By 5 April 2018, all UK organisations with 250 or more employees will be legally required to have published specific information about their gender pay position. This includes details of mean and median gender pay and bonus gaps, as well as a gender breakdown of highest to lowest earners and bonus recipients.
However, only approximately 300 of the estimated 9,000 employers required to disclose have published their gender pay details so far. This limited compliance to date has been cause for concern for the Government and Equalities Office and suggests that non-disclosure could be a major issue come April 2018. Although the gender pay reporting regulations do not impose a penalty for non-compliance, employers should be aware that an omission to disclose could still result in enforcement action by the Equality and Human Rights Commission. This could include investigation, issuance of an unlawful act notice and an order to produce an action plan.
But compliant employers will not be able to rest on their laurels, as there are also significant legal risks associated with disclosure. Crucially, simply calculating the six high level metrics required to be published will not provide organisations with meaningful insight as to underlying pay and diversity issues. Without a detailed accompanying narrative, the published figures could be misleading at best, and potentially very damaging at worst. Indeed, if employers are not able to identify and explain the contributing factors of their gender pay gaps, there is a real risk that disclosure could prompt legal challenge on equal pay grounds.
Additionally, there are well-founded concerns about the major reputational damage that publication of an organisation’s gender pay position could cause. With equality and diversity taking such a prominent place on the national agenda, employers with significant pay gaps could see their employee recruitment and retention severely impacted if they aren’t able to explain the actions they’re taking to address their gap. In addition, we may start to see gender pay becoming a deciding factor in external processes such as procurement, in much the same way as modern slavery. Therefore, an employer which fails to clearly set out its proposals for addressing and improving its gender pay position will likely be subject to scrutiny and criticism, from employees and other stakeholders, as well as the wider public.
Given the significant legal and reputational exposure associated with the new gender pay reporting requirements, I’ve been advising my clients to first and foremost get to grips with what is driving their discloseable gender pay figures. As well as calculating the six key metrics in accordance with legal requirements, I’ve been helping organisations to understand the contributing factors to these and develop action plans to address them.
As a starting point, the distinction between 'demographic' factors - i.e. those caused by gender representation across the grades, and 'non-demographic' factors - i.e. gender pay differences between comparable employees, is crucial. By understanding this breakdown, organisations will then be able to explain and address their gender pay gaps much more effectively.
Demographic gaps are typically caused by an overrepresentation of male employees in senior highly paid roles, which has the impact of increasing the average male salary across a business. As part of an informed action plan, employers should therefore be identifying diversity challenges and finding ways of breaking down barriers to female recruitment, retention and promotion. By taking steps to equalise gender representation across the levels of seniority, organisations will start to see significant reductions in their gender pay gaps.
In contrast, non-demographic gaps relate to employees performing comparable work. When analysing their gender pay position ahead of disclosing, it is likely that a number of organisations have identified equal pay issues among employees. These could be due to a whole host of reasons, which may include historic and inherited pay issues which continue to impact employees’ current reward levels. If pay disparities between these employees are not justifiable (for example, on the basis of relative performance or time in role), they will be in breach of equal pay laws. Employers should therefore ensure that any action plan includes steps to identify and remediate non-demographic gaps as a priority.
Mandatory gender pay reporting is therefore only the tip of the iceberg when it comes to organisations understanding and addressing their pay and diversity challenges. Treating the disclosure requirements as a mere tick box exercise will mean that employers miss a key opportunity to gain insight into their gender pay position, whilst exposing themselves to significant legal and reputational risks. I’d therefore strongly recommend that businesses proactively engage with their gender pay analysis in order to uncover areas of exposure and develop a robust action plan to address these.
Ed Stacey is head of legal services and employment law at PwC