Gender, ethnicity, and executive pay gaps and gender pay gap reporting

The 2015 Small Business, Enterprise and Employment Act (SBEEA) amended The Equality Act 2010 to require employers with 250 or more employees (in the private or third sector) to publish details of their gender pay gap. 

At the moment this only applies in England, Scotland and Wales; it was meant to be implemented in Northern Ireland from June 2017 but because of the suspension of the Irish Assembly this does not yet apply there.

Public sector bodies with more than 150 employees have been required to report on gender pay (as well as other equality data) since April 2011.

The final draft of the regulations was published on 6th December 2016 and came into force on 6th April 2017. Government guidance can be found here.

This article covers:

• What mandatory gender pay reporting means
• Pay Ratio - New reporting requirements
• Mandatory Ethnicity Pay Reporting Consultation
• Equal Pay
• Pay secrecy

What the new gender pay reporting will mean:

• All private and voluntary sector employers in England, Wales and Scotland will be required to publish this information if they have 250 or more ‘relevant employees’ – this broad definition could cover employees, apprenticeships and potentially workers/freelancers/contractors with a personal contract. Partners (including LLP members) are excluded
• The regulations require a preliminary ‘snapshot’ of data at 5th April 2017 to be made by the employer to ensure they can fulfil their reporting obligations (this will be called the ‘snapshot date’, and will need to be the same date each year)
• The detailed pay gap information must be calculated and published by April 2018 at the latest (the employer can choose the date)
• Annual reporting will then be required.  In 2020, gender pay gap reports are due by 4th April (covering pay gap data for the ‘snapshot’ date of 5th April 2019).  However, on 24th March 2020, the government and the EHRC took the decision to suspend enforcement of the gender pay gap reporting deadlines for 2020 due to the coronavirus pandemic, and there is now no requirement to report these figures at all. In 2021, the government announced that due to the continuing impact of the coronavirus pandemic, the gender pay gap reporting deadline for the 2020/21 reporting period will be extended by six months to 5 October 2021.
• Employers may publish the ‘mean’ and ‘median’ gender pay gap, using an hourly pay rate for men and women (so the information isn’t distorted by the number of hours worked)
• “Ordinary Pay” will include basic pay, paid leave, maternity pay, sick pay, allowances, shift pay, bonuses and other pay (e.g. car allowances paid through the payroll). It won’t include overtime, expenses, the value of salary sacrifice schemes and any benefits in kind or redundancy pay. Pay is to be calculated gross
• The hourly rate to be used will be the employee’s pay period within which 30^th April 2017 falls (the pay period is a week or a month, depending on how often employees normally get paid)
• Employers who operate bonus schemes will have a separate requirement to publish the difference between the mean and the median bonus payments made to men and women over a period of 12 months. Employers also need to publish the proportion of male and female employees receiving a bonus. ‘Bonus’ has a wide definition and includes commission
• Employers will also need to report on the number of men and women in each quartile of their pay distribution. The regulations clarify what a ‘quartile’ is – the workforce should be split into four equal-sized groups from the lowest to the highest paid, organised by hourly rate
• Employers may (voluntarily) publish a narrative to accompany the pay gap information, to explain any pay gaps and the context, and what actions will be taken
• The information must be published on a UK website that is accessible to employees and the public. The information must be maintained for at least three years from its publishing date in order to allow tracking of their progress
• The information must also be uploaded to a government website which will be used to prepare and publish information showing pay gaps within particular sectors (the website was finally launched at the end of June 2017 and is available here)
• A Director of the company (or equivalent) must sign and confirm that the information is accurate
• Currently, no civil penalties for non-compliance are planned; the government plans to ‘name and shame’ non-compliant employers.

The government have said that they will review the position after five years to determine whether other Employers should be bought in scope of the regulations.

At the end of 2017, the Equality and Human Rights Commission (EHRC) proposed a draft plan for enforcement action of the Gender Pay Gap Information Regulations.

In 2018, the EHRC identified what they described as “potentially inaccurate figures” submitted by employers. In a statement, they asked employers to correct or justify the data or risk being taken to court.

Pay Ratio – New Reporting Requirements

In June 2018, the government issued draft legislation that requires UK listed companies with more than 250 employees to publish and justify the pay difference between their Chief Executive and their average UK worker’s salary on an annual basis.

The gap between this pay will be called the pay ratio. These new requirements were given parliamentary approval, so the requirement to publish this pay ratio began on 1^st January 2019, and companies will need to report their ratios in 2020.

Businesses will also need to explain how their directors’ actions reflect the interests of their shareholders and employees, what responsible business arrangements they have undertaken and what effect a share price rise could have on executive pay. 

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Mandatory Ethnicity Pay Reporting Consultation

In October 2018, the government started a consultation asking employers to contribute their views on mandatory ethnicity pay reporting. In brief, the options proposed are:

• One pay gap figure comparing average hourly earnings of ethnic minority employees as a percentage of white employees, or
• Several pay gap figures for different ethnic groups, or
• Ethnicity pay information by £20,000 pay bands, or
• Ethnicity pay information by pay quartile.

The Consultation also asks what employers should be expected to publish this data – all employers, those with 50+ employees, those with 250+ employees, those with 500+ employees, or another threshold.

The Consultation closed on 11th January 2019, but until April 2021 this was not heard of again.  And then the Commission on Race and Ethnic Disparities published a report to say that legislation should not be necessary and ethnicity pay gay reporting should be voluntary.  In March 2022 the Government published a policy paper on the Commissions report, which says that they will publish guidance to Employers on voluntary ethnicity pay reporting in summer 2022. Mandatory reporting will not be required.  Finally, in April 2023 the Government have produced guidance on voluntary ethnicity pay reporting which you can see here.

Equal Pay

Employers may be concerned that this information may be used for equal pay claims against them. It is more usual at the moment for Equal Pay claims to be concentrated in the public sector. However, these changes may mean more claims in the private sector.

Currently, the Equality Act 2010 the previous legal framework that was in place for Equal Pay, which means that in most circumstances a challenge to pay inequality and other contractual terms and conditions still has to be made by comparison with a real person of the opposite sex in the same employment (doing “like” work, “work related as equivalent” or “work of an equal value” to an employee of the opposite sex employed by the same employer or possibly an associated employer).

However, a change in the Equality Act 2010 allowed a claim of direct pay discrimination to be made, where no real person comparator can be found. This means that a claimant who can show evidence that they’d have received better remuneration from their employer if they were of a different sex may have a claim, even if there’s no-one of the opposite sex doing equal work in the organisation. This would be a claim under sex discrimination.

A ruling by the Supreme Court at the end of June 2013 effectively handed women the legal right to demand the same pay as male colleagues doing a different job of ‘equal value’.

It’s also worth being aware that in 2012, a landmark Equal Pay case delivered the verdict that workers now have six years (five years in Scotland) to make an equal pay claim in the High Court (rather than six months to an Employment Tribunal).

Pay secrecy

The Equality Act 2010 also made it unlawful for an employer to prevent or restrict their employees from having a discussion to establish if differences in pay exist that are related to protected characteristics (in the Equality Act). The Act also outlaws pay secrecy clauses in contracts of employment.

An employer can currently require their employees to keep pay rates confidential from some people outside the workplace, such as a competitor organisation.

Will this have to change in light of the new reporting requirements? We’ll keep you updated!