Room for improvement: BEIS reviews Gender Pay Gap reporting
Daphne Romney QC
The House of Commons’ Business, Energy and Industry Strategy Committee (BEIS) issued a report on 2 August 2018 making wide-ranging recommendations about gender pay gap reporting. Daphne Romney QC, an expert on equal pay matters, considers their conclusions in this blog.
Introduction
The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (applicable to the private sector) and The Equality Act 2010 (Specific Duties and Public Authorities) Regulations 2017 (applicable to the public sector), regulate gender pay gap reporting for employers with more than 250 employees. They came into force last year; 4 April 2018 and 30 March 2018 were the first deadlines for private and public sector employers to report their figures for the years ending 31 March 2017 and 5 April 2017 respectively.
It is important to bear in mind that the two sets of Regulations apply to only 56% of employees nationally because the threshold for both public and private sector employers is only 250 employees.
The 2018 returns showed that 78% of employers showed a gender pay gap in favour of men, with only 14% of employers showing a corresponding gap in favour of women. 8% of employers reported no gender pay gap at all. 13% of employers had a gender pay gap in favour of men of more than 30%.In August 2018, the House of Commons’ Business, Energy and Industrial Strategy Committee issued its assessment of the gender pay gap and how it is reported. It made a number of recommendations for changes to reporting procedures, all of which have already been rejected by the Government during the course of public consultations in 2015 and 2016. It therefore remains to be seen whether any of them will be acted upon in the near future.
Guidance for employers
The BEIS noted that some employers had either had difficulty in returning accurate information or had devoted insufficient resources to the process. A number of employers had to withdraw their figures and re-submit them after media reports, particularly the FT and the Times, highlighted their statistical improbability, and there was evidence that some employers simply did not understand how to carry out the calculations or who should be included and excluded from their ambit. The Committee recommended that [1]‘…the Government works with the Equalities and Human Rights Commission, business groups and other stakeholders to clarify outstanding areas of ambiguity and to publish revised guidance accordingly. We also recommend that the Government reviews the gender pay gap reporting requirements with a view to aligning them with other business reporting requirements from next year’.
The threshold
The threshold of 250 employees was always controversial. First, as regards the public sector, the number is higher than the figure of 150 employees triggering the Public Sector Equality Duty in the Equality Act. [2] Second, the government’s figures show that 99 per cent of private sector employers are micro- businesses, small, and medium-sized enterprises known as ‘SMEs’. The UK defines an SME as a business with fewer than 250 employees and a micro-business as one with up to nine employees. Government figures [3] show that five million SMEs employ over fourteen million employees and of those SMEs, the vast majority were micro-businesses. Given that the threshold therefore excludes almost half the working population, the BEIS recommended that the reporting limit should be reduced to fifty employees from 2019. [4] It is unlikely that the Government will accept this suggestion because it always maintained that this would impose too onerous an administrative burden on smaller employers.
Partners
Equity partners are excluded from the definition of employee in the private sector Regulations on the basis that they do not receive a wage but instead a share of the profits. [5] (Salaried partners are to be treated as employees for the purposes of the returns). The BEIS recommended that equity partners should be included in the figures, [6] pointing out that including partners made a substantial difference to the gender pay gap. In PwC, the mean figure was 12% excluding partners and 33% including them. In Slaughter and May, the gap including partners, was 41.6 %. [7] The committee recommended that partners should be included in the 2019 returns and that the Government should issue guidance on how to calculate partner pay. [8]
Full-time and part-time employees
In its response to the consultation on the private sector Regulations, Mandatory Gender Pay Reporting [9], the Government rejected proposals to compare full-time and part-time hourly rates on the grounds that workforce demographics vary between different employers and sectors and so the results would be unreliable. [10] The BEIS recommended that information should be given both for full-time and for part-time jobs in order to compare the gender pay gap between the two. [11] This should include not just the mean and median hourly rates but also bonus, which should be calculated on a pro rata basis. [12]
Quartiles
At present, information about the proportions of men’s and women’s hourly rate is divided into quartiles. The problem with this is that the larger the employer, the less meaning the figures have – for example, in a company with 84,939 employees like Marks & Spencer, quartiles are unhelpful. During the consultation process, the Government resisted reducing the quartiles into deciles or even centiles on the grounds that it could breach confidentiality. The BEIS recommended that quartiles should be replaced by deciles. [13] It is worth pointing out, however, that the main problem with quartiles, deciles or centiles is that without the actual figures framing the brackets, they do not help the employee to see the bracket into which he or she falls.
Action plans
Unlike many other countries (and unlike the forthcoming gender pay gap regulations to be made under the Northern Ireland (Employment Act) 2016), [14] neither set of Regulations contain a requirement for employers to make an action plan. As it is, the absence of an action plan means that there is no obligation on an employer actually to tackle any gender pay gaps disclosed by the returns, leaving the main pressure to be exerted by employees and by the media. The BEIS recommended that action plans should be made mandatory and that any‘…subsequent report should report progress against this action plan, including targets set. The Equalities and Human Rights Commission and Government Equalities Office should work with stakeholders on developing suitable guidance as to content’. [15]This question will become more interesting as the second set of figures are published to be compared with this year’s figures, which will show whether employers have done anything about last year’s gap.
Voluntary narratives
Equally, there is currently no requirement for employers to explain their figures. The Government has said that such a narrative was ‘strongly encouraged’, although it declined to make it compulsory on the grounds that it would be ‘overly burdensome’ [16]. The GEO/ACAS Guide also advises that all employers should add a supporting narrative. [17] The BEIS recommended that these too should be made mandatory, [18] noting that only one third of employers had provided a voluntary narrative in 2018 and that their quality was ‘very variable’. [19] It is certainly the case that these narratives would allow employees better to understand the employer’s case on the reason why the pay differential exists.
Enforcement
Section 78 of the Equality Act gave the Secretary of State the power to provide for fines in the event of a default in returning figures, but neither set of Regulations includes this power. The Government said that it would review the position in due course. The EHRC, which initially thought it did not have the power to enforce compliance has since changed its mind, but s. 78 does not impose direct duties on employers — it only enables the Secretary of State to make regulations to impose duties on employers, and those regulations do not contain any penalties for non-compliance. At some stage, this point will have to be decided in the courts. The BEIS report has recognised this uncertainty and has called for the Government to provide for specific fines in the Regulations, noting that the uncertainty could lead to employers not taking their obligations (and the resulting consequences of not meeting those obligations properly) seriously. [20] However, this is not in fact pressing, given that the EHRC has said that there was (eventually) a 100% compliance in 2018 with over 10,000 employers reporting their figures and some others doing so on a purely voluntary basis.
BEIS report para. 9.
In Scotland, the limit for gender pay gap in the public sector has been reduced to 20 employees
Small Businesses and the UK Economy, December 2014 (Matthew Ward and Chris Rhodes).
BEIS Report August 2018 para. 38.
Reg. 1(4). Reg. 1(5) extends the definition to LLP members.
Gender pay gap reporting House of Commons Business, Energy and Industrial Strategy Committee (BEIS) Report August 2 2018 HC 928 para. 39.
Ibid para. 41.
Ibid para. 43.
Mandatory Gender Pay Reporting—Government Response, December 2016
Ibid page 24.
BEIS Report para. 34.
Ibid 36.
Ibid para. 32.
This is not yet in force as there is currently no government in the Province
BEIS Report para. 12.
Closing the Gender Pay Gap—Government Response, February 2016, page 20
Managing Gender Pay Reporting Government Response, December 2016, page 31.
BEIS Report para. 12.
Ibid para. 11.
BEIS Report para. 12.