definition of pay, as is the value of any salary sacrifice scheme. It is not that these details are problematic in themselves, but this may not reflect how employers currently process information about the pay of the men and women whom they employ. Adjusting payroll data to match the particular methodology set out in the Regulations could be quite a burdensome exercise.

Indeed, if the Regulations created meaningful legal obligations, complying with them would be a daunting and complex task fraught with uncertainty. However, because they do not come with any sanctions or remedies attached, in reality they do not require strict compliance. Section 78 of the Equality Act allows the Regulations to make it an offence not to publish the required information, or to impose a civil penalty for non-compliance. However, the Government has decided not to follow either route and has opted simply to monitor how many employers choose to comply. There is no formal enforcement mechanism at all.

Of course, any large employer that simply refuses to take part will face a fair amount of public embarrassment and may even be named and shamed by the Government. However, provided that an employer puts forward a set of figures that a director is happy to sign off as accurate, there is no way for anyone to check compliance with the letter of the Regulations, or even if the figures are correct. Companies do not have to show their working out or provide any evidence beyond the specific and limited information that they are required to publish.

The fact is, though, that most large employers will certainly make a reasonable effort to determine the correct figures and publish them accordingly. As a result, we will have better information about the relative pay of just over 11 million men and women, representing about one-third of the workforce.

This is useful but limited. The Regulations do not apply to the public sector, for example. Rather strangely there is nothing in the Regulations themselves to indicate this, but s.78 specifically excludes the public sector, so the Regulations must also. Nevertheless the Government has indicated that it intends to impose similar obligations on public-sector organisations, presumably by exercising the powers that it already has under the Equality Act to place specific duties on the public sector aimed at promoting equality. Subject as they are to Freedom of Information Act requests and judicial review, public-sector organisations will have to take considerably more care in complying with a requirement to publish gender pay gap information than their counterparts in the private sector.

We should remember that, while the gender pay gap is not unrelated to discrimination against women, it is not the measure of it. We should resist the temptation to judge employers purely on the size of their gender pay gap, because the gap will not tell us if men and women are receiving equal pay for equal work. Nevertheless, the Regulations should be welcomed as a positive step in a wider campaign for equal pay, so perhaps we should not worry too much about the small print.