Gender pay gap reporting deadline: Q&A on requirements and emerging market practice

Gender pay gap reporting deadline: Q&A on requirements and emerging market practice
Corporate analysis: With the deadline of 5 April 2018 approaching for companies to submit gender pay gap information, here’s a recap of what’s required, and a summary of the market practice we have observed so far.

What’s required?

On 6 April 2017, the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, SI 2017/172 (the Regulations) came into force. The Regulations require employers with 250 or more employees to publish information on the gender pay gap in their organisation within one year, and on an ongoing basis for each subsequent year.

Under the Regulations, relevant employers are required to publish information on:

  • the differences between mean and median hourly rates of pay and bonus pay of male and female full-pay relevant employees
  • the proportions of male and female relevant employees who were paid bonus pay
  • the differences between mean and median bonus rates of pay of male and female full-pay relevant employees, and
  • the proportions of male and female relevant employees in lower, lower middle, upper middle and upper quartile pay bands

This information must be published on the employer’s website for a period of at least three years, beginning with the date of publication, in a manner that is accessible to all its employees and to the wider public.

The details must be accompanied by a signed, written statement confirming its accuracy.

When is the deadline?

The first one-year deadline is fast-approaching for companies and charities, who must comply with the Regulations by 5 April 2018. Public sector bodies have an earlier deadline of 31 March 2018.

What are the consequences for not complying?

Failure to comply with an obligation imposed by the Regulations constitutes an ‘unlawful act’ within the meaning of section 34 of the Equality Act 2006 (EqA 2006), which empowers the Equality and Human Rights Commission (EHRC) to take enforcement action.

The EHRC has stated in consultation documents that it will take a regulatory role; in the first instance, it will seek to resolve non-compliance through informal resolution. From 2018/19, enforcement work will be focused on employers who do not publish the required information. Where inaccurate data is published, action will only be taken by the EHRC where it is considered necessary, proportionate and feasible to do so.

Controversially, there are no punitive or criminal consequences for failing to comply with the Regulations, but with gender pay and diversity in the workplace being a focus of attention for corporate governance reform and the wider media, companies ignoring the requirements would risk significant negative publicity.

For full details on the background to the Regulations and the full reporting requirements, see Practice Note: Gender pay gap reporting

What market practice is emerging?

Gender pay gap information in the annual report

In our Market Tracker AGM season 2017 report, published in November, we observed that many companies have started to include gender pay gap information within their annual report, despite the fact they are not required to do so.

In fact, nearly 11% of the 204 FTSE 350 companies surveyed included details on gender pay gap within their annual report. The level of the disclosure was variable, with some companies merely stating where the gender pay gap information can be found on their website, and others providing a more substantial amount of gender pay gap information in the annual report itself.

Explaining the gender pay gap

The Regulations do not require employers to provide additional narrative to give context to the figures, explain any pay gaps or set out what actions for improvement it is going to take. However, such narrative may be provided on a voluntary basis and the provision of this information is strongly encouraged.

We have observed an interesting variety of explanations for companies’ gender pay gap ratios so far.

Tesco plc explained that its gender pay gap is predominantly due to ‘personal choices our colleagues make around their working patterns’. For example, more male Tesco colleagues choose to work premium hours (Sundays, Bank Holidays and night-working). If these payments are removed from the calculation, Tesco’s median pay gap figure is significantly reduced.

Tesco also attributes its gender pay gap to the ‘vertical segregation’ between male and female employees; more male than female employees may be found in roles of seniority within the company, which are higher paid than lower ranking roles. EasyJet plc provided a similar explanation as Tesco for the significant gender pay gap of 35% provided in its 2017 annual report. When comparing the nature of roles undertaken by employees of each gender, EasyJet found that pilots are predominantly male, and their salaries are significantly higher than the mostly female cabin crew.

Both companies suggested that salaries for equivalent roles within their organisations are broadly equal across the genders. However, despite presenting gender pay gap figures below the national average, it was announced on 7 February 2018 that Tesco is facing a potential equal pay claim that up to 200,000 female store employees earn less per hour than their male colleagues for comparable work. Reports suggest a 28% gender pay gap for the store employees affected, which is far higher than Tesco’s reported overall mean pay gap of 14% and median pay gap of 8.6%. The resulting media interest in this case and gender pay in general suggests that companies will find themselves under increased pressure to provide context to the information they publish in compliance with the Regulations.

In late January 2018, Easyjet's male chief executive announced that he would be taking a salary reduction to match the salary of his female predecessor. The company accredited his actions to his personal commitment to equal pay. Although this may not impact the wider gender pay gap within Easyjet, it is a significant step in addressing gender imbalance within the organisation.

Looking ahead

The objective of the Regulations is to narrow the gap between male and female pay. It will be interesting to observe whether the new requirements make any immediate impact, or whether it will take several years to start to see a narrowing pay-gap.

We will continue to monitor this, together with market practice on the type and depth of voluntary explanations being made, across the FTSE 350 in relation to gender pay gap reporting.

We expect there will be a flurry of activity from companies to comply before the deadline in April, and that there will be rapid improvements in the depth and quality of voluntary explanations given by companies due to the recent developments at Tesco and general media interest in the subject of gender pay.

We will also review to what extent companies voluntarily include gender pay information in their annual report and will report back on this as part of our Market Tracker AGM season 2018 report, to be published in November 2018.

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